The Samba of Bad Moves: Eric Schmidt changes his testimony–again.

Chairman Herb Kohl and Senator Mike Lee wrote an interesting letter to the Federal Trade Commission that called on the FTC to continue its investigation of Google with vigor after examining the issues at a hearing of the Antitrust Subcommittee (The Power of Google: Serving Consumers or Threatening Competition? Before the Subcomm.on Antitrust, Competition Policy and Consumer Rights of  S. Comm. on the Judiciary, 112th Cong., 1st  Sess. (September 21, 2011).)

Senators Kohl and Lee commended to the FTC as evidence of the need for a deep investigation into Google this exchange before their subcommittee regarding statements made by a senior Google executive in the video above (which you can watch in context):

“As discussed at our Subcommittee hearing, Marissa Mayer, Google’s Vice President of Local, Maps, and Location Services, admitted in a 2007 speech that Google did in fact preference its own websites. She acknowledged that, in the past, Google ranked links ‘based on popularity … but when we roll[ed] out Google Finance, we did put the Google link first. It seems only fair, right? We do all the work for the search page and all these other things, so we do put it first … That has actually been our policy, since then … So for Google Maps again, it’s the first link, so on and so forth. And after that it’s ranked usually by popularity.’ In response to written follow-up questions asking whether her statement was an accurate statement of Google policy, Eric Schmidt stated that ‘it is my understanding that she was referring to the placement of links within a one box … and her description was accurate.’

While the basis for Mr. Schmidt’s “understanding” is not clear, even if her statement was in fact limited to the “one box” result, this is a clear admission of preferencing Google results. As consumer surveys show that 88 percent of consumers click on one of the first three links, these statements appear significant when analyzing Google’s potentially anti-competitive practices.”

The Vanity of False Distinctions

While the parsing recantation may well be evidence of what Robert F. Kennedy referred to as “the vanity of false distinctions” (a frequent experience when dealing with Google), it came as no surprise to many in the music industry.   After hearing that statement, even the biggest Google fans in the music video professional community felt more justified in the belief that Google rigged the order of YouTube videos in Google search–indeed for many, it provided an articulation of a phenomenon they had seen many, many times–that Google search on top music videos only seemed to bring up neatly arranged YouTube videos on the first page of search results.

The same artist names and song titles in other search engines bring different results in Google search–and apparently organic rankings, not “cooked” rankings.  So this phenomenon of the uniformity of YouTube search results is limited to Google search and its YouTube subsidiary, heavily subsidized with Google’s monopoly rents from advertising. (“Google CEO: YouTube Still Isn’t Profitable”, Wall Street Journal , Sept. 9, 2010.)

As The Wall Street Journal’s Peter Kafka put it four years after Google’s 2006 acquisition of YouTube, “[D]oes anyone want to guess when, if ever, Google will tell us that YouTube is actually profitable?” Or said another way, when, if ever, Google will stop subsidizing YouTube with profits from its dominance in search?

Those with competing businesses in the online music video marketplace resigned themselves to being “disappeared” by Google to favor its own businesses, which is only compounded by Google’s Android phone.  So no one is surprised by Mayer’s confession.

Schmidt Changes His Testimony About Google’s Dominance

The Senators also noted this discrepancy:

“Google is dominant in general Internet searches, with a 65 to 70 percent market share in computer-based Internet search, and a market share of at least 95 percent for Internet searches done on mobile devices.  Indeed, in response to Senator Kohl’s question at our Subcommittee hearing to Google’s Executive Chairman Eric Schmidt as to whether Google is a monopolist in online search, he responded, ‘I would agree, Senator, that we’re in that area…’  The precise question Mr. Schmidt was asked was “do [you] recognize that … your market share constitutes monopoly … dominant firm, monopoly firm? Do you recognize you’re in that area?” Schmidt replied that he “would agree.” However, in response to written questions for the record following the hearing, Mr. Schmidt revised this answer, stating: “[i]nferring that Google is in any way ‘dominant’ in search would be incorrect(September 2011 Senate Antitrust Subcommittee Google Hearing) (response to post hearing question for the record from Sen. Richard Blumenthal to Eric Schmidt, Executive Chairman, Google, p. 2).” (emphasis mine)

Aside from recanting his sworn testimony, his “revised” answer doesn’t pass the laugh test, particularly for YouTube videos appearing in Google search.

Clapping on One and Three

It is an important Sherman Act question if Google used its profits from its dominance in search to subsidize its dominance over online video through YouTube. Google should honestly answer that question.  Maybe they did, but whether you believe that or not depends on when you thought Schmidt was telling the truth–in his testimony before the subcommittee or in his “revision”.

Google should honestly answer why it paid a billion dollar premium for YouTube—was Google’s plan to use YouTube to achieve market dominance over video search?  Not to mention Google’s willingness to subsidize YouTube’s losses for five years—a loss that must be spectacular in its energy and bandwidth use alone (“Keyword: Evil” details the backroom deal for a gigantic Google data center in Senator Wyden’s home state where Google got special terms–if you catch my drift–for power on Oregon’s Columbia River).  Dallas Mavericks’ owner Mark Cuban recently called the YouTube acquisition “crazy”—was the deal illegal because it was crazy or crazy because it was illegal?  Chairman Schmidt should know the answer, he personally championed the YouTube acquisition and billion dollar premium to his board of directors.

Google should honestly answer if it required exclusive agreements with the companies it allows to be linked to its search results for YouTube as the price of admission for those links in order to create or extend Google’s monopoly over search?  Do these agreements result in undisclosed paid search results?

And Google should honestly answer whether Google’s ownership of both the YouTube service and the means to find YouTube resulted in “hard wired” rigging of search results in a biased way.

As Senators Kohl and Lee pointed out to the Federal Trade Commission, Vice President Mayer’s public statement of Google’s policy of putting links to Google Finance and Google Maps first in search results raises significant antitrust issues–but no one in the music industry will be surprised to observe the consistent dominance of YouTube links in Google search.  To extend Senator Lee’s questioning, “cooking” YouTube search results could also raise legitimate concerns under the Federal Trade Commission Act as well as the Sherman Act.

As could YouTube’s recent acquisition of music data service Rightsflow, which could be yet another effort to extend YouTube’s monopoly over videos paid for with Google’s monopoly rents.

Chairman Kohl and his colleagues clearly get it.  But they can only do so much by themselves.