“Your Horses Seem to be Winning”: The European Commission’s Antitrust Case Against Google Matters to Artists and Songwriters

Both the European Commission, the U.S. Federal Trade Commission and the U.S. Senate Antitrust Subcommittee are working at bringing an antitrust complaint against Google for a variety of reasons.  The EC and the FTC are pursuing both similar but different rationales due to differences in the antitrust laws of Europe and the United States.  Antitrust is a complex body of law, but is designed to both promote competition in the market and also to punish firms that abuse their dominant or monopoly positions.

For artists, these cases are important because the central theme boils down to this:  If Google just offered search and sold its Adwords and Adsense products, the fact that the company had achieved at least a dominant position if not a monopoly over search on the Internet would not necessarily be bad.  It’s not illegal to be a monopolist.

The harm comes with the almost inevitable hubris accompanying a monopoly position and the abuse of that monopoly position in one business line (or “vertical”) to extend the monopoly into other verticals.  This is particularly true when the monopoly profits from one vertical are used by the monopolist to subsidize another firm wholly owned by the monopolist that extends the monopoly to another vertical.

For artists, this can be summarized as YouTube.

Notice and Shakedown on the Potomac

Google paid a billion dollar premium for YouTube in 2006 at a time that the evidence in the Viacom case clearly demonstrates that YouTube was trafficking in stolen copyrights, trading on artists’ rights of publicity and trademarks of various persons, all without permission.  The question of what that billion dollars was for and how hard artists and songwriters got screwed will be tried in the Viacom case and YouTube class action.

We know that YouTube sucks down a huge amount of bandwidth and energy, and has for a very long time.  According to the New York Times:

Every time a person runs a Google search, watches a YouTube video or sends a message through Gmail, the company’s data centers full of computers use electricity. Those data centers around the world continuously draw almost 260 million watts — about a quarter of the output of a nuclear power plant.

So if you are going to compete with YouTube–after YouTube has been subsidized by Google for six years–then your startup costs have to include building these kinds of vast data centers that Google maintains in Senator Ron Wyden’s home state (see the excellent Harper s article, “Keyword: Evil” about Google’s Oregon data center that can light up a city the size of Tacoma).

Is that realistic?  No.

And then there is the question of how Google ranks YouTube videos in search results.  We began noticing in 2007 that a search for the Billboard Top 50 in Google returned video search results in the first page–usually the top 3.  With no other videos.

Google Might Be Doping the Horses

How likely is that to happen all by itself?  Senators Blumenthal and Franken summed it up at the recent U.S. Senate Antitrust Subcommittee hearing:

Senator Richard Blumenthal from Connecticut [told Google’s Eric Schmidt:] “You run the racetrack, own the racetrack, you didn’t have horses for a while but now you do and your horses seem to be winning.” To which his colleague from Minnesota, Al Franken, joked: “Google might be doping the horses.”

When you consider that a senior Google executive acknowledges hardwiring Google products ahead of their competitors in search results, it should come as no surprise that Google would hardwire YouTube in Google search results.  There are also a number of other techniques they could be using under the hood to slow down competitors in search to favor both the Google service and Google’s advertising sales.

So you can see that when it comes to YouTube, there are tremendous competitive pressures at work.  You have to ask why?  What is so important about capturing the online video vertical with YouTube, a company that has routinely lost what must be closing in on a billion dollars–that’s in addition to the purchase price premium and liability for an adverse copyright judgement in the Viacom case, not to mention the class action.  The leader of the class action is the UK’s Premier League, which would be like saying there was a class action with the NBA as the lead plaintiff.  (And don’t rule that out, by the way.)  If Viacom continues to be victorious  in the case and gets their billion dollar award, you could easily see several name plaintiffs getting comparable awards.

So why is YouTube worth all this risk?  There must be an answer–I think it’s because the “video” vertical that Google is really after is replacing broadcast television by means of Android enabled TVs delivered straight to the home.  That video might be worth the risk.

Particularly if it could be accomplished without an FCC license or being subject to the payola rules.

Songwriters Holding Their Tunes in their Hands

Against this multibillion dollar, hundred million megawatt, hijacking of TV by stealing TV–is the individual songwriter.  How much do you really think YouTube cares about songwriters given the monopolist hubris at work in all of these various deals?

The answer is–not at all.  Songwriters have virtually no chance at negotiating the deals that the copyright law guarantees them because they are up against not only hubris in negotiations–here’s your deal, take this or sue us which we know you can’t afford to do–but they are also up against hubris in DMCA practice or what is known as the “notice and shakedown.”    YouTube will tell songwriters that they have to catch YouTube in the act, send them a notice and only then will YouTube take down the video, after putting up a cutesy message slamming the copyright owner.  Content ID works poorly and is easily defeated because it was never designed to work, just to be a fig leaf.

So it is for all these reasons that artists and songwriters, especially independent artists and songwriters, have every reason to support antitrust regulators who are ultimately acting to promote competition, even if it means breaking up Google or at least forcing a sale of the YouTube asset.  Which would be interesting, because who would subsidize YouTube on a go-forward basis who did not have Google’s monopoly profits and future designs on the television industry?

Notice and Shakedown Goes to Brussels

So Google is now locked in a hemispheric death struggle with the European Commission and the United States, those pesky nation states that just get in the way.  Or at least their laws do.

As Senators Kohl and Lee said in a public statement:

“We are pleased that the EU is working with Google to develop a set of voluntary solutions to the search engine’s problematic practices, including those that we identified at our September 2011 hearing.  We are hopeful that Google will be a willing partner with the EU’s Competition Commissioner.   We continue to urge the FTC to investigate the concerns we raised at our hearing and to ensure a competitive search market where consumers can fairly pick the winners and losers in our online economy.”

And Google’s reaction to the EU?  See you in court.  Of course, that’s the essence of the notice and shakedown.  The question is, can Google not only do it to songwriters, but also to the two largest economic areas in the world?