The end of the beginning: the CMA’s conclusions on Online Platforms and Digital Advertising

United Kingdom

The Competition & Markets Authority (“CMA”) last week released its final report outlining its findings in its Online Platforms and Digital Advertising Market Study. The CMA found that competition is not working well in these markets and as a result the CMA has recommended that the Government passes legislation to establish a new pro-competitive regulatory regime.

The 437-page report addresses in significant detail the complex digital advertising ecosystem and the way in which consumers interact with the online platforms. It addresses both competition issues, principally whether platforms have market power in consumer facing markets and whether competition in digital advertising is distorted by a lack of transparency, conflicts of interest and market power, as well as consumer issues in the context of the use and control of consumers’ data.

The CMA finds that whilst digital advertising brings hugely valuable services and content to consumers, including internet search, social media and news journalism, a lack of competition and limited choice in these markets can also cause harm by:

  • Inhibiting innovation and the development of new, valuable services for consumers.
  • Consumers paying higher prices for goods and services reflecting that whilst search and social media appear to be free to those who use them, the cost of advertising revenues is included in the cost of goods and services. The costs of digital advertising were estimated to be around £14 billion in the UK in 2019, or £500 per household.
  • Consumers receiving inadequate compensation for their attention and the use of their personal data and being less able control how their personal data is used. For example, consumers may effectively be faced with a ‘take it or leave it’ offer when it comes to signing up to a platform’s terms and conditions.
  • Leading to wider social, political and cultural harm through the decline of authoritative and reliable news media and the potential for fake news.

These findings largely echo those trailed in the CMA’s interim report, which we reported on here. However, the CMA has not proposed to make a market investigation reference and is instead proposing that the Government takes forward legislative proposals and reforms, with the CMA helping to develop these through its Digital Markets Taskforce..

Broad remedies for big platforms

The CMA concedes that its existing powers are not sufficient to address the issues identified in the report and as a result a new regulatory regime is required.

The proposed regulatory regime encompasses two broad categories of intervention:

  • A Digital Markets Unit (DMU) would be empowered to enforce a code of conduct on platforms with ‘strategic market status’ (SMS), to govern the behaviour of platforms and the sources of market power. The CMA notes that the DMU could be a new or existing institution, or even that the functions could be assigned across several bodies;
  • The DMU would also have the power to impose a range of pro-competitive interventions, on SMS platforms and potentially other providers in the future, including:
    • Data-related interventions (including consumer control over data, interoperability, data access and data separation powers);
    • Consumer choice and default interventions; and
    • Separation interventions.

The recommendations in the report itself are more detailed and will be further developed by the Digital Markets Taskforce that the CMA has set up.

Next steps

The CMA is continuing its work through the Digital Markets Taskforce which is launching call for inputs and evidence from a wide range of stakeholders to inform its work advising Government on the new pro-competition approach for digital markets. As part of this, the CMA has also launched questionnaires for businesses who sell or distribute their products and services (including apps) using UK online marketplaces or app stores.

Comment

Whilst the publication of the report comes at the end of a year-long intensive review of the sector by the CMA, it marks an important stage in the CMA’s evolving thinking relating to digital issues. It can perhaps best be categorised as the end of the beginning of the CMA’s digital policy initiatives in this area.

The report is largely focused on exploring the market power of platforms and the impact of weak competition within society as a result of digital advertising being core to how consumers interface with the broader economy. But in essence, this report is a test of the current competition law framework and whether it is fit for purpose in the digital age. The CMA’s conclusion? The CMA does not have the resources to address the concerns it has identified. The CMA states in recommending a new regulatory regime to be implemented by a dedicated regulatory body, “…we have concluded that the CMA’s current tools, which allow us to enforce against individual practices and concerns, are not sufficient to protect competition. Further, the markets we have reviewed are fast-moving, and the issues arising within them are wide-ranging, complex and rapidly evolving. Tackling such issues requires an ongoing focus, and the ability to monitor and amend interventions as required”. While the CMA’s proposed interventions are largely based on proposals from the Furman Review completed in March 2019, and whose recommendations the Government agreed to take forward earlier in 2020, they do go further in certain important respects. For instance the CMA recommends that the DMU have the power to introduce greater consumer control and separation of platforms, where necessary. The CMA considers there is a ‘strong case’ for such powers. The CMA is also ‘actively considering’ possible enforcement action in the sector based on what it has seen in the study – a common outcome of market studies.

However, the report is not confined to addressing competition issues in the sector; the CMA has worked with the ICO throughout the market study to examine the use of data and privacy regulation and has made a number of recommendations in this regard, including the formation, with Ofcom, of the Digital Regulation Cooperation Forum to achieve cooperation and coordination between the three regulators in policing digital markets in the UK.

It is clear that the CMA is keen to be seen as one of the authorities leading the debate internationally; that said, international cooperation will be key for the CMA’s successful implementation of its policy recommendations. If international consensus cannot be found, the digital and online advertising sectors will face a patchwork of regulatory approaches.

In the coming weeks, we shall be publishing further articles exploring in greater details the findings and recommendations contained in this report.