On the Spotify-Joe Rogan Deal and the Coming Death of Independent Podcasting

Spotify is trying to do to the open podcast world what Google did to publishers.


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I wrote about Joe Rogan’s exclusive deal with Spotify, which I think is very important. Here’s what else I wrote about:

  • The government just punished McKinsey.

  • Softbank collapsed. What does this mean for the tech sector?

  • Trump handed out a large contract to create a domestic industry for generic pharmaceutical chemical production.

  • Are Apple and Google blocking a major new mobile industry segment?

First some house-keeping, I was in Farhad Manjoo’s grim New York Times column, The Worst is Yet to Come. Also, Zach Carter, who is a friend, wrote a wonderful and important book called The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes. I’m going to be writing more about this book, since we’re in an era dominated by the Federal Reserve and monetary policy, and the politics trace their origin to Keynes’s philosophy about power.

And now…

Photo credit to Matthew Keefe.

The Death of Independent Podcasting: Yesterday audio streaming giant Spotify announced a deal with podcast king Joe Rogan, with the Wall Street Journal reporting that Rogan will be paid more than $100 million over several years in return for making his insanely popular show exclusive to the Spotify service. This is huge news. Investors were pleased; Spotify’s stock was up 8.42%, which is roughly $2.5 billion, or twenty five times what Rogan will be paid. (UPDATE: It was up another 7% the following day.) From the perspective of someone who appreciates independent voices and an independent press, however, I’m concerned.

Back in February, after Spotify bought the podcast production company of Bill Simmons with its bevy of popular content, I wrote up how Spotify is trying to monopolize the podcasting market.

To explain Spotify’s strategy, I analogized the current podcast market to the web in the mid-2000s. As the web used to be, today podcasting is an open market, with advertising, podcasting, and distribution mostly separated from one another. Distribution happens through an open standard called RSS, and there’s very little behavioral ad targeting. I’m asked on fun weird podcasts all the time; podcasting feels like the web prior to the roll-up of power by Google and Facebook, with a lot of new voices, some very successful and most marginal, but quite authentic.

So what is Spotify trying to do?

First, Spotify is gaining power over podcast distribution by forcing customers to use its app to listen to must-have content, by either buying production directly or striking exclusive deals, as it did with Rogan. This is a tying or bundling strategy. Once Spotify has a gatekeeping power over distribution, it can eliminate the open standard rival RSS, and control which podcasts get access to listeners. The final stage is monetization through data collection and ad targeting. Once Spotify has gatekeeping power over distribution and a large ad targeting business, it will also be able to control who can monetize podcasts, because advertisers will increasingly just want to hit specific audience members, as opposed to advertise on specific shows.

As I wrote in February.

No advertiser will care if you’re a listener of Joe Rogan or Bill Simmons, only that you are a 34 year old male with a certain income reachable in thirty forty different audio slots, which can then all go in an auction. Or even if they do care, competitive ad networks who offer the service you want will probably die. Then, just as the New York Times content becomes far less important online because Google can just find you that New York Times reader through another publisher outlet or Google’s own properties, the actual podcast becomes commodified, because all that matters is the listener data combined with the ad slots, not the show against which those ad slots are sold. This is another complicated way of saying the people who do the work of making and distributing a show don’t get the benefit from the work they do.

Spotify got this power through acquisitions. I noted that “from 2014 to 2020, Spotify bought 15 companies, companies that build everything from data analytics to music and audio production tools to audio ad tools to licensing platforms, and podcasting networks. These companies included the Echo Nest (2014), Seed Scientific (2015), CrowdAlbum (2016), Sonalytic (2017), MightyTV (2017), Mediachain (2017), Niland (2017), SoundTrap (2017), Loudr (2018), Gimlet (2019), Anchor (2019), SoundBetter (2019), Parkast (2019), and now The Ringer (2020).”

This contract with Joe Rogan isn’t a purchase, but it’s an exclusive deal or a bundle. In antitrust parlance, I can see this kind of arrangement being treated as either an exclusive dealing practice or a tying/bundling practice. Antitrust is a bizarre legal area, with a lot of it structured through court-made law instead statute, and many of the practices under its purview blurring into one another. Such is the case here.

The case law on bundling/tying is pretty strong; enforcers have the ability to block those with market power from tying products together for anti-competitive purposes. The trick for tying is that those doing the tying can argue that two products put together are simply being integrated into something new. If you take a mouse, a keyboard, a monitor, and a computer, and combine them all into a new product called a laptop, that’s integration, not an anti-competitive practice.

Exclusive dealing case law is much weaker. While exclusive dealing arrangements can be illegal, in practice courts tend to be quite permissive. The rationale for allowing such restraints is that they have what are called pro-competitive benefits. Spotify might, for instance, be boosting Rogan’s reach to new listeners, and Rogan could be improving Spotify’s service by doing Spotify-specific snippets. So anything lost by rival distributors who can’t broadcast Rogan or by consumers who wish to use a different app other than Spotify is counterbalanced by that benefit.

What’s interesting, with either tying or exclusive dealing, is that Rogan has made it clear that there are likely to be few consumer benefits. He promised his listeners that “it will be the exact same show. I am not going to be an employee of Spotify. We’re going to be working with the same crew doing the exact same show.” The only difference is consumers won’t be able to get the Rogan show through other channels. It’s purely a restraint of trade. In other words, there’s literally no justification for this deal as anything but a payoff to Rogan from an aspiring monopolist who seeks to force Rogan listeners to use the Spotify app. It’s a leverage of Rogan’s legal monopoly over his own copyrighted material to create a distribution monopoly, which was one of the legal issues at stake in the 1948 Paramount decrees case that ended the monopolistic Hollywood studio system.

Now, I can imagine the argument that targeted advertising brings some sort of benefit I’m leaving out, that Rogan’s ad inventory will bring scale for podcast monetization. But the downside to consumers is quite obvious, while no one has been able to show that targeted advertising is a net positive.

Spotify isn’t the only bad actor here. The corporation is under heavy pressure from Amazon, Apple, and Google, all of whom have interests in the streaming music and podcast business, and all of whom can cross-subsidize with other streams of revenue. They also have gatekeeping control over Spotify through app stores. Here’s Spotify protesting to one of Congress’s Antitrust Subcommittees how Apple uses its bottleneck power.

Apple operates a platform that, for over a billion people around the world, is the gateway to the internet. Apple is both the owner of the iOS platform and the App Store—and a competitor to services like Spotify. In theory, this is fine. But in Apple’s case, they continue to give themselves an unfair advantage at every turn.

If you put Spotify where Apple is, and and change a few words so that this describes streaming instead of apps, this sentence describes Spotify’s strategy. They want to become the gateway to streaming, so they can tax the ecosystem. (It’s admittedly a bit more complex since Spotify is indirectly taxing via ad targeting and has to pay for music rights whereas Apple is directly taxing via an app store fee, but the power dynamics are similar.)

Regardless, right now, unlike nearly everywhere else in the media space, podcasting is a good open space with a lot of competition and authentic voices. Regulators and policymakers can step in to protect it. They can still undo the merger of Spotify and The Ringer, and they can certainly initiate an investigation of Spotify’s exclusive strategy as a possible set of attempts to monopolize an industry. Hopefully members of Congress will start asking questions.

No Thank You to McKinsey: The General Services Administration just removed McKinsey from its pricing list. Back in December, I asked why McKinsey bills out the government at $3 million a year for a recent college graduate contractor. Frankly I wonder why we still let McKinsey exist at all, but I ask the same existential question about many things in life. At any rate, some people in government agree. According to the Federal News Network, “The source said GSA officials were concerned that McKinsey’s prices were higher, sometimes substantially so, than similar services provided by other schedule companies… The source said it ultimately looks like GSA said “no thank you” and pulled the plug on McKinsey.”

This doesn’t mean McKinsey can’t sell to government, it just makes it much harder and means that they will have to get a special sales process from each agency they sell to. As a contact told me, “basically GSA said ‘you can't be on the highway anymore, you have to use rural roads.’”

So sad. Powerpoint software packages across the world today are flying at half mast.

Venture Capital and Softbank Collapse: Softbank, which has served the key end point for venture capital, is basically gone, having basically declared its $100 billion Vision fund a failure. This is going to have massive impacts on American technology start-ups, who will have a lot less capital to play with. It will also hit venture capitalists, who will lose a massive channel to draw in capital and upgrade the valuations for their portfolio companies. Softbank’s model is what I call counterfeit capitalism, so this is a positive development. But the tech industry is going to see a lot of unemployment soon. What are your thoughts on how this will change the tech ecosystem?

Trump Creates a Market in Active Pharmaceutical Chemicals: There was significant news yesterday, in the administration handing out a $354 million contract to a new company called Phlow to make the precursor chemicals to pharmaceuticals.

This move is a recognization that tariffs have simply not returned chemical manufacturing to the U.S. The chemical business a complex set of industries reliant on a host of technical and regulatory choices, not just price. For instance, more than 1,000 or the 1,800 petitions for tariff relief from tariffs on Chinese imports in August of 2018 were for chemicals, because that capacity was extremely hard to move back. As Matthew Moedritzer of the Society of Chemical Manufacturers and Affiliates noted in lobbying against these tariffs, “We realize the administration hopes that [tariffs] will encourage domestic producers to diversify, enter new segments and become more competitive. The reality for chemical production, though, is that regulatory and market factors, often dictate otherwise.”

The administration created not just the financing but also the market, in that Phlow is going to sell its product to the government for stockpiling. In March, I wrote about the five key ingredients for domestic manufacturer, or CLIMB: Capital, Labor, Inputs, Markets, and Brainpower. We’ll see how this experiment goes. It’s not obvious that Phlow will do a good job producing, and the markets, aside from the government purchasing, are not being restructured in any meaningful way, so there may not be market discipline on this corporation in delivering active pharmaceutical ingredients for generics. There are reasons to doubt the leadership of the company, which has more political experience than experience with pharmaceutical chemical production. And CivicaRx, which aspires to be a large drug buying monopoly, is involved. To me it looks like a useful start, but not a fully formed one.

Contact Tracing and Control of the Proximity Feature: Yesterday John Gruber at Daring Fireball criticized my view that Google and Apple are exercising sovereign power in structuring a contact tracing app for the Coronavirus. This argument led to an interesting discussion with an entrepreneur who told me about a revolutionary technology those two giants are blocking. I’d like your views on his story, particularly those of you who work in mobile technology. It has to do with how the system Apple and Google have set up to do contact tracing is actually a pale shadow of what should be a vibrant mobile ecosystem.

My understanding of the system Apple and Google have set up, which you can read about in their FAQ, is that they will automatically turn every phone in the world into contact tracing device that will keep a list of everyone you’ve been near. The way this works is by turning your phone into a beacon, constantly blinking out a signal that says ‘I’m phone xyz and I’m here.’ Every phone will also be listening for such beacons. If you get sick with Covid, you can tell your phone, and doing so will alert anyone who has come into contact with you. It’s an anonymized process and there’s very little data being stored centrally, because Apple and Google have specific views on what kinds of data governments should be able to access.

There are a bunch of fights over this system. Public health authorities say they have had less input into the architecture than they need, and Google and Apple have imperiously declared apps produced by public health agencies “must meet specific criteria around privacy, security, and data control.” Eventually Apple and Google will just put the functionality into the operating system itself, rendering apps less relevant.

More fundamentally, from what I hear, this anonymized contact tracing idea is basically stupid and won’t actually do anything useful. That’s partially because technologists obsessed with parochial fights over privacy don’t tend to do a good job organizing public health infrastructure, and also because we’ve never done contact tracing using mobile phones before.

At any rate, I ended up having a conversation with an entrepreneur named Mark Daigle yesterday who patented a Beacon-style system in 2010 that is similar in important respects to what Google and Apple are doing. At the time, while he saw the value in public health applications, his idea was much broader. Basically he wanted to set up a privacy-secure process not for location services, but for proximity services. Not ‘where are you?’ but ‘who are you near?’ That would have enabled a whole host of very cool new services, not just public health contact tracing, but anything related to being near other people or places, like social networking, payments, a different retail experience, or entertainment features like having your phone vibrant if you’re a fan watching a basketball game at an arena and someone dunks the ball.

And it could have been done without exposing people to sleazy privacy invasive sales of data. Daigle’s methodology was to build apps and hardware based on wifi scanning, because Bluetooth Low Energy wasn’t yet ready. But shortly after Daigle patented his method, Apple blocked apps doing wifi scanning. When Bluetooth Low Energy came on the scene, Apple and Google blocked third party apps from scanning using Bluetooth, unless an app is opened and in use. Google and Apple have not let such scanning run in the background until they decided, unilaterally, to do so during this pandemic, and only on terms they set.

But in a sense, what these giants are doing is just one special use case of what could be an entirely separate field of applications. A constant stream of data coming to and from a phone broadcasting proximity information is a like a browser, a middleware layer relating the phone to other objects. To have such a proximity browser would have required regulation, because enabling apps to be able to do background Bluetooth scanning proximity would open a pandora’s box of privacy violations. But if this middleware did actually manage the system well, and there were public utility rules managing what essentially is a data utility, proximity features could open up a totally new set of use cases for phones.

Here’s my question. Does this story make sense? I’m not a technologist so I’m sure there are parts of this I’m missing, but I found what Daigle told me compelling. Let me know directly or in the comments by clicking on the top headline of this issue and scrolling to the bottom.

Thanks for reading. If you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

The Great Intermission: Hollywood and the Coronavirus

What does it mean when Amazon is being rumored to buy AMC Theaters?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about what might happen to Hollywood in the wake of the rumors that Amazon might buy AMC Theaters. I also have brief snippets on the Google-related backstory behind Facebook buying Giphy, Microsoft trying to acquire power in the cybersecurity market, China threatening large American corporations (Boeing, Apple, Qualcomm), and Taiwan Semiconductor choosing to locate an advanced chip foundry in the United States.

First some housekeeping. I was on Rising with Saagar Enjeti and Krystal Ball to talk about Facebook’s Supreme Court and the silly Democratic coronavirus bill. You can watch that here. Also, I was on the Handheld Travel podcast to discuss monopolies.

And now…

Amazon Buying AMC Theaters? Last weekend, the Daily Mail reported on rumors that Amazon is in talks to buy AMC Theaters, the largest movie chain theater in the world, with over 8,000 screens in the United States alone. Last year, Trump Department of Justice Antitrust chief Makan Delrahim paved the way for such an acquisition by unilaterally rescinding an important consent decree that structures the film industry, a 1948 resolution to long-standing antitrust claims against movie studios called the Paramount decrees.

The Paramount decrees basically impose a structural separation in the film exhibition business, making it hard for movie studios to buy or control theater chains or distribution. As I’ve written, prior to these decrees, Hollywood was structured in what was known as the Studio System, in which a small number of vertically integrated studio chiefs essentially decided what artists could make and what Americans could watch, through either direct ownership of theaters or the use of must-have blockbuster content to control theaters. The decrees broke apart this system, and created an open market for film, leading to a creative explosion and more freedom for artists, most notably the “New Hollywood” of the 1960s.

The stated reason Delrahim is ending this decree is that he thinks technology makes it irrelevant. Online streaming introduces a new competitive channel, so who cares if studios can buy theaters? Rescinding the Paramount decrees opened the door to speculation Amazon, or perhaps Disney, would be buying a movie chain. Before the pandemic, independent theaters protested the attempt to rescind the decree, writing in a brief that “if the Paramount decrees continue to be respected, the entry of behemoths like Amazon into the exhibition business would more likely be on terms that deterred Amazon from abusing its market power either to favor its own cinemas with its content or to punish fairly competing exhibitors.”

This is not to say the existing setup, even before the pandemic, was a healthy open market. It wasn’t. Since the 1990s, there has been a massive roll-up of the movie exhibition business into a few poorly managed and highly indebted movie chains, one of them being AMC. The AMC theater experience was bad, with overpriced food, inflexible scheduling, and a bland corporatized feel. Movies have increasingly needed to launch on thousands of screens at once, leading to the dominance of Marvel movies.

AMC Theaters itself is loaded up with $5 billion debt and owned by public shareholders, the Chinese conglomerate the Wanda Group and private equity firm Silver Lake Partners. With the pandemic shutting down its business, AMC stock is worth around $500 million total. The corporation was able to issue some bonds recently in the Fed-supported bond market, as well as cut its workforce and avoid rent payments. It has enough cash to stay alive until after Thanksgiving.

Proponents of Amazon buying AMC Theaters have stars in their eyes at the possibility of the integration between Amazon and the chain. They surmise Amazon could make magic, doing special events for Prime members, using the theaters as retail pickup points, upgrading the food, and organizing eSports events with its Twitch service. They also imagine Disney might do something similar if it bought a chain, turning a theater a chain into a mix of Disney event space, theatrical release venue, and Disney store.

Much of the value here is what AMC Theaters offers as a channel for content. My favorite analyst of the industry is the Entertainment Industry Strategy Guy, and he notes that a TV channel’s ability to launch buzzy new shows is a meaningful way to understand its power. And in terms of market share, Netflix, despite its heavy presence in streaming, basically has the same power for its original content as a broadcast channel. Amazon is even weaker, it’s basically just a cable channel, despite the billions spent on original content. The purchase of a movie theater chain immediately changes this dynamic, and elevates Amazon into a major studio, able to launch buzzy shows and movies far more easily.

AMC will cost roughly $5-7B, and that’s an easy lift for Amazon financially, though not for a Disney whose critical theme park division is shut down. But while there’s obvious logic for Amazon and Disney to buy theater chains, I don’t think they have to make a purchase right now. The contours of the pandemic are not clear, so an acquisition would be taking a multi-billion dollar guess on when and whether we will be going out to movies again. Waiting lets potential buyers understand the value proposition more clearly. Moreover, while the debt offering helped, AMC’s debt and equity holders have a weaker bargaining position every day the pandemic goes on and keeps customers out of theaters. Time is on the side of the buyers.

The possible counter-argument here is antitrust enforcement. Any purchase of a theater by a studio would allow them to block competitors from doing theatrical releases, and put huge amounts of pressure on other theater chains; it would be virtually impossible to negotiate with Disney to get their latest movies if they have their own theatrical distribution channel. If Disney/Amazon thinks Biden will win and take a harder edged approach to merger policy, they might try to get this purchase in under the wire.

Regardless, the question of consolidation in entertainment is now front and center, and there’s no avoiding it. Before the Amazon-AMC rumor started, telecom and media analyst Michael Nathanson came out with a report titled “Say Goodbye to Hollywood” on what Hollywood will look like after the crisis. These kinds of reports are supposed to gin up mergers and acquisitions activity, and help the investment banking and management consulting worlds figure out how to structure industries. The Amazon-AMC merger rumor is just such activity.

Nathanson, whose firm has its roots in the management consulting and investment banking world, assumes the policy choices will continue to enable consolidation. He then applies the pro-concentration frame to the pandemic. The number of movie theaters will decline due to social distancing needs, and that the “top streaming platforms — Netflix, Amazon and Disney — will emerge with the lion's share of scripted content creation."

The other studios, he argues, which include Sony, Paramount, Universal, MGM, and Lionsgate, will likely need to consolidate to increase selling clout and accelerate cost savings.” He analogizes this dynamic to what “occurred in the recorded music industry over time as six once-mighty global recorded music companies merged into three healthier ones.” The potential acquisition of a theater chain would accelerate this consolidation.

To be clear, cost savings is code for crushing the wages of the artists and workers in the industry. And which movies are likely to prevail after this is all said and done? “It is the small- to medium-sized budget movies that we worry about,” he wrotes. “We have already seen the share of movies that generate under $100 million at the domestic box office fall from 52 percent in 2010 to 39 percent in 2019, and we expect this trend to accelerate further. Mid-budget, non-tentpoles will not be worth the cost and expense of traditional theatrical distribution." These are precisely the kinds of movies that are most likely to be unique to American culture, comedies, as well as the kinds of movies that could be critical of the Chinese government because they don’t need to break into that market.

Now, the possibility of Amazon or Disney running theater chains can sound tantalizing. Who doesn’t want better food in a theater and a more interesting experience? The thing is, a conversation in which people eagerly drool at the prospect of Amazon or Disney theaters is one in which they artificially bound their thinking to assume only monopolistic corporations can provide a good product. There is no actual reason AMC couldn’t vastly improve its own theaters, either with their own innovations or through contract with Disney or Amazon on eSports or Disney Stores. It is possible to have well-managed businesses without selling to monopolies.

In fact, some theaters do this on their own, they just don’t get noticed because they are small and below the radar. Independent theaters are just such an experience. These kinds of theaters often do interesting community events, even during the pandemic. Take The Coolidge Corner Theatre in Boston. It has “a virtual screening room, with some drawing hundreds of people in the opening week. It has also been able to expand its virtual seminars, in which a film expert gathers to lead a discussion on a certain film or filmmaker. Typically, capacity for those discussions, held in one of the Coolidge’s 45-seat theaters, was limited. But with Zoom, the Coolidge welcomed hundreds of paying guests last month, from as far away as Peru.”

Similarly, the Somerville Theater does “weekly “pop up,” selling popcorn, soda, and candy at the theater every Saturday.” These small theaters, having avoided the corporate bland route of AMC-sameness, create value as community centers. We’ve made a political choice to support, at least temporarily, both models. AMC is drawing on Fed support in the bond market; some of these community theaters are using the Paycheck Protection Program to stay alive.

Implicit in the possibility of movie theaters as community centers is the need for the government to ensure these theaters can get access to financing and movies from studios. In other words, letting Disney or Amazon buy out a hollow AMC is probably a bad idea. And finding a way to expand independent theaters and open markets in content is what policymakers should be doing during this pandemic intermission. “We could come back stronger than before,” said one independent theater official. “We just have to make it through this intermission.”

Facebook Swallowing Giphy: Facebook reportedly is trying to buy GIF plug-in search engine Giphy and integrated it into Instagram, for $400 million. In 2016, its valuation was $600 million. What happened? In a word, Google. Google saw that Giphy had created a space for a universal plug-in-type tool for gifs. So in 2018, it bought a rival named Tenor, and the next year integrated a gif library into its dominant search engine, destroying the business model of Giphy. A year later, Giphy limps into the arms of Facebook.

Google used a similar predatory strategy to mesh wifi router Eero. Eero identified a space and built out a product line. Google saw that, released what seemed to be a below cost version of the same product, and killed Eero. Amazon then acquired a limping Eero.

The net effect here is, as a contact put it, “censorship through nudges. On one hand it’s hard to cry censorship because hey, you can still just make your own gifs. But on the other hand nobody is going to do that because it takes 3 more seconds. So FB gets to gate-keep this library (no more Alex Jones gifs) and then by extension exert this unseen influence on communications in all the other apps that license the giphy library. The centralized internet sucks.”

Microsoft Swallowing the Security Vendor Market? BIG reader Michael Wojcik has a fascinating discussion of Microsoft’s use of bundling to take over the lucrative cybersecurity market. “Microsoft’s offerings really don’t need to be better than security solutions from other vendors,” he wrote. “Microsoft’s advantage is that they embed security offerings within their Microsoft O365 E5 suite (and other add-ons).” The company even has a site where you can see Microsoft’s targets.

Now, what Microsoft is doing could be illegal, but they would argue otherwise. And there is a tension between ‘tying’ which is an antitrust violation, and ‘integration’ which is simply creating a better product by putting two existing products together into one. One way to start making this distinction is to look at the market power of the entity doing the tying. By that metric, Microsoft needs more scrutiny. The corporation often goes unnoticed as a monopolist, largely because its President Brad Smith is a deft political player, but the corporation is still there, eating up markets.

The Muni Bond Market: UBS noticed the municipal bond market is in trouble. It is a very concentrated market in terms of dealers.

China Readies Attack on Apple, Qualcomm, Cisco, and Boeing: Well this is interesting, from a China state newspaper. The Trump administration’s cutoff of American inputs to Huawei is prompting threatened anti-monopoly investigations into large U.S. corporations, as well as cutoffs of purchases of Boeing. As China watcher Bill Bishop puts it, “Not even pretending there is rule of law.”

Trump Industrial Policy Push Pays Off: Taiwan Semiconductor is building a $12 billion semiconductor manufacturing plant in Arizona, at the urging of Trump administration officials. This plant will create the most advanced chips in the world, what are called 5-nanometer chips. The semiconductor industry is split into design and manufacture, with design companies hiring fabs to create specialized chips. While the U.S. has great capacity on design, critical manufacturing capacity is mostly in Taiwan, China, and South Korea.

Intel is a major player in semiconductors, though it designs and makes its own chips. I suspect that Intel, once a jewel of engineering, is not particularly well-managed, since its chips have repeatedly shown to have serious security vulnerabilities. The Obama administration had an antitrust suit against Intel, but of course, that didn’t really go anywhere. At any rate, Taiwan Semiconductor choosing to build a fab in the United States is a major move for re-shoring productive capacity.

Thanks for reading. If you see examples of market power in this pandemic, let me know.

And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. Another reader responded to the last comment on the University of Pittsburgh Medical Center monopolization story, though with a very different point of view. This one gets into the incredibly baroque market structure of American health care, which is largely oriented around bargaining power.

Hey good afternoon, I have really enjoyed reading your newsletters and have shared many of them with friends and family.  I wanted to comment on the reader email regarding UPMC included at the bottom of the Grubhub newsletter May 13th.  

The email neglected to include the reasoning behind the UPMC Highmark dispute.  For years Highmark was the dominant insurance provider in the Pittsburgh/Western PA market.  This gave them significant pricing power and the ability to pay under market rates for medical services.  National Payers (Aetna, United, etc) did not have a material presence in the market due to Highmarks stronghold.  UPMC continually negotiated for market rates for medical services, to which Highmark continually declined.  Thus, UPMC started an insurance arm to compete with Highmark, and Highmark purchased Allegheny General Healthcare System to compete on Medical services.  This kicked off a nasty dispute with each threatening to end access to the others medical services for their insurance consumers.  From a business perspective, this is no different than Aetna buying CVS (buying customers), or manufacturers buying raw material producers.  Not saying it is right or wrong, just that these moves are inline with overall business trends.

The increase in insurance competition benefited consumers as pricing dropped and allowed national payers to come into the market as an additional option for consumers.  Summer 2019 UPMC and Highmark came to a final hour agreement, with Highmark agreeing to pay market rates and UPMC accepting most Highmark insurance vehicles.  The ONE insurance vehicle that is excluded, the emailer points out, is unique in that Highmark negotiated the ability to offer a specific insurance vehicle that cost less than other insurance vehicles, but the consumer could only use Allegheny General Health System facilities.  Highmark essentially eats cost to steer patients to their facilities, much like the Microsoft Teams and Google Video examples above.  UPMC may have a similar product specific to UPMC, I am not sure, but the Highmark specific insurance vehicle was made well known and advertised in the market.

The easiest way to fix this dynamic is to simply impose Medicare prices for all health care providers. Then there are no more fights to acquire market power, because competition simply occurs around quality of service.

Uber-Grubhub: How the Pandemic Is Launching the Era of Online Platform Regulation

As French and Australian enforcers try to get Google and Facebook to pay newspapers, cities crack down on food delivery apps.


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today the main focus of this newsletter is how the pandemic is forcing us to regulate tech platforms as public utilities. Also some quick stories on how the Trump Antitrust division is spending its time bothering British judges on behalf of American monopolies, Google’s attempts to kill Zoom, and rumors of a possible Amazon-AMC theaters merger.

(photo credit to torbakhopper)

Era of Platform Regulation Begins: Yesterday, the Wall Street Journal broke the news that Uber and Grubhub are considering a merger, which could give the combined company more than 50% market share in New York, Chicago, Miami, Philadelphia, and Boston. It’s an explicit play for more pricing power.

For several years, food delivery apps have opened up a world of possibilities for consumers, offering the ability to get take-out or delivery across a much wider spectrum. Yet at the same time, this paradise hasn’t benefitted restaurants. Why? The middlemen. Restaurants have been increasingly complaining about the pricing power that food delivery apps increasingly have over their businesses, with high commissions, tickey tack fees, etc. Here’s a tweet that went viral last month which illustrates the point.

High prices are pervasive across the delivery app world, from Grubhub to Uber Eats to DoorDash. As one industry consultant told the Guardian, “The delivery fees and service charges from these websites are murder. They’re incredibly high rates… It’s almost impossible to profit at all.”

And yet, the the food delivery network business paradoxically isn’t doing very well. Uber and Grubhub are considering merging because prices they charge to restaurants are too low to support their overhead. These apps should probably be a modestly profitable regional services, connecting local eateries to local eaters, like taxicab stands or co-working spaces before WeWork. But our global monopoly-centric public policy framework has flooded capital into the space, leading to money-losing attempts to build global empires. It’s a variant of counterfeit capitalism, where investors hoping for monopoly rents are subsidizing an artificial and predatory business model.

The pandemic has put this dynamic into stark relief. Food apps are seeing a flood of new business. At the same time, the disease has changed the food service business. Most restaurants focus on takeout and delivery, because they are otherwise shut down. The restaurant industry always lived on thin margins, and these apps charge up to 30% of the total order amount. When delivery was a side business for most restaurants, high delivery app fees were manageable. But since restaurants have gone to a mostly takeout/delivery business during the pandemic, they have become dependent on this new sales and distribution channel. (Investors have noticed; KKR just invested in pizzeria software specialist Slice.)

As a result, over the past few weeks, Seattle and San Francisco fought for their restaurants; both cities imposed price caps on food delivery apps, setting a maximum fee of 15% of the total amount of the order. Seattle mandated that 100% of all tips go to the driver doing the delivery. More cities are considering acting, and there’s a class-action antitrust lawsuit of consumers in New York City against these delivery apps. So that’s a political response, as people decade that restaurants shouldn’t have to hand over nearly a third of their revenue in a crisis to an online platform.

Now, delivery apps are a network business, serving as a utility that connects restaurants with customers. The apps need a network of restaurants, and restaurants need the apps, but the bargaining power is not even. A delivery app has thousands of restaurants, so while restaurants in aggregate are critical to the business, any one particular restaurant is not. The converse is not true. If you own a restaurant and you get dropped from a delivery app, you can lose a lot of your revenue.

In other words, these app delivery businesses are network utilities with market power, and like all utilities, they have the power to set prices. There are three basic routes to address the price-setting power of a utility. The first is to allow the utility to set the price without interference from public agencies. The second is to force competition in the sector among different networks and have the price set through this competitive framework. The third is to simply set public pricing rules through either public ownership or price caps. (There are other variants, like allowing cooperatives to bargain with utilities, but they often boil down to a combination of the three routes.)

In principle, what Seattle is doing to its delivery apps is just a public utility regulation in the form of a price cap. And it works because the situation is pretty simple. A delivery app is easy to understand, and the fee charged to restaurants is relatively easy to see, and thus regulate. Restaurants know how much they charge, what they sold, and what they were paid. All it requires is (a) getting the politics right on a local level and (b) shaking out the overly capitalized structure of food delivery app empires.

But there’s something broader here than just a change in one sector of the economy. The pandemic is revealing not just food apps but other kinds of middlemen whose power is a social problem. In France and Australia, antitrust regulators are trying to force tech giants Google and Facebook to pay newspapers. Ben Smith wrote up what’s happening, and quoted Rod Sims, the Chair of the Australian Competition and Consumer Commission. “The digital platforms need media generally, but not any particular media company, so there is an acute bargaining imbalance in favor of the platforms,” said Sims. “This creates a significant market failure which harms journalism and so, society.”

Like restaurant delivery apps, Google and Facebook are network intermediaries, sitting between producers of content and consumers. It’s a much more complex relationship than the restaurant space, but the bargaining power which Sims highlights is similar. Google and Facebook need publisher content, but they don’t need the content of any one particular publisher. But each publisher desperately needs Google and Facebook for traffic referral.

Back in August, I covered a report written by Sims on Google and Facebook, where he represented that power dynamic. Here’s a graphic representation of the power from that report showing the power Google and Facebook have over referral traffic.

In other words, like food delivery apps over restaurants, Google and Facebook have the power to direct audiences to one producer or another, between 50-80% of the traffic depending on the medium. There are significant differences between Google/Facebook and food delivery apps. Big tech is already consolidated and profitable. More importantly, unlike with restaurants and delivery apps, pricing in these markets is opaque.

Here’s the Financial Times last week on a groundbreaking study of something that you’d think wouldn’t be a secret: the price of advertising.

Publishers receive just half the money spent on their digital ads by premium brands such as Unilever and Nestlé, according to research which lays bare the fees taken by adtech companies and untraceable middlemen…

As well as finding that at least half of a brand’s digital marketing spend is absorbed before reaching a publisher, the researchers also discovered that almost a third of those ad-placing costs were completely untraceable…

“The market is damn near impenetrable,” said Phil Smith, the director-general of Isba, the trade body for UK advertisers that commissioned the study. “As you start to break down the value chain for the impressions we have matched, the erosion of value is really significant.” 

One of the crazy things about studying Google and Facebook is that it’s really hard to figure out just what they charge for their product. A large chunk of the money going into the current online advertising world is impossible to price or audit. Generally people know that big tech grabs fees as a middleman utility, and does so via a complex set of exchanges of data, which ultimately ends up with them getting advertising revenue that should go to publishers. But no one in the publishing or ad buying industries knows the specifics of what anything really costs because that data is hidden.

With that in mind, I don’t really have a sense of how France and Australia want to charge Google and Facebook. It could be like the BMI and ASCAP licensing arrangements in music, with set rates for different formats, but without more knowledge of the pricing, I just don’t know how you regulate these utilities and get them to pay publishers.

So what to do? My view is we should regulate big tech by barring them from engaging in advertising, because being in the advertising business itself is a conflict of interest for a communications utility. Such a policy change is both breaking up a corporation by forcing the spinoff of its advertising business, and a public utility model of effectively setting the terms of pricing. Increasingly this view is catching on. Tristan Harris, an ex-Googler who runs the Center for Humane Technology, has penned an important argument about regulating social networks like public utilities, though he cleverly calls these networks ‘attention utilities.’

Harris would impose health regulations on attention utilities to ban certain kinds of addictive user interface designs, micro-targeting and behavioral nudges. But he also has a straightforward pricing component. Here’s how he would do it.

Instead of relying on revenue based on advertising, attention utilities should be required to convert to a monthly licence fee model a bit like the BBC or a subscription like Netflix. They must adhere to the terms of an operating licence framed by a duty of care. EU antitrust commissioner Margrethe Vestager has suggested Facebook should use a subscription model.

Harris thinks these attention utilities should move to a subscription fee, or a break-up-and-regulate approach. One of the rhetorical challenges of the anti-monopoly movement is the idea that ‘breaking up’ a company is sufficient or even desirable. In fact, anti-monopolists usually seek a framework of regulated competition. That’s likely where we’re moving. In some areas, where the platform is simple, like restaurant apps, we can do price setting, or perhaps address contractual terms that set unfair competitive dynamics. But in others, the tools are going to have to be more subtle and far-reaching.

At any rate, the era of online platform regulation is starting.

Trump Antitrust Division Lobbying for Monopolies in the United Kingdom: Since Antitrust chief Makan Delrahim doesn’t believe in enforcing antitrust laws, what does he believe in? Lobbying! Last week, he published a long paper on behalf of Mastercard titled “Merricks v. Mastercard: “Passing on” the U.S. Experience”. Mastercard is embroiled in massive litigation in the United Kingdom in which a large class of consumers are challenging merchant fees of the credit card network. Delrahim had eight senior staffers at the Antitrust Division, plus two fellows, help write a paper that Mastercard can present to the UK Court of Appeals on how great it is that American courts make it hard for large groups of consumers to get together and jointly bring a case. I’m not sure why American taxpayer money is going to make sure British consumers get screwed by corporate monopolies. Maybe Congress should ask DOJ.

A Nascent Merger Boom in Hollywood? There are rumors that Amazon is seeking to buy AMC Theaters, which is the largest movie chain theater in the world, with over 8,000 screens in the United States. This purchase would let the corporation put its original content and its video game Twitch service into thousands of theaters instantly, and to block its competitors from doing theatrical releases. An antitrust decision in 1948 known as the Paramount Consent decrees makes such a purchase much harder, but Trump’s DOJ Antitrust chief is trying to unilaterally rescind it, to the consternation of smaller theater owners. More soon on what I think is going to be a very important storyline.

Democrats Flub Merger Moratorium: Nancy Pelosi introduced a grab-bag $3 trillion coronavirus response bill with a lot of spending for different programs for the unemployed, first responders, as well as a bailout for corporate lobbyists, Federal Reserve support for landlords, debt collectors, and mortgage servicers. The bill did not include a merger moratorium. This legislation was endorsed by various progressive nonprofits and unions, like Moveon, Public Citizen, SEIU, the American Federation of Teachers, and Greenpeace.

Why did they support it? Democrats have what a friend of mine called “Program Brain.” They think the job of Democrats is to fight Republicans to fund various programs for the poor and marginalized. The fundamental vision is that of government as an aristocrat who treats the peasants with kindness, not a government whose goal is to promote freedom.

Google Using Market Power to Kill Zoom? In the last major monopolization suit in the United States in 1998, Microsoft was found guilty of illegally maintaining its monopoly by bundling its free Internet Explorer browser with its Windows operating system. It seems like this practice, which apparently used to be illegal, is now fine. Ars Technica reports:

Amid the coronavirus pandemic and stay-at-home orders greatly increasing the demand for video calls, Google is slowly trying to whip together a viable video call platform after ignoring the market for years. Last week, it added a free tier to its latest video chat service, Google Meet, which was previously G Suite exclusive. The free tier opened up Google Meet to anyone with a Google account, and now you'll be constantly reminded of the service thanks to a new Gmail integration.

Antitrust enforcers are going to let Google tie a free product cross-subsidized with its search advertising monopoly to its massively popular free email service. And why wouldn’t they? They’ve been allowing Microsoft to bundle and underprice its Teams product, which is designed to destroy Slack.

House Conservatives Split on Monopoly and Big Tech: Good piece by Emily Birnbaum on how Republican Judiciary Chairman Jim Jordan is leery of antitrust crackdowns on big tech. Until recently, the committee was run by Doug Collins, who was a skeptic of Google and a supporter of the antitrust investigation. Collins moved over to the Oversight Committee, and Jordan took over. There is a lot of support in the GOP caucus for antitrust investigations, but they are wrestling with a libertarian past.

Thanks for reading. Send me tips, stories I’ve missed, or comment by clicking on the title of this newsletter. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you really liked it, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. Here’s a comment from a reader discussing what I wrote about in the last issue, the market power of the University of Pittsburgh Medical Center

UPMC epitomizes much of what's wrong with American healthcare, and with large health systems. It got into a battle with the state when it decided to stop accepting patient health insurance from ONE Blue Cross provider - Highmark, insisting that if they wanted to be treated at UPMC facilities that the patients pre-pay. UPMC continued to accept patients with other Blue Cross plans, just not Highmark's. This is because, after years of each staying in their own area of expertise, UPMC started its own competing health insurance insurance program and Highmark retaliated, by moving into the hospital business. The state didn't really care about this regional spat until UPMC expanded to the more populated east and brought its predatory practices with it. Once it reached as far east as Harrisburg the state took action. UPMC caved to the state attorney general's valid complaints and UPMC again accepts patients with Highmark insurance again. At least for the next ten years.

For UPMC, it's all about revenue. They've bought up medical practices all over and their CEO Romoff was very upfront in saying that they wanted to be the Amazon of healthcare. Many physicians who still put patients first are quite frustrated.

UPMC, like Highmark, has abused its non-profit status for decades. It's hard to tell which is worse; they're both evil in their own way. But UPMC tried to take evil to a whole new level because it thought it could.

Why Does a Hospital Monopoly Want to Re-Open the Economy?

The University of Pittsburgh Medical Center has strong views on the right way to manage Covid. It also has deep conflicts of interest.


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m changing the format. I want to cover a bunch of stories more lightly, instead of writing one main big essay. Let me know what you think. I’m going to cover hospital monopolies lobbying to reopen the economy, the attack on the World Trade Organization, and an action by DOJ Antitrust on a criminal antitrust settlement and one on a giant textbook merger. I also had a bit of a public tiff over whether the Federal Reserve is a mere innocent plumber, or an architect of unfair bailouts to corporate America.

First, some housekeeping. I was on the Intercept’s podcast System Update with Glenn Greenwald discussing China. Also, I wrote a piece for the American Compass, a new conservative think tank, on the problem of corruption and private power.

And now…

Monopoly Hospitals: At least one large hospital system is advocating an end to most lockdowns in America. Earlier this week, Dr. Steven Shapiro, the chief medical and scientific officer of the University of Pittsburgh Medical Center (UPMC), offered aggressive views to politicians on the need to reopen the economy. Coronavirus, he said, is not that dangerous except to marginalized populations, but a lockdown is quite harmful. “In sum,” Shapiro said, “this is a disease of the elderly, sick and poor.” He made the case that protecting seniors matters, but aside from that, a reopened economy will mean that “though infectious cases may rise…, the death rate will not.”

Shapiro’s views are not necessarily wrong, but they fit with a pattern on the part of top UPMC officials of attempting to get business back to normal. Last month, for instance, UPMC doctor and top executive Donald Yealy argued that the death rate from Coronavirus is 0.25%, which is much lower than the commonly assumed 1% rate, and that the disease is not worse than the flu. More interestingly, in mid-March, UPMC refused to cancel non-COVID elective procedures, even after the governor of Pennsylvania issued an order to do so, prompting an open letter of protest from hundreds of its own physicians. UPMC also encouraged its surgeons to get around state bans on non-Covid related elective procedures by using terms such as “urgent,” “cancer,” “unstable” and “relief from suffering.”

Getting back to normal, as UPMC is trying to do, isn’t necessarily wrong. It is important to reopen the economy, and people shouldn’t delay care, especially for cancer or critical non-Covid conditions. Certainly the system has taken steps to mitigate infections inside its hospitals and various facilities, and I’ve also heard from some of you who are patients at UPMC that you like the care you receive. But there is a conflict of interest at work, because UPMC’s financial goals align with reopening their non-Covid practice. UPMC generates revenue from high-cost outpatient elective procedures; 46% of the revenue of hospital systems in Western Pennsylvania come from such procedures. And the nature of the market structure for hospital services means there’s a lot of pressure to open back up this stream of cash.

There’s a giant monopoly problem in hospitals, which means hospitals have come to depend on charging excessively high prices for surgeries. Since the 1980s, and accelerating after the passage of Obamacare, hospitals have sought to merge with one another so they can have more bargaining power against insurance companies and doctors. UPMC is the system that took over Western Pennsylvania, with 41% market share of in that region, and 58% of market share for the medical-surgical market in Allegheny County (which contains Pittsburgh). Though technically a nonprofit, UPMC has $20 billion of annual revenue, and its executives make millions of dollars a year, as they would at any large corporation. UPMC has bought dozens of hospitals, doctor’s practices, as well as facilities for physical, occupational, speech and specialty therapies, and assisted senior living. It is also vertically integrated, with its own insurance company that has hundreds of thousands of customers in the region.

There are good arguments for scale and consolidation in health care - UPMC customers often have a good experience, and the Veterans Administration and many systems abroad are both large and efficient. So the problem here isn’t necessarily the size or growth. It’s that the growth is happening, at least in part, to acquire market power over pricing. The symptoms of monopolization, like reduced supply and higher prices, are there. In 2019, UPMC cut the number of beds and its medical admissions and observation cases dropped by 1%, even as its physician service revenue per weekday revenue jumped 7%.

UPMC is also becoming something of a global empire; it is working with the Wanda Group to build five hospitals in China, eye surgery specialty services in Ireland, and it runs a transplant and specialty surgery hospital in Palermo, Italy, and a national oncology treatment and research center in Kazakhstan. All of this is likely on hold, because the Coronavirus has cut a key source of revenue - high-priced elective procedures - to virtually nothing.

This dynamic is reproducing itself across America; roughly half of the massive drop in economic activity across the whole economy is a result of a collapse in health care spending. In 2003, health care analysts noted that American health care was far more expensive than anywhere else in the world. Why? The paper’s titled was self-explanatory: “It’s The Prices, Stupid: Why The United States Is So Different From Other Countries.” Higher prices are a result of pharmaceutical prices and health insurance companies, but also, critically, giant vertically integrated hospital systems like UPMC. (One good solution, IMHO, is Rep. Jim Banks’s legislation on hospital competition and pricing.)

Now we’re seeing what happens when these necessary but overpriced procedures go on hold. Hospital executives start lobbying aggressively to reopen as soon as possible. Is that a good idea? I am not sure. But there’s surely a conflict of interest when the hospital executive says it is, even if that executive wears a white coat and carries a stethoscope.

Federal Reserve: Plumber or Planner? Readers of BIG know that the Fed is now subsidizing corporate debt aggressively. It gave $3 billion to Carnival Cruise Lines, and helped cut Boeing’s borrowing costs.

In my day job I work at a think tank, the American Economic Liberties Project. A group of non-profits, including mine, just sent a letter to the Federal Reserve, asking the Fed to take its powerful political position seriously, and impose limits in its lending program against mergers and private equity leveraged buy-outs. Our view, like Adam Tooze, is that the Fed is the key actor in our planned economy, and it will get increasing heat as it chooses winners and losers.

But that’s not how the Fed sees its own role, and it’s not how many beat reporters on the Fed see it either. To them, the Fed is a neutral plumber, just fixing leaky pipes in the economy. This week, I got into a tiff on Twitter with a number of economists and beat reporters for the Federal Reserve, who took issue with the claim the Fed is conveying something of value by implicitly guaranteeing corporate liabilities. To take one as an example, Jeanna Smialek of the New York Times in a tweet storm targeted my observation on the Boeing bailout, noting that “the Fed did not buy Boeing debt,” but merely helped to “revive a choked market.” This is the Fed as plumber narrative.

Language matters. And the description you pick, plumber or planner, is a political choice.

An End to the World Trade Organization? Senator Josh Hawley is beginning a campaign to get the United States to withdraw from the World Trade Organization. While there will be a fair amount of gnashing of teeth from globalization advocates, the truth is that the United States through the Bush and then Obama administrations, has been demanding that the WTO follow its own rules, and the WTO simply refuses to do so.

For instance, the U.S. just rejected a WTO decision on the trade in a specialized form of paper, essentially claiming that the decision itself was illegitimate. One might easily see this as Trump-ian bluster, but if you look closer, the U.S. reasoning is pretty compelling. Not a single person on the body making the decision was a legitimate judge according to WTO rules. One was even a Chinese state official, despite the explicit rule that judges must be “unaffiliated with any government.” On a more prosaic level, appellate bodies must return decisions within 90 days, according to Article 17.5 of the Dispute Settlement Understanding. This one’s been sitting out for 528 days. Letting cases drag on for years, as industries die, is against WTO rules for good reason. It’s just that the WTO tends to ignore its own rules.

Another good example is the WTO leadership simply choosing to use its budget - which is partially financed by America - to set up a parallel enforcement mechanism with China and the EU to get around the legitimate American exercise of its authorities under the WTO to prevent appointments of appellate judges. There’s no authority to take American money and use it to set up an institution to undermine American rights at the WTO, without American consent. But that’s the way this institution works. They just don’t follow their own written rules, and then scream at America as protectionist for pointing that out.

It is hard to see any path for reform, because those at the organization simply do not adhere to the underlying text that the United States agreed on. You can rewrite rules, but what does that matter if the institutional culture is such that written rules don’t matter? If you want to understand more about this problem, I highly recommend this debate between two globalization advocates and Trump trade official Steven Vaughn. But to be clear, the populist left at Public Citizen has been leading the charge here for years, so this is not unique to the Trump administration or the right.

In terms of the broader point, what Senator Hawley is saying is not protectionism, but calling for a return to the New Deal framework of fomenting trade among democracies, while protecting critical supply chains and domestic production. Strategic trade management, he argues, is part of geopolitics, and it’s time to be deliberate about those choices again.

Trump DOJ Antitrust Division Shows Crime Pays: A week and a half ago, the Department of Justice proudly bleated out a press release titled “Leading Cancer Treatment Center Admits to Antitrust Crime and Agrees to Pay $100 Million Criminal Penalty.” The DOJ got Florida Cancer Specialists & Research Institute LLC to plead guilty to colluding with a rival cancer treatment operator in the chemotherapy and radiology market, and pay $100 million. Sounds good, right?

There are two little problems. First as the DOJ notes, the total revenue “from the provision of oncology treatments affected by this conspiracy totaled more than $950 million.” I’m no financial genius, but it does seem like paying $100 million to keep $950 million in revenue from a criminal conspiracy is a good investment. Crime pays, apparently.

It gets worse, because victims were also screwed in the way the DOJ brought the charges. Six weeks earlier, a settlement with Florida Cancer Specialists for just $7 million was approved by a New Jersey court. Now had DOJ told this court about their criminal case, it’s quite likely that amount would have been gone far higher, and victims would have gotten back some of the money stolen from them. But the DOJ didn’t say anything. Maybe the DOJ thought it could get more leverage if it kept silent. Maybe there was some sort of collusion here. Regardless, what the DOJ did is ugly and wrong.

As one antitrust lawyer told me, “When its own interests are served, the DOJ knows well how to interject itself into civil antitrust actions, and to make ex parte, sealed filing with the court. How can it explain failing to do so here? Congress ought to ask.”

Textbook and Antitrust: The DOJ Antitrust Division did a good thing by forcing textbook giants Cengage and McGraw Hill to cancel their merger. This merger was obviously anti-competitive, the goal was to effectively get rid of paper textbooks so that students can’t buy used copies, and then create textbooks as a high priced subscription service. The DOJ wouldn’t allow them to merge without selling off enough pieces so that the merger wouldn’t be worth it. Good call.

Thanks for reading. If you see examples of market power in this pandemic, let me know.

And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. Reader Max L. responded to my observation that Facebook has done little innovating as of late.

Hey Matt,

Big fan of the blog here. I couldn’t help but notice in this edition the comment that “there’s little innovation coming out of Facebook these days” and felt obliged to point out evidence to the contrary. 

I’m a computer science student at MIT and my research is in computational cognitive science (which you could loosely term ‘AI’), and in my recent experience I’ve come across a number of innovative initiatives from Facebook that I can’t ignore. Note first that I am definitely not a fan of Facebook and think that their products are problematic, that they have too much market power &c.

Two striking examples that come to mind are the open source libraries ReactJS and Pytorch, as well as the more recent papers in cognitive science that they have published. Pytorch is the most popular library in the world for machine learning. It was released in 2016 and is maintained by the Facebook AI Research team. (Tensorflow, Google’s counterpart, has fallen out of favor in the last few years). ReactJS is another extremely popular library for web development. It is maintained by another Facebook team. The influence of both these pieces of technology has been huge in the software development and research community. Similarly, there are a number of really interesting computational social science papers coming out of Facebook AI Research.

You could argue that this innovations are inadequate for one of the biggest companies in the world, but that’s a different conversation.



This is a fair point. What I meant to say is that Facebook isn’t innovating around its social networking user experience, which is why TikTok was able to take a Vine-like experience and explode in popularity. Facebook’s control of the advertising market killed fair competition in the U.S., and meant that competitors could emerge only if they were subsidized to lose money for a long time. That’s why TikTok is part of a Chinese corporation.

To take Max's argument on more directly, I would analogize Facebook as akin to General Motors and Ford in the 1960s. Both corporations did do engineering innovations, but very little of it ended up improving their cars. Only in the 1970s and 1980s, when they faced Japanese competitors (who often used American innovations that American corporations had refused to incorporate into products), did they finally begin to retool. Had GM not rolled up much of the auto industry in the 1920s, or had the DOJ broken up GM in the 1950s or 1960s (as is nearly tried to do), American carmakers would not have gone through such pain and cost hundreds of thousands of jobs.

This dynamic, of innovation happening inside monopolies but not showing up in their products, is fairly common. In one of the very first issues of BIG, I noted that Standard Oil prevented its Indiana subsidiary from selling an innovative new product it had discovered how to refine. When the company was finally broken up in 1911, its Indiana subsidiary, now independent, went ahead with the new business line. We call this product gasoline.

This dynamic isn’t quite the same as Facebook. After all, Facebook is providing an engineering public good, and a lot of others get to use it. But the production of knowledge about machine learning is not inherent to an advertising monopoly. Nor are “really interesting computational social science papers” coming out of Facebook Research division a sign of innovation. In fact Facebook’s control of what should be publicly available data stores means that the corporation is likely throttling the amount of research that could happen. Only those at Facebook, or those who get Facebook’s permission, are allowed to play with this public data. So while interesting papers are coming from people at Facebook who can use Facebook-controlled data for research purposes, that’s really just a function of the fact the Facebook is in command of what should be public resources.

In other words, it’s like saying “the glass isn’t nearly empty, it’s one tenth full!”

Can We Even Stop Monopolization in a Pandemic?

These four examples show that it's hard to tell the difference between consolidation and healthy adjustment to a pandemic.


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to list four examples of how the pandemic is enabling consolidation, and then observe why control of corporate assets fundamentally is a question of whether we live in a democratic society or an authoritarian one.

Competing Narratives Around Monopolization

Today I was on a phone call with a German journalist about monopoly power, and he asked me a set of questions I receive fairly frequently. Isn’t a monopoly, he asked, just evidence that a corporation had a better product than the competition? How can you say that monopoly power is a result of anti-competitive tactics?

The answer to these questions is complex. Many monopolies (though not all) start out with an innovative product, and then morph into political protection rackets to protect what was once a compelling product but is now purely a cash cow. Google for instance launched a great search engine, garnering it market share in search in the early 2000s. In 2002, the corporation began a merger strategy, and within just a few years it had a sophisticated political operation designed to ward off privacy laws and antitrust suits. Mark Zuckerberg’s Facebook product was pretty good in 2004, but there’s little innovation coming from Facebook these days. He has however restructured his board of directors to build political protection in a Republican administration. Similarly, Boeing once made great planes, now it has great connections and big bailouts, an engineering powerhouse turned into a financial engineering powerhouse.

But there’s something important about the question. It is hard to tell the difference between a rapidly growing business and a roll-up of market power. In a pandemic these distinctions can become even more difficult to discern, since there really is a deep need for rapid deployment of capital, often in distressed situations. It is also not always evident whether the attempt to grow is driven by the need for more productive capacity, or by the desire to engage in financial engineering or acquire market power.

And sometimes even the question itself becomes irrelevant, as we simply have no choice but to depend on a monopoly in a crisis, and regulate or hope that the essential service operates in the public interest. You go into a pandemic with the institutions you have, and many of our public institutions are at this point quite degraded, so the only way to operate is through channels controlled by concentrated power. In other words, monopolization and consolidation can happen for what seem to be good, or least necessary, reasons. How we respond as a society depends on how we imagine these concentrations of power came to be. So here are four examples of the growth of market power in this pandemic, some that are more grey area-ish than others, and then a conclusion about what they mean.

(1) Amazon: “No Other Choice”

Amazon’s increasing market power is not surprising. For at least a decade, the online giant has had market power over those trying to retail their products online. But with most retail stores shut down, Amazon has been extending its power over all retail, forcing brands who could stay off the platform onto its terrain. Amazon’s sales were up 24% in the first quarter, in a terrain where consumer sales are declining. If you had offline channels through which you could sell before the pandemic, now you really don’t.

Supplicants to Amazon make the point. Here’s Josh Cowan, a former Amazon executive who now helps brands sell through the company, talking to Bloomberg: “Brands are absolutely terrified to be reliant on Amazon right now, but they have no other choice.” That’s market power.

Here’s Ivory Ella CEO Cathy Quain, who sells “save the elephants” t-shirts and hoodies and donates proceeds to wildlife conservation, and has traditionally kept off the platform by selling to offline retail stores. “It’s a necessity for us to be where people can shop,” she says. That’s market power.

It’s not just in the retail space that Amazon is wielding its power, the corporation also radically cut the fees it pays to affiliates and publishers for getting customers to visit Amazon and buy products. An entire ecosystem, which is from what I’m told fairly leveraged up, will now collapse, simply because Amazon is the only game in town for customers and doesn’t need to keep paying for marketing.

And what of antitrust enforcers? As Bloomberg observes, “Bezos, who has compared his warehouse workers and delivery contractors to Covid-19 first responders, is betting that strengthening Amazon’s position won’t provoke antitrust regulators already investigating the company.”

So that’s the essential facility excuse.

(2) Google Moves Into Bailout Banking

This one’s a bit more speculative, but Google is now attempting to become infrastructure for banks and brokers with its “PPP Lending AI Solution.” Google is offering a product that lets banks and borrowers upload loan documents, and then parses those documents for key data useful in originating loans. This is their marketing spin:

Leveraging artificial intelligence, we’ve created an end-to-end solution that speeds up the time-to-decision on loans and helps inform lenders’ liquidity analysis—from the initial application submission to the underwriting process and SBA validation. The solution is also equipped with Google’s security capabilities, enabling lenders to meet policy requirements and protect critical assets. 

The key tell that there’s a power grab here is that “the product will be offered to lending institutions at no cost.” There is no free lunch, so if the price is not upfront, it’s buried somewhere in the back, usually in the form of a tacit handover of market power in one form or another. Google has other financial services products, where it enables banks to “predict credit and loan defaults and margin calls,” and to comply with stress testing and regulatory requirements. Basically, Google is seeking to become the guts of a bank, while letting bankers keep the branding and liability and all that other messy stuff.

In fact, my guess is that Google is attempting to be the guts of every bank. There’s already an oligopoly in banking software (known as ‘core’ software), and I’ve talked to a bunch of bankers who just absolutely despise their core software, which is often expensive, hard to use, and buggy. No doubt Google sees the pandemic as a moment to help capture that market for itself as bankers transition their infrastructure off of much older mainframe technology.

This dynamic is similar in some ways to Google’s penetration of the educational market. Bad educational procurement policy led to a horrible educational technology market. Google, by giving away reasonably high quality product in order to capture student data, was able to capture market share quickly.

Google is probably making the argument that banking software is competitive, and that this offering is an improvement on what is out there, helping banks lend to small businesses and comply with government rules. And the product free, or so they say. What could be wrong with that?

(3) Cheesecake Factory

I love the early termination notices part of the Federal Trade Commission website, because it tells you every day which transactions the Federal Trade Commission cleared. An early termination means the FTC didn’t ask any real questions about an acquisition, and just waived it through.

Last week the FTC cleared private equity fund Roark Capital Partners and its purchase of a stake in the Cheesecake Factory. Roark Capital is a franchise conglomerate, with “investments in franchises/multi-unit brands generate $41 billion across 89000 outlets.” These investments include Jamba Juice, Arby’s, Sonic, Rusty Taco, Jimmy John’s, Buffalo Wild Wings, Seattle’s Best, McAlister’s Deli, Moe’s Southwest Grill, Schlotzsky’s, Cinnabon, Auntie Anne’s, Miller’s Ale House, Culver’s, Carl’s Jr. and Corner Bakery.

It’s not clear to me how Roark Capital operates, they make the usual noises about long-term growth, etc, and they hold their investments for a long time. Roark Capital is named after fictional character Howard Roark from libertarian Ayn Rand’s novel The Fountainhead, though the firm maintains that the name “does not signify adherence to any particular political philosophy,” merely admiration for the “qualities embodied by Howard Roark.” Ok. Certainly the fund is a specialist in franchising, if not quality literary reviews.

It wasn’t necessarily a bad decision to clear this investment. It is very possibly a reasonable investment from someone with capital to a quality company in need. I can also imagine different ways that Roark Capital exploits market power across its portfolio. What struck me about this deal is that a fund that collects restaurant brands and owns tens of thousands of outlets got clearance to acquire more, without any questions from the FTC. I just see no reason to let this purchase go through without asking any questions. That’s a way to let market power increase without even noticing.

(4) Tele-psychiatry

And finally, this is the most speculative acquisition. Private equity giant TPG recently bought a big stake in Lifestance, one of the largest outpatient behavioral healthcare corporations in the country, basically a collection of psychiatrists and health care workers who address mental health problems.

The corporation seems to be executing on the trend of buying up doctor’s practices, with an acquisition strategy from the get-go when it was established by a few private equity funds. In 2015, the founder of the company said, “These are ‘gold rush’ days in the behavioral healthcare space, and as is typical with a gold rush, it comes with good things and bad things. But there is a lot of money being put to work.” Originally the focus was addiction recovery, but that seems to have fallen by the wayside as Lifestance now addresses other mental health problems.

As you might expect, tele-psychiatry is exploding in the pandemic, as the need explods and as Federal officials relax the rules for tele-health reimbursements. Lifestance is shifting to that work, and TPG is putting $1.2 billion into the company, which is going on a furious hiring spree. There will be more acquisitions in telehealth.

The FTC cleared this purchase quickly, and asked no questions. It could be a useful purchase, or it could simply be degrading the quality of necessary mental health services. Who knows? The FTC sure doesn’t!

Two Narratives

There are two different narratives at work here, one that supports consolidation of corporate assets under the control of a few and the other that is for public control of our social assets through regulated competition.

Here’s the pro-concentration narrative. Amazon and Google, large powerful capable organizations are delivering services we need. Amazon is helping facilitate commerce, and Google is entering a bank software space and helping to move small business lending. Meanwhile, Roark Capital Partners is lending to Cheesecake Factory which needs the capital to preserve its business, and TPG is helping Lifestance expand a needed psychiatric service. The alternative is to let commerce flounder, let banks flounder, block the expansion of necessary medical services, or liquidate otherwise viable businesses.

The anti-monopoly narrative goes as follows. Amazon has eroded its competition so substantially that it is now an essential service, one upon which producers all depend, and one in which workers routinely get the Coronavirus because the corporation won’t spend the resources to protect them. Google, meanwhile, is exploiting a badly structure bank software market to invade yet another crevice of our economy, cross-subsidizing its entrance into this area with rents from its search monopoly. Roark Capital is exploiting a distressed asset to roll up more power in the franchising industry, potentially opening the door to concentrated buying leverage against common suppliers. TPG is similarly aiding in the growth of a large and untested psychiatric service delivery corporation, which could jeopardize vitally important mental health care.

The right approach, in this narrative, is to (a) regulate Amazon in the crisis using public utility rules and labor laws, and then break it up afterwards so we never have to be so dependent again (b) block Google from leveraging its monopoly to enter new markets, and restructure the bank software market to facilitate competition (c) restrict the private equity business model while creating a national investment authority to ensure corporations like the Cheesecake Factory can survive without turning to private equity and (d) make sure that individual practitioners can deliver telemedicine without the need for large roll-ups, or just create a public system to employ medical practitioners if there are genuine economies of scale.

Authoritarian Values versus Democratic Values

As you consider these two narratives, recognize that the differences are not technical, but political. There is no reason that the only funding stream to businesses must come from private equity funds, except that our public policy framework enables the move of our pension money into that particular legal structure, and we have chosen not to build public institutions that can put money to work. Similarly, we don’t have to depend on Amazon, or expect that no one but Google can build usable software, if we choose to regulate our markets to facilitate more competition in niche software markets, or impose public utility rules recognizing the semi-public nature of these enterprises.

These are all simply political choices. We have for decades lacked the will to make our public institutions function with integrity, whether those are bureaucracies that can lend public money in a pinch, or regulators or enforcers who can ensure our corporations compete within ethical bounds. So back to the original question. Is a monopoly the result of a superior product? Not really, no. It’s the result of a lack of confidence in democracy.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to a book to hunker down with while sheltering in place, read my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. In my last issue I noted the Fed bailed out Carnival Cruise Lines and Boeing. Moody’s issued a report agreeing:

The issuance of US$-denominated IG corporate bonds has received support from special purpose vehicles sponsored by the Federal Reserve. The Fed’s backstop credit facilities may facilitate the recently announced issuance of up to $25 billion of investment-grade bonds by a major aerospace manufacturer for the purpose of assuring sufficient liquidity during a very difficult period for commercial aerospace.

But two readers took issue with my claims. Here’s Michael F:

I used to trade bonds at JPMorgan and Citi. The bonds cleared at an extremely high yield for BBB-paper (Treasury + 4.25%). They are senior secured corporate bonds, which means they're backed by Boeing's assets. Purchasers are likely pension funds and other institutions.

This is not a bailout.

And here’s Alex:

Yes a couple of interesting things here.

The Fed purchasing high-yield (risky, risky) bonds, which most bond investors would otherwise not touch (except Apollo/Elliot with usurious rates & covenants), is absolutely a bailout. The appreciation in market value  ($3B according to you) is similar to how legal firms evaluate "damages" to shareholders, so I think this is a roughly accurate assessment of the bailout size. It is money stockholders would otherwise not have but for the Fed intervention.

You argue that the Fed's intervention is "necessary" but "unhealthy"; the alternative is more corporations falling under the ownership of private equity. This part is true. Private equity will either buy these corporations up at firesale prices, or will buy up their debt and foreclose on their assets when they inevitably go bankrupt.

However, I am not sure this is a bad thing. Private equity will own the corporation. If they strip it of its assets and sell them off, it is because it is more profitable to do so. In other words, the corporation probably shouldn't have existed (at least at its size) at that propped-up valuation anyway, else it would be unprofitable to reduce its footprint.

What is the alternative? If not private equity, then these companies stay public. Ordinary people (and their retirement funds) continue to invest in them and impose no financial discipline; ultimately, these investors get bailed out by the Fed.

(Keep in mind, if the firms go bankrupt without private equity, the bondholders will foreclose on the assets and sell them off to, or retain them as, private equity anyway.)
If private equity owns them, they'll actually impose financial discipline. If they don't, they lose lots of money (after all, they own these assets and don't want them to depreciate. If you pay $1M for something and it goes bankrupt, you lose, end of story). Private equity has lost a ton of money during this whole crisis. That's how it should be: privatize the losses.

All in all, I think Fed intervention is creating a lot of distortions here. It is making capital markets play to what the Fed will do, rather than actually trying to assess the underlying viability of firms. Instead, let firms go bankrupt, let them buy/sell each other, and only bailout those companies which are effectively government utilities (and therefore extremely regulated, such as banks).

P.S. Warren Buffet is essentially private equity, and nobody seems to complain about him! Odd. One may then imagine "private equity, bad" as too reductionist. It is like saying "corporation, bad" or "government, bad". It is too low-resolution.

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