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Welcome to The Corner. In this issue, we sound the alarm on Amazon’s rapidly growing ad business, which hit record revenues last year and should be cause for concern for U.S. antitrust enforcers.

Amazon’s Ad Business Enters New Dangerous Territory in 2023

Karina Montoya

When publicly traded companies posted their 2023 earnings last month, Amazon made headlines [[link removed]] for posting better-than-expected profits in the fourth quarter. But the real headline should be that Amazon’s ad revenues hit a whopping $47 billion, making advertising Amazon’s fastest growing business line of 2023. At the same time, Amazon also built a foundation for even more growth in the segment in the years to come — by exploiting digital advertising on streaming TV. Many of the inner workings of Amazon’s ad business can’t be found on financial statements. Nor will we learn how the corporation [[link removed]] uses the profits from one business line to subsidize another. But as Jeff Bezos himself has described the process, Amazon’s various businesses work as a sort of “flywheel,” a self-reinforcing loop that speeds up as it’s fed. The corporation’s ad business, which has grown dramatically since 2018 is simply the latest example. The origin of Amazon’s ad business is rooted in its online Marketplace business, which since 1995 has grown to a level that pretty much achieves Bezos’s stated goal of making it the ‘everything store.’ About a decade ago [[link removed]], Amazon introduced the idea of having sellers buy ads on its site in order to boost their rankings within internal search results on Marketplace, in order to increase sales. As a result, Amazon has been able to exploit this system to self-preference its own brands; the corporation has been widely documented to restrict rivals [[link removed]] from buying ads next to Amazon’s select products, especially in electronics. More important yet, Amazon’s move to sell ads on its own website perfected the corporation’s ability to, in essence, extort [[link removed]] even [[link removed]] more money [[link removed]] from the tens of thousands of companies who depend on Amazon to get to market, since any failure to meet Amazon’s demands means not being able to connect with buyers. Amazon’s new push into advertising also upends the experience for the more than 100 million Americans who make purchases on the site. Take, for instance, Prime Video. Launched in 2011 as an ad-free streaming service for Amazon Prime subscribers, it has expanded into a library of shows and movies to buy, rent, or watch with ads for non-subscribers as well. In January, however, Amazon has required Prime viewers to pay [[link removed]] an extra $3 per month to not see ads. As Prime Video is bundled into the broader Prime subscription, which is used by 176 million people in the U.S. alone to access discounts and faster deliveries, this move will allow the corporation to extract billions of dollars from a viewership that is already locked into Amazon’s system by default. In addition to Prime Video, Amazon also sells ads on Twitch, Freevee, and Fire TV. Amazon was able to demonstrate its new power dramatically last year with the NFL’s Thursday Night Football [[link removed]], for which Amazon holds exclusive rights [[link removed]] as part of an 11-year deal worth $11 billion [[link removed]] that started in 2022. The move swiftly paid off. Last fall, in the aftermath of the Hollywood strikes that disrupted the production of new shows, major ad buyers reallocated 20% of their primetime TV budgets out of network TV and cable to live sports, and Amazon’s Thursday Night Football package was one of the big winners, reported [[link removed]] Business Insider [[link removed]]. None of these capabilities would be possible without Amazon’s ability to harness the power of information obtained and inferred from consumers on the Marketplace — which the industry calls first-party data — combined with Amazon’s dominance in cloud services through AWS. Paired with this is Amazon’s exploitation of AWS to make its ad tech tools more attractive to advertisers. In 2022, for example, Amazon introduced specific ad [[link removed]] - [[link removed]] measuring tools [[link removed]] catering to clients using AWS and advertising with Amazon. In 2023, Amazon doubled down on using machine-learning models supported on AWS to improve Amazon DSP [[link removed]] — its platform that centralizes ad sales across Amazon devices and other web publishers — and it’s likely to be using this same infrastructure to provide metrics [[link removed]] for how brands perform “on and off Amazon” in relation to their ads on streaming TV. Ultimately, all this helps Amazon to continue leading an advertising market now known as retail media [[link removed]], in which retailers are turning into media companies offering targeted ads based on people’s real purchasing behavior — data obtained with the implicit assumption that people have given “informed consent” over its various uses. As streaming TV assets can be part of a retailer’s ad network, this explains, for example, why Walmart wants to buy streaming TV manufacturer Vizio [[link removed]].

OMI Legal Director Sandeep Vaheesan’s Book on the U.S. Electrical Utility Industry Coming in December

Open Market Institute’s legal director Sandeep Vaheesan’s book Democracy in Power [[link removed]] : [[link removed]] A History of Electrification in the United States [[link removed]] will be published by University of Chicago Press in December. In his book, Vaheesan recounts how until the 1930s financial interests dominated electrical power in the United States, a situation that changed when FDR’s New Deal restructured the industry and promoted public ownership and cooperatives. Democracy in Power traces the rise of publicly governed utilities in the 20th century electrification of America and offers a blueprint for a publicly led and managed path to decarbonization. Democracy in Power is at once an essential history, a deeply relevant accounting of successes and failures, and a guide on how to avoid repeating past mistakes. Pre-order the book here [[link removed]]. 📝 WHAT WE'VE BEEN UP TO: Open Markets Institute’s Europe director Max von Thun contributed an article on Europe to a report published by AI Now Institute, AI Nationalism(s): Global Industrial Policy Approaches to AI [[link removed]]. In his chapter [[link removed]] “To Innovate or to Regulate? The False Dichotomy at the Heart of Europe’s Industrial Approach,” von Thun takes a critical look at the prominence of AI in global industrial policies, including the risk of ideological and financial capture by powerful corporate interests.

Open Markets’ reporter Austin Ahlman wrote an article for The American Prospect [[link removed]] on how chip giant Intel will capture nearly 10 percent of a CHIPS Act manufacturing fund to build a $3.5 billion secure facility to produce microchips for the U.S. military. “By siphoning such a large portion of the funds meant to boost domestic manufacturing capacity, the mandate to fund the secure enclave project stands to make the goal of diversifying the supply chain for sensitive chips much more difficult,” Ahlman writes.

Open Markets Executive Director Barry Lynn spoke at a recent conference in Brussels titled Making Artificial Intelligence Available to All: How to Avoid Big Tech’s Monopoly on AI [[link removed]]. Lynn spoke on a panel that included German Competition Authority President Andreas Mundt, French Competition Authority President Benoit Coeure, and Member of the European Parliament Stephanie Yon-Courtin. Executive Vice-President of the European Commission Margrethe Vestager also spoke at the event.

Lynn also delivered three presentations in Warsaw recently, on big changes taking place in U.S. competition, trade, and industrial policy. He spoke at the Stefan Batory Foundation and the business federation LEWIATAN, and with the Centre for International Relations. Lynn also met with high-level officials from the Polish government.

The Open Markets Institute applauded the Biden Administration’s efforts to provide more support for the enforcement of U.S. antimonopoly law. The White House this week announced a FY2025 budget that not only restores recent cuts to the Department of Justice’s Antitrust Division in its FY2025 budget but adds $55 million more for antitrust enforcement. Earlier this month, the administration said it will launch a new federal task force to rein in corporations’ ability to engage in price gouging. In a statement, Barry Lynn said, “Cuts made to the agency in recent 2024 budget negotiations are antithetical to protecting American democracy and national security and must be reversed.”

Open Markets’ food program manager Claire Kelloway released a statement [[link removed]] on the United States Department of Agriculture’s (USDA) final rule for improvements to Packers and Stockyards Act enforcement against discrimination, retaliation, and deception in the meatpacking industry. “This essential update to the Packers & Stockyards Act will defend farmers’ right to form cooperatives and stop packers from canceling contracts under false pretenses. It also makes clear that packers cannot discriminate against farmers and ranchers based on their race, religion, gender, or disability,” Kelloway said.

Open Markets Institute joined [[link removed]] European partners Foxglove, ARTICLE 19, SOMO, and others in a submission [[link removed]] to the European Commission’s call for contributions on competition in generative AI. “Any sensible regulatory action in generative AI must begin with a hard truth: power in the sector is already highly concentrated,” the group wrote, calling for steps such as preventing acquisitions in the space by dominant firms.

After the House of Representatives voted to force TikTok’s Chinese owner ByteDance to divest the video-sharing platform, OMI executive director Barry Lynn called [[link removed]] on lawmakers to crack down on the entire surveillance advertising model that underpins Big Tech giants like Google and Facebook. “Leaders from both parties have an opportunity right now to leverage the debate about TikTok to pass far more comprehensive and strategic fixes that address the many threats posed to U.S. national security and democracy by the surveillance- and manipulation-driven business models of America’s main online communications platforms,” Lynn said.

In a profile in The Guardian [[link removed]] of Federal Trade Commission chair Lina Khan, OMI executive director Barry Lynn is quoted on Khan’s origin story, noting that she joined Open Markets fresh out of college. He said her first assignment was a report on Amazon’s influence over book publishing but it was never published. “The audience just wasn’t ready yet for hearing that Amazon was a threat,” Lynn said.

Wired [[link removed]] quoted OMI Europe director Max von Thun on a $2 billion fine the European Commission slapped on Apple for unfair practices within its app store. “This is the commission saying, ‘We're going to be tough, particularly on Apple,’” he said. “I see this as kind of small compared to what's to come.”

Von Thun was also quoted in The Verge [[link removed]] saying that Big Tech companies like Amazon, Meta, and Google use cosmetic changes to circumvent Europe’s Digital Markets Act. “Big Tech’s strategy towards the DMA is to introduce changes that appear to open up their walled gardens, but that are actually unworkable or unappealing to businesses and users,” he was quoted as saying in comments that were reprinted in 9ToMac [[link removed]] and Forbes [[link removed]].

Open Markets Institute senior fellow Nikki Usher led a team of researchers in publishing a series of articles [[link removed]] focused on the state of local news and the information needs of communities entitled Media Policy for an Informed Citizenry: Revisiting the Information Needs of Communities for Democracy in Crisis. The series [[link removed]] comprised an entire issue of the ANNALS of American Political and Social Sciences [[link removed]], offering peer-reviewed academic work from activists, policymakers, and scholars.

In an article on preventing the spread of fake news, a Ghana-based website Adom Online [[link removed]] quoted Center for Journalism and Liberty director Dr. Courtney Radsch as saying there is an urgent need to “cultivate systems, institutions, and norms that enable quality and useful information to flourish and address the interplay between the technological infrastructure in which information and media systems are embedded.”

🔊 ANTI-MONOPOLY RISING:

Google’s advertising monopoly is set to go on trial again after a federal judge ruled that a class-action claim against the tech giant brought by small and mid-sized advertisers could proceed. The lawsuit is separate from the high-profile case being pursued by the Department of Justice, which will be heard by a federal court in September. ( eMarketer [[link removed]])

Apple was fined a record $2 billion by the European Commission for using its app store to unfairly limit competition from competitors like Spotify in a bid to boost its in-house content services. The sum is one of the largest-ever issued. ( Reuters [[link removed]])

California’s chief antitrust official, Paula Blizzard, announced plans last week for the state to reinvigorate its antitrust enforcement in the coming months. The move would be a dramatic shift, as the state, which has its own sweeping state-level antitrust legislation called the Cartwright Act, has not pursued a notable case for over 25 years. ( Regulatory [[link removed]] Oversight [[link removed]])

We appreciate your readership. Please consider making a contribution to support the continued publication of this newsletter.

DONATE [[link removed]] 📈 VITAL STAT: $3.8 billion

The value of the blocked merger between JetBlue and Spirit Airlines. The deal was blocked after a court agreed with a suit brought by the Department of Justice, which claimed the deal would harm consumer choice and increase prices. ( Associated [[link removed]] Press [[link removed]])

📚 WHAT WE'RE READING:

Means of Control: How the Hidden Alliance of Tech and Government is Creating a New American Surveillance State [[link removed]] — Veteran technology journalist Byron Tau examines how Big Tech giants have slowly grown to become a pillar of the United States’ domestic surveillance regime in the years following the 9/11 terror attacks, and the threat that poses to our civil liberties. Tau explores how the surveillance done by platform monopolies like Google and Facebook and the work of a host of mysterious data-trafficking companies come together to create a market for data that government agents can tap into at any time. This radical change has enabled the government to forego warrants and investigative work, instead buying mountains of data on private individuals in mere seconds.

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Written and edited by: Barry Lynn, Austin Ahlman, Ezmeralda Makhamreh, and Anita Jain.

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