As Covid-19 accelerates the collapse of the news industry, a tech merger should have been dead on arrival. Instead, though the Justice Department hastily approved the merger, it took a year and an investigation by the UK competition authority for the merger to be abandoned. Bright-line merger rules would have led to this result much more quickly. Without such, mergers will continue to threaten the vitality of the news industry and make a catastrophic situation even worse.
In late July, the Justice Department approved the merger of Taboola and Outbrain, two of Google and Facebook’s few competitors in online advertising. The combined Taboola and Outbrain (T/O) billed itself as a savior of journalism. They justified their merger on the specious grounds that the combined corporation would be a serious competitor to the duopoly of Google and Facebook that has long siphoned off revenue from news publishers. Skeptical of this claim, the UK competition authority decided to challenge the merger, and was one of the primary reasons why the merger was abandoned.
This merger would not have saved journalism; it would have threatened journalism. In its haste to approve it, the Justice Department ignored both the combined corporation’s market power and the advertising industry’s need for more competitors, not fewer. The merger would have substantially lessened competition in the market for the type of digital advertising that T/O provides, and would have created another dominant platform to drain desperately needed revenue from news organizations.
To prevent advertising monopolists from continuously taking advantage of lackluster merger enforcement and eroding the news industry, and to stop depending on foreign competition authorities to prevent mergers, federal agencies must enact bright-line merger rules. Such rules would free journalism from the Google and Facebook duopoly, prevent dominant firms from entrenching market power through mergers and acquisitions, and foster a competitive environment where firms instead invest in innovation.
Since the pandemic took hold in the United States in March, prominent news organizations have laid off thousands of journalists, once-powerful nationwide chains such as McClatchy have declared bankruptcy, and more than 50 local newsrooms have closed, accelerating a decades-long collapse. Between 1990 and 2016, news organizations fired and laid off almost 300,000 journalists. Some 20 percent of US newspapers have disappeared during the past 15 years. The industry broke down because advertising revenue declined 62 percent from 2008 to 2018. These firings and closures threaten the vitality of democracy, as less local journalism undermines citizens’ ability to hold public officials accountable and to know about public affairs in their communities, the nation, and the world.
Scholars have attributed this long decline partly to Google and Facebook’s monopoly power in internet search, social networking, and digital advertising. For one, Google and Facebook’s respective dominance in search and social networking meant that audiences were frequently getting news through Google and Facebook, not directly from news organizations. Some 75 percent of users arrive at a news site from either behemoth, forcing news organizations to tailor their content to the algorithms and dynamics that Google and Facebook unilaterally construct to determine page views and, more broadly, how news is structured and distributed. In one chilling example, when Google changed its search ranking algorithm in 2017, many sites saw their search traffic decline by 40 percent.
Second, Google and Facebook have built a duopoly in digital advertising. They control almost 60 percent of the $125 billion digital ads market, significantly diminishing the ability of news outlets to pursue other digital advertising channels. Google and Facebook effectively determine the economic health of news organizations, because they determine the rates that a publisher receives when a user clicks an ad on the publisher’s site.
Taboola and Outbrain provide a different type of advertising: content recommendation ads, also known as native advertising, sponsored stories, or sponsored links. Both differentiate themselves from other digital advertising platforms, such as Google’s AdSense, by specifically focusing on increasing web traffic to other webpages, not to services or products. You’re likely familiar with Taboola and Outbrain’s product, known in the advertising industry as the chumbox. Typically, chumboxes are near the bottom or on the right edge of a page, and contain links to other sites, often using hyperbolic headlines and lurid imagery.
Despite the sensational content, many top news sites use the chumbox service provided by Taboola and Outbrain and have come to depend on it for revenue. A 2016 report by the nonprofit Change Advertising found that 80 percent of the top 50 news sites, including The New York Post, CNN, Business Insider, NBC, and Fox, used the chumbox, and the vast majority of those ads were provided by T/O. The combined corporation reaches more than 2.6 billion people each month, nearly half of the world’s desktop internet users and 89 percent, 86 percent, and 64 percent of all desktop users in the United States, the UK, and Germany, respectively. Of the 100,000 most visited websites, Taboola and Outbrain have a market share of 38 percent.
Why do serious news organizations include ads that are usually irrelevant to their pages and nearly always hyperbolic? For revenue beyond what Google and Facebook provide. Desperate publishers have turned to a service that likely degrades how readers perceive a publication. As one commentator stated, sites that use the chumbox “are playing a vast game of advertising arbitrage … They hope that they can make enough money from low-quality banner ads to justify the irritation and potential loss of traffic from users who hate them.”
But the merger between Taboola and Outbrain would only have exacerbated the harms that Google and Facebook do to the news industry. First, it would have profoundly concentrated the content recommendation industry, further shrinking the number of potential ad sources. Journalism organizations also have high switching costs with digital advertising platforms—whether with Google and Facebook or with T/O—because each advertising platform has to be integrated into a publisher’s website. These costs only amplified publishers’ fears that the merger would allow T/O to lower the commission rates that publishers receive for clicked advertisements—a form of price squeezing.
In the middle of the worst economic crisis since the Great Depression, and as Google and Facebook entrench their advertising dominance, the Department of Justice rubber-stamped the creation of another dominant corporation capable of diverting even more revenue from the news industry.
At a House Antitrust Subcommittee hearing in late July, bipartisan members of Congress lambasted Google’s and Facebook’s anti-competitive, monopolistic practices, which might give the impression that allowing Taboola and Outbrain to merge could have potentially dented the tech giants’ duopoly. It was a false choice the moment the merger was announced, and one that the UK competition authority understood when the agency’s investigation was initiated.
To survive and thrive, the journalism industry did not need a third dominant advertising corporation. Instead, publishers need more digital advertising competitors, so that news organizations are not forced to accept whatever crumbs the monopolists deign to proffer.
Breaking up Google and Facebook is the first and most obvious step. However, antitrust enforcers need to establish prophylactic policies that prevent corporations from becoming dominant in the first place. We need vigorous merger enforcement, which would have prevented consolidation in the digital advertising industry, the rubber-stamping the merger between Taboola and Outbrain, and the subsequent collapse of the business model of journalism. To enact these policies, federal agencies should establish bright-line merger rules that create an automatic merger enforcement regime not left to the discretion of agency officials.
Lackluster merger enforcement devastated journalism by enabling Google and Facebook to balloon into monopolies. Together, the corporations have made more than 300 acquisitions since 2001, and federal agencies have only challenged a very small handful. Google was permitted to acquire DoubleClick and YouTube, two valuable, dominant outlets for the production and distribution of digital ads. Facebook was allowed to acquire Instagram and WhatsApp. Anemic merger enforcement also led to the Department of Justice rubber-stamping the merger between Taboola and Outbrain. If not for the intervention by the UK competition authority, Taboola and Outbrain would have combined into an advertising behemoth.
In 1968, the Justice Department published guidelines with bright-line rules to prohibit mergers. If the top four companies in a market had a combined market share of less than 75 percent, the rules states, any merger among market participants would be illegal if either of the two merging firms had 5 percent or more of the market. Taboola and Outbrain each controlled far more than 5 percent of the market in content recommendation ads. Reviving these bright-line rules would remove ambiguity from merger enforcement and establish an automatic enforcement regime that encourages firms to compete organically through investing in technology, workers, and infrastructure, rather than encouraging growth through gobbling up competitors.
For far too long, journalism in America has suffered because dominant digital advertising companies have acquired their rivals with minimal regulatory intervention—and the merger of Taboola and Outbrain would have been another blow to the news industry. If we want to prevent digital advertising companies from becoming dominant and suffocating news publishers and not depend on the off chance a foreign competition authority decides to challenge the merger, bright-line merger rules could help save the industry.
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