Facing increased antitrust scrutiny in Washington and state capitals, Facebook Inc. (NASDAQ: FB) is quietly supporting new lobbying efforts. The Menlo Park, Calif.-based social network is helping to launch and fund American Edge, a new advocacy group that will argue against further regulation of Silicon Valley.
The move comes just as Facebook is rolling out its new Oversight Board, designed to be a “Supreme Court” to “exercise independent judgment over some of the most difficult and significant content decisions” that the company faces. The board is part of Facebook’s response to critics who say the company doesn’t properly vet user content.
Neither effort is likely to have much immediate impact on Facebook stock. But it behooves investors to keep an eye on political and regulatory developments in this election year. Wall Street analysts know that these cases can have real financial implications.
In January, Facebook agreed to settle a class-action lawsuit in Illinois for $550 million. In that case, plaintiffs said the company’s facial recognition tools violated a state privacy law on personal biometric information.
Facebook confirmed its participation in American Edge, which was first reported last week by The Washington Post. “We’re working with a diverse group of stakeholders to help build support for our industry, and while we’re leading an effort to start this coalition, it’s one of many we are contributing to and supporting,” a spokesman said.
American Edge was created as a nonprofit organization with an accompanying foundation. “The setup essentially allows it to navigate a thicket of tax laws in such a way that it can raise money, and blitz the airwaves with ads, without the obligation of disclosing all of its donors,” according to the Post. The National Rifle Association is just one of many advocacy groups to use this model.
With a bipartisan board, American Edge is seen as a move by Silicon Valley to fight back against growing calls for more regulation. In February, the Federal Trade Commission asked Amazon.com (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Facebook, Google and Microsoft Corp. (NASDAQ: MSFT) for information on acquisitions from the past decade.
The FTC said it wants to determine if it’s “getting adequate notice of transactions that might harm competition.” Facebook’s acquisitions of WhatsApp and Instagram occurred during this time period.
Meanwhile, the Department of Justice is ramping up its antitrust probe into Google and its advertising tools. Competitors say Google has consolidated too much power in the buying and selling of ads online. Google is a unit of Alphabet Inc. (NASDAQ: GOOGL).
A number of state attorneys general are running their own investigation of Google, and recently met with the Justice Department to compare notes. States have joined the federal government in past antitrust cases, including a 1998 one against Microsoft.
Most of the state attorneys general have joined a New York-led investigation of Facebook. The states are probing whether Facebook “endangered consumer data, reduced the quality of consumers’ choices, or increased the price of advertising.” Some attorneys general are also investigating Google.
Finally, Congress is doing its own probes into allegedly anti-competitive practices by the tech giants. All of these probes move at a slow and deliberate pace, but they remain real concerns for the tech industry. It’s not clear if the coronavirus pandemic will impact the timings of these investigations.
Facebook’s Oversight Board is supposed to address the content moderation issue, a thorny problem for the social media giant. The company has always advocated free speech, but has been criticized for allowing hate speech, online bullying and false news reports. And there’s the whole issue of how Russian operatives manipulated content on Facebook during the 2016 election.
The company named 20 members from around the world, including a former Danish prime minister, a Nobel Prize winner, judges and advocates. Another 20 members will be named later.
Facebook said it removed 9.6 million posts during the first quarter of this year for various violations, including sexual content, hate speech and spam. The company said nearly 90% of its actions were proactive — that is, not the result of a user complaint.
The company also reported that 1.3 million of those actions were appealed. Of that number, 63,600 posts were restored.
The Oversight Board will rule on the most high-profile appeals with public decisions that Facebook executives are bound to accept. Essentially, the board can overrule Facebook on controversial cases. And the board is expected to make recommendations for how Facebook moderates content.
CEO Mark Zuckerberg no doubt hopes that the voluntary creation of independent oversight will dent any efforts at regulation. ““Facebook should not make so many important decisions about free expression and safety on our own,” he said in announcing the Oversight Board.
The board is expected to hear its first cases this summer. Whether any of this will affect the company’s bottom line remains to be seen.
“The big question will be, are they taking questions that might result in decisions … that go against Facebook’s business interests?” said David Kaye, U.N. special rapporteur on freedom of opinion, in an interview with Reuters.
Facebook hit 2.6 billion monthly active users worldwide in the first quarter of 2020, a 10% increase year over year. Ad impressions served across all platforms increased 39% in Q1, but the average price per ad dropped 16%.
CFO David Wehner said the price drop was “attributable to the reduction in advertiser demand during the last three weeks of March.” The dismal advertising market is an ongoing concern for Facebook.