April 13, 2016
The FCC’s AllVid proposal is déjà vu. We have seen Google-YouTube’s piracy-as-negotiating-leverage MO in action before.
Google’s puppeteering of FCC-sponsored piracy in the FCC AllVid set-top box proposal is not the first time Google has anticompetitively used piracy promotion to gain an anticompetitive market advantage for YouTube’s monopsony power — i.e. its market power from being the only repository in the world where one can access a copy of most every video created whether it is legal or pirated, and where Google often promotes pirated videos near the top of its search results.
Don’t take my word for it, listen to Google executives’ own words in Google’s internal Gmails captured for posterity in The Statement of Undisputed Facts filed in the 2007 Viacom v. Google-YouTube copyright trial that settled in 2007.
These undisputed facts/Gmails spotlighted and organized below are damning for three reasons.
First, they prove that for ten years, Google has been trying to “pressure premium content providers to change their model towards free,” which strongly suggests Google is using its extraordinary political influence over the Federal Government and the FCC to anticompetitively extort value from companies that Google-YouTube could not competitively negotiate in the free market, because they demand premium video content be made available to them for free or near free.
Second, they prove that Google knows full well that its willful blindness to profiting from mass piracy is both anticompetitive and predatory.
Third, they help expose the FCC’s apparent willful blindness that their purported set-top box AllVid NPRM does not have a limited, narrow and containable effect on competition for just the set-top box market segment, but that it actually has broad, uncontainable and predictable ancillary impacts that are demonstrably anticompetitive, monopolistic and monopsonistic to the value of the most valuable corpus of video content in the world.
What’s at stake?
That’s because what is really at stake in AllVid is not the roughly $20b in cable set–top box revenues that the FCC myopically touts to justify its proposal. What is at stake is content that generates ten times as much in annual revenues as set-top boxes, roughly $200b in annual video content revenues. (Annual TV advertising revenues were ~$80b in 2015 per Strategy Analytics estimates, and annual multichannel video revenues were ~$120b in 2015 per SNL Kagan estimates.)
Summary of the Sordid Story that Google’s Gmail Trail Tells
For perspective, I have organized the most telling undisputed quotes from Google execs that lay bare a damning legal fact predicate for Google-YouTube’s anti-competitive behavior. It shows:
(1) Prior to buying YouTube, senior Google executives were actively considering an anti-competitive strategy of extortion – i.e. threatening illegal mass-copyright-infringement of copyright law to extract better terms to access valuable content.
(2) At the same time, YouTube on its own was knowingly and aggressively facilitating rampant video piracy of valuable content in order to grow its value and sell the company at the highest price.
(3) Google then knowingly bought YouTube fully aware that it was buying an Internet video distribution site dependent on piracy for its traffic, growth, and value.
(4) Just a few months after buying YouTube, Google formalized a program of effective predatory copyright infringement and willful blindness to piracy to try and sign content on more favorable terms, i.e. an extension of its original anticompetitive extortion strategy.
(5) Since then, Google has continued and perfected YouTube’s copyright arbitrage practice — of openly welcoming and benefiting from copyright infringement for the period from upload to Section 230 takedown. (Last week, Google reports copyright owners requested Google take down 22 million infringing URLs for just that week period.)
Google Execs’ incriminating Gmails that Google did not dispute in Federal Court ruling
(1) Prior to buying YouTube, senior Google executives were actively considering an anti-competitive strategy of forcing free video model on premium content providers by threatening mass copyright infringement to extort better terms to access others’ valuable content.
“On June 8, 2006, Google senior vice president Jonathan Rosenberg, Google Senior VP Product Management, emailed Google CEO Eric Schmidt and Google co-founders Larry Page and Sergey Brin a Google Video presentation that stated the following: “Pressure premium content providers to change their model towards free; Adopt ‘or else’ stance re prosecution of copyright infringement elsewhere; Set up ‘play first, deal later’ around ‘hot content. ‘” The presentation also stated that “[w]e may be able to coax or force access to viral premium content,” noting that Google Video could “Threaten a change in copyright polìcy” and “use threat to get deal sign-up.“” [Bold added for emphasis.] Viacom v. YouTube SUF #161
(2) At the same time, the revenue-less YouTube start-up obviously knowingly aided and abetted video piracy in order to grow its traffic virally so that it could then sell the company at the highest price.
“Steal it!…”we have to keep in mind that we need to attract traffic. How much traffic will we get from personal videos?” YouTube Co-founder Steve Chen SUF #44
“If you remove the potential copyright infringements… site traffic and virality will drop to maybe 20% of what it is.” YouTube Co-founder Steve Chen SUF #55
“But we should just keep that stuff on the site. I don’t really see what will happen. What? Someone from CNN sees it? He happens to be someone with power? He happens to want to take it down right away? He get in touch with cnn legal. 2 weeks later, we get a cease & desist letter. We take the video down.” YouTube co-founder Steve Chen SUF #47
“We’re going to have a tough time defending we are not liable… when one of the co-founders is blatantly stealing content from other sites and trying to get everyone to see it.” YouTube Co-founder Steve Chen SUF #40
“Save your meal money for some lawsuits!” YouTube co-founder Hurley SUF #38
“…concentrate all our efforts in building up our numbers as aggressively as we can through whatever tactics, however evil.” YouTube co-founder Chen SUF #85
(3) Then Google knowingly bought YouTube aware it was buying a piracy-driven/dependent Internet video distribution site, despite substantial high-level opposition internally.
“It crosses the threshold of Don’t be Evil to facilitate distribution of other people’s intellectual property…” “It’s a cop out to resort to dist-rob-ution.” Google Video Manager Ethan Anderson SUF #164
“…is changing policy [to] increase traffic beforehand that we’ll profit from illegal downloads how we want to conduct business? Is this Googley?” Google Co-founder Sergey Brin quoted SUF #162
“I think we should beat YouTube… but not at all costs. [They are] a video Grokster.” Google’s Eun to CEO Eric Schmidt before the deal was done SUF #158, #162
(4) After buying YouTube, Google knowingly operated a piracy-tolerant Google-YouTube in accordance with its original Pre-YouTube strategy of anti-competitively extorting competitors by forcing media companies into revenue deals with Google, if they wanted Google to protect their video content from mass piracy.
“Audio fingerprinting system whereby the content partner can send ‘reference’ fingerprints’ to Audible Magic’s database “are now live as well and are only offered to partners who enter into a revenue deal with us.”” Google Manager David Eun 2-15-07 SUF #216 [underline added for emphasis]
(5) After owning YouTube for several months Google was aware of growing mass copyright infringement by Google-YouTube:
“…a trend we see is that people upload copyrighted videos to their private videos… and then invite large numbers of people to view the video which bypasses our copyright restrictions” Google-YouTube employee Julie Havens in a 7-18-07 internal Google email SUF #199
Google-YouTube’s predatory copyright infringement and willful blindness to mass piracy is exceptionally anticompetitive and profitable because it:
- Generates an unbeatable cost advantage by avoiding the market cost of propertied goods for which law-abiding competitors must pay;
- Creates an unfair, jump-the-gun, time-to-market advantage, by ignoring the rule of law standard of securing permission from property owners before use in the marketplace, a business practice that law-abiding competitors must respect;
- Spawns and maintains a matchless online monopsony index/inventory advantage that no law-abiding competitor could hope to assemble; and
- Kneecaps property-based, subscription-monetization models, which compete with Google’s piracy-friendly, free advertising model.
Google’s forced video commons strategy is the ultimate predatory anti-competitive business practice, in that it unlawfully destroys the value of any copyrighted innovation and creative proprietary trade secret advantage a competitor may produce in a free market.
In short, Google-YouTube has an undisputed, demonstrable anticompetitive pattern of behavior over a decade that seeks to predatorily extort better wholesale video pricing by threatening to devalue, debase, and destroy video programmers businesses via willful blindness to mass video piracy on YouTube.
It should be beneath the FCC to allow itself to be used as Google’s de facto “muscle” to extort and force via government mandates that monopolist Google could not fairly negotiate by itself in the vibrantly competitive ~$200b pay TV marketplace.
Note: this piece draws heavily upon prior Precursor LLC research that was published and submitted to the DOJ Antitrust Division in the summer of 2013.
Scott Cleland served as Deputy U.S. Coordinator for International Communications & Information Policy in the George H. W. Bush Administration. He is President of Precursor LLC, an emergent enterprise risk consultancy for Fortune 500 companies, some of which are Google competitors, and Chairman of NetCompetition, a pro-competition e-forum supported by broadband interests. He is also author of “Search & Destroy: Why You Can’t Trust Google Inc.” Cleland has testified before both the Senate and House antitrust subcommittees on Google and also before the relevant House oversight subcommittee on Google’s privacy problems.
Precursor AllVid Series
Part 1: FCC’s AllVid Proposal Is Really The Great Google Ad Grab [1-29-16]
Part 2: Questioning Google’s Extraordinary Influence over U.S. Government Decisions [2-11-16]
Part 3: The FCC’s Googleopoly Gatekeeper Navigation Device Set-up [2-17-16]
Part 4: FCC’s Apparent Arbitrary AllVid Proposal [3-18-16]
Part 5: AllVid: FCC-Sponsored Piracy Would Extend Google’s Monopoly & Monopsony [3-28-16]
Part 6: Top Takeaways from Google’s Appeals Court Loss to MS State AG Jim Hood [4-11-16]
Relevant Googleopoly Precursor Research to AllVid
Part A: How Google Extends its Search Monopoly to Monopsony over Digital Information [9-15-09]
Part B: Google-YouTube’s Internet Video Distribution Dominance [7-23-13]
Part C: The Public Evidence Google Violated the DOJ Non-Prosecution Agreement [8-8-13]
Part D: Google’s WorldWideWatch Over the WorldWideWeb [Sept. 2014]