The rivalry between Mark Zuckerberg and Elon Musk went into overdrive this week after Meta launched Threads, a Twitter rival that on its first day became the fastest downloaded app ever.
In an era of tighter antitrust scrutiny of Big Tech in the U.S., Europe and elsewhere, what questions does Meta’s effort to extend its social media reach raise about the industry’s ability to expand into new areas — even as players themselves build new ones services, rather than buying a smaller enemy?
Size matters, but it’s only one factor. Threads “pit two antitrust instincts against each other,” Tim Wu, an architect of the Biden administration’s antitrust policy and now a professor at Columbia Law School, told DealBook.
Challenging Twitter’s dominance is positive. “In general, we would like the big companies to take each other on, not just sitting in their little bubbles, raking in the cash,” Mr. Wu said. By contrast, Meta already dominates the social media scene with Instagram, Facebook and WhatsApp. By expanding that empire and enabling it to amass more data, he said, “it’s hard to be so happy about it.”
Regulators will want to know how Meta is gaining market share: offering a better product, or using the advantages of scale to unfairly crush Twitter? Threads are integrated into Instagram, giving it potential access to around two billion monthly active users. Another sticky issue: Users must delete their Instagram account to cancel their Threads account. (It’s unclear how the Federal Trade Commission, which has vowed to crack down on companies that make it too onerous to abandon service, might view this arrangement.)
Data concerns weave large. Threads is not available in the European Union, where privacy watchdogs have long been concerned with how Meta handles user information. On Tuesday, the supreme court of the block supported antitrust investigation by Meta over data privacy violations, concluding that data is a crucial factor in establishing market power.
Being big does not violate antitrust law. Organic growth is not a problem, Nancy Rose, a professor at the Massachusetts Institute of Technology and a former economist in the Justice Department’s antitrust division, told DealBook. She is “sympathetic” to the notion that it would be better for a new player, rather than a tech giant, to challenge Twitter but believes Meta is a “credible competitor.” The company has a “jump start,” Ms. Rose said, but smaller alternatives like Mastodon have had trouble taking off precisely because they don’t.
“The key is network effects,” said Doug Melamed, a Stanford Law School professor and former antitrust official at the Justice Department. The utility of Meta’s products to consumers increases as more users join. Strengthening them to improve the quality of Threads would not in itself violate antitrust laws, Mr. Melamed said.
“There’s a narrative that everything a tech company does is bad,” said Daniel Francis, who teaches law at New York University and is a former deputy director of the FTC’s Office of Competition. He argues that consumer unhappiness with changes to Twitter has prompted people to find an alternative. “The example of Threads shows that large technology companies can also be valuable participants, bringing new competitive pressure,” said Mr Francis. — Efrat Livni
IN CASE YOU MISSED IT
Elon Musk is suing Wachtell for $90 million from his acquisition of Twitter. X Corp, the entity that owns the social network, filed a complaint in California this week, accusing the elite law firm of trying to “change its fee arrangement as litigation counsel” to obtain an improper bonus for representing Twitter during negotiations with Mr. Musk to buy it.
Job growth is cooling. Employers added 209,000 jobs last month, below economists’ expectations. But it was the 30th consecutive month of wage gains, pushing the unemployment rate down to 3.6 percent. Investors reckon the labor market is still too tight for the Federal Reserve’s liking, and that policymakers will raise interest rates at their next meeting this month.
The Biden administration has been ordered to limit communication with social media. A judge in Louisiana ruled that some government agencies could not communicate with the platforms about removing “content containing protected free speech.” The decision may slow efforts to combat false and misleading stories about the coronavirus pandemic and other issues. The Ministry of Justice has appealed.
Hell on Earth. Global average temperatures hit a record high this week as forecasters warn the planet could be entering a multi-year period of exceptional heat. On Tuesday, the global average reached 62.6 degrees Fahrenheit, or 17 Celsius, making it the hottest day on Earth since records began in 1940.
Hollywood’s new Chinese challenge. The Department of Defense will no longer support movie studios if they comply censorship demands from China to distribute their films there, according to Politico. Last year “Top Gun: Maverick” was mired in controversy after the Taiwanese flag was removed from trailers in the film. It was restored in the final version.
An ex-insider on what’s really going on in China
Desmond Shum was one of China’s most well-connected businessmen. He and his former wife, Duan Weihong used their connections with top government officials to build a multibillion-dollar property company during a golden age for entrepreneurs starting in the mid-1990s.
Now, tensions with the West dominate discussion, with Treasury Secretary Janet Yellen sharply criticizing China’s treatment of American companies during a trip to Beijing this week.
Mr. Shum left China in 2015 when Xi Jinping, the country’s leader, asserted greater state control over the country and its businesses. But Duan, also known as Whitney, disappeared two years later. (It is believed that Communist Party officials stopped her after a senior political ally was held on suspicion of corruption.)
Mr Shum told the story of their rise and fall – and the murky reality of business in China – in his 2021 memoir. Many details cannot be independently verified but his role at the intersection of business and politics is certain. He now lives in the UK with the couple’s son (none of them have seen Duan since she disappeared) and says it is unsafe for him to travel to China.
Mr. Shum will testify next week in Congress on the challenges for American businesses operating in China, days after Treasury Secretary Janet Yellen sharply criticized Beijing’s treatment of American companies. DealBook spoke to him ahead of his appearance in Washington. This conversation has been condensed and edited for clarity.
What has changed since you published your book?
First, the perception of China has become more negative. Covid had a lot to do with it, especially in changing the views of the general public. That helped speed things up in terms of how policymakers deal with China – they now have a tide to ride.
Second, the outside world is underestimating how badly the Chinese economy is deteriorating. Several things shocked me in conversations I had with businessmen in China. A large dairy company produces more milk powder because people buy less milk. Usually this is one of the last things you would cut out.
Many executives also say that staff have been openly looting and stealing from companies since the pandemic. Why? They have lost hope because the economic outlook is so bad.
How does this affect management and business?
It adds to the growing insecurity of the Chinese Communist Party, so the government is tightening control with measures it introduced during the pandemic. That affects business: Attacks on due diligence firms with Western ties and restrictions on access to windChinese data provider, is part of an effort to control foreigners.
How are international companies adapting?
Companies overwhelmingly reduce their exposure. People talk about “de-globalization”, but the correct term is “re-globalization minus China”. You won’t have one country replacing China, but operations spread to Vietnam, Indonesia, Sri Lanka, India and elsewhere. Look at how many Taiwanese manufacturers are moving into Mexico on a large scale. And then you have amikshoring and nearshoring in Europe.
Are the messages from the US – talking tough while also saying it wants to maintain dialogue – making things difficult?
After four years of Trump and three years of Biden, you see a general consistency on China policy. A slight change or variation in tone will not affect China’s perception that America’s view of it is fixed. They need some easing of tension to revive business confidence and bring in more capital. If they can mitigate or delay US measures, they want to do so. – Ravi Mattu
Taylor Swift is re-recording her way to the charts
Taylor Swift on Thursday released the re-recorded version of one of her older albums, “Speak Now.” calling the move “a form of rebellion.”
The singer is on a mission to re-record the first six albums in her catalog (she’s done three) after the rights to the originals were sold in a contentious deal to super-agent Scooter Braun’s Ithaca Holdings in 2019 for north of $300 million. The investment firm Shamrock Capital Advisors bought the masters a year later for about the same amount.
Mrs. Swift argues that re-registering them will allow her to be recognized as the rightful owner of her work. But while the effort was applauded for artistic integrity, the other looming question is whether it was good business. (Other artists have tried and failed to reclaim their masters.) DealBook dug into the numbers.
The first two transcripts were released in 2021: “Fearless” in April and “Red” in November. Data from Luminate, reported earlier by Music Business Worldwide, shows that by the end of 2022, Swift’s re-releases have topped audio streaming charts. (Streaming accounts for the lion’s share of recorded music sales.)
“Red” (Swift’s version) was streamed 961 million times last year, compared to 254 million for the original – down 41 percent from a year earlier.
For “Fearless,” Swift’s re-release surpassed the original 401 million to 257 million.
The transcopies lifted Swift’s entire catalog. Streaming of her six records jumped about 6.5 percent to nearly 2.5 billion times in 2021. Importantly, though, a large proportion of those — 736 million — were for the album “1989,” which Ms. Swift has yet to re-record.
Shamrock’s deal is “very vulnerable”, Larry Miller, director at the music business program at NYU, told DealBook. However, since the company acquired Ms. Swift’s catalog after she made her intention to re-record her masters known, it is possible that Shamrock factored in the potential effect of dilution as part of the deal. (The company did not respond to a request for comment.)
Ms Swift has influenced the wider industry. Universal Music Group began to put more restrictive re-registration terms in its agreements with recording artists. And, in due diligence for deals, buyers are now “almost universally” looking at contracts to see if there is a restriction on re-registration, said David Dunn, founder of investment bank Short Tower Capital. — Lauren Hirsch
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