Apple’s new ecosystem world order and the privacy economy

Apple’s splashy new product announcements at its annual Worldwide Developers Conference in San Jose also ushered in new rules of the road for its ecosystem partners that force hard turns for app makers around data ownership and control. These changes could fundamentally shift how consumers perceive and value control over the data they generate in using their devices, and that shift could change the landscape for how services are bought, consumed and sold.

A lot of privacy advocates have posited a future wherein we ascribe value to the data of individuals and potentially compensate people directly for its use. But others have also rightly pointed out than in isolation, a single individual’s data is precisely value-less, since it’s only in aggregate that this data is worth anything to the companies that currently harvest it to inform their marketing and drive their product decisions.

There are many reasons why it seems unlikely that any of the companies for which user data is a primary source of revenue or a crucial aspect of their business model would shift to a direct compensation model – not the least of which is that it’s probably much cheaper, and definitely much more scalable, to build products that provide them use value in exchange instead. But that doesn’t mean privacy won’t become a crucial lever in the information economy of the next wave of innovation and tech product development.

Perils of per datum pricing

As mentioned, the mechanics of directly selling your data to a company are problematic at best, and unworkable at worst.

One big issue with this is that there’s definitely bound to be a scale limit on any subscription paid product. In a world where that’s increasingly a preferred method for media companies, food and packaged goods delivery, and even car ownership alternatives, there’s clearly a cap on how much of their income consumers are willing to commit to these kinds of recurring costs.

MoviePass parent drops another 46%

There’s been another bomb at the box office, and it isn’t a movie.

MoviePass parent Helios & Matheson lost nearly half of its remaining value today as investors continued to flee the cash-burning movie service. That drop followed a 31% dive yesterday, after the company filed a statement with the SEC warning that it would have to sell equity in the coming weeks for it to remain solvent. Since Thursday’s opening bell last week, the stock has moved from $2.13 to $0.79, a drop of 63%. The company’s market cap is now $51.44 million.

MoviePass CEO Mitch Lowe said in a written statement that “Our burn rate has been slashed by 35-40% by the implementations and abuse prevention measures we have put in place over the last few weeks. We have always known, from when MoviePass took off in August, that it was going to be a high cash burn business model. We are not changing our guidance on 5 million subscribers by the end of this year – which should make us profitable/cash flow positive according to our business model. We have access in capital markets to over $300 million. So there is plenty of cash available to sustain the subscriber growth and movie-going habits of our users.”

Those are the facts as we know them, but let’s consider some of the options the company has now.

Even if you believe the market demand for Helios’ stock (I, for one, find them incredulous), there is an enormous challenge of converting that money into equity now. The envelope math looks like this: a month ago when the stock closed at $4.21, buying 20% of the company would have cost roughly $55 million. At the company’s current average burn rate of $21.7 million per month, that cash would have lasted approximately 2.5 months.

Now though, with the stock price so low, getting cash on the balance sheet today is a much harder proposition. That same $55 million that bought an investor a fifth of the company last month would be a complete buyout today. Buying 20% only costs a bit more than $10 million now, or roughly two weeks of burn.

So what’s the trick here that will save the company?

The obvious option is to radically control burn. The company could offer pricier tiers for heavy users of MoviePass, and could put a ceiling on the number of films a customer can watch per month as it did temporarily a few weeks ago. Lowe seems deeply committed to overall subscriber growth though, and that makes any sort of constraints on the product unlikely. The reason is that subscribers are the leverage Lowe needs to negotiate better partnership arrangements with theater chains, so he has to keep trying to grow users rapidly.

One theory is that the company could be negotiating equity deals with theaters chains like AMC, which could be enticed by the low price of the stock to “buy in” to MoviePass’ popularity. Such media equity partnerships are not unusual — Sony, for instance, was a major shareholder in Spotify, as was Warner Music group, although both have since sold off large percentages of their holdings. Given the reliance of MoviePass on theater chains, building an equity partnership could prove to be the service’s savior.

A well-publicized partnership — including discounted movie tickets for MoviePass — could boost the stock significantly since the cost savings would improve the company’s burn rate. That could be an enticing proposition for the chains, since they could realize an almost immediate gain on their investment, plus the on-going proceeds of a partnership going forward.

The other tactic would be to sign up more MoviePass subscribers who watch limited films. This is what might be called the “gym membership model” of trying to identify customers who want to buy a membership as an aspirational purchase, but who won’t actually use the facilities often. The challenge, beyond the incredibly short time period to try to build that marketing funnel, is that MoviePass appears to lose money on the very first ticket a customer purchases. The question isn’t how much revenue each customer generates, but how much the losses can be minimized.

The situation is a high-wire act, and the company will either hit the ground in the next few weeks, or it will right the ship, limit expenses, and get enough equity investors to give it some cash to burn and keep on growing. I’d say use your MoviePass while you have it, but then again, that’s exactly why the company is faltering to begin with.

MoviePass parent drops 31% on looming cash crunch

The big question in the media world today is whether MoviePass parent company Helios and Matheson can stanch the bleeding of its cash flows before it becomes insolvent.

In a new filing today with the SEC, Helios informed investors that it had $15.5 million in available cash, with another $27.9 million in accounts receivable from members of MoviePass on longer-term subscriptions. Under accounting rules, those dollars can’t be used to fund current expenses. The company said that it has lost $21.7 million a month between September and April this year.

Investors dumped the stock following the filing, and the stock was down 31% at the close of the equity markets today.

While linear math would seem to indicate that the company is on track for insolvency in a matter of days, the filing and its CEO are maintaining an optimistic line. The company said that following a series of product changes including more verification that a subscriber actually watched a film themselves, it should reduce its cash loss on the service by 35% during the first week of May.

In an interview with TechCrunch, MoviePass CEO Mitch Lowe struck a positive view on the future of the business. He argued that unlike in the past, where a new app or service would raise venture capital and then invest it in the business, you can just handle capital concerns as you need them. “Today what you do is you raise enough money month by month to fund essentially that negative cash flow,” he said. “We are 100% confident that we have the committed funding to do it.”

In order for the company to avoid insolvency, the company will need to continue to sell its common stock to investors on a regular basis to fund that negative cash flow. The company said that sales of its common stock will need to begin this month in order to fund operations. If the company is unable to do so, “we may be required to reduce the scope of our planned growth or otherwise alter our business model, objectives and operations, which could harm our business, financial condition and operating results,” it wrote in the filing.

Subscription hell

Another week, another paywall. This time, it’s Bloomberg, which announced that it would be adding a comprehensive paywall to its news service and television channel (except TicToc, its media partnership with Twitter). A paywall was hardly a surprise, but what was surprising was the price: the standard subscription is $35 a month (up from $0 a month), or $40 a month including access to online and print editions of Businessweek.

And people say avocado toast is expensive.

That’s not the only subscription coming up though. Now Facebook is considering adding an ad-free subscription option. These rumors have come and gone in the past, with no sign of change in the company’s resolute focus on advertising as its core business model. Post-Cambridge Analytica and post-GDPR though, it seems the company’s position is more malleable, and could be following the plan laid out by my colleague Josh Constine recently. He pegged the potential price at $11 a month, given the company’s revenue per user.

I’m an emphatic champion of subscription models, particularly in media. Subscriptions align incentives in a way that advertising can never do, while also avoiding the morass of privacy and ethics that plague ad targeting. Subscription revenues are also more reliable than ad dollars, making it easier to budget and improve operational efficiency for an organization.

Incentive alignment is one thing, and my wallet is another. All of these subscriptions are starting to add up. These days, my media subscriptions are hovering around $80 a month, and I don’t even have TV. Storage costs for Google, Apple, and Dropbox are another $13 a month. Cable and cell service are another $200 a month combined. Software subscriptions are probably about $20 a month (although so many are annualized its hard to keep track of them). Amazon Prime and a few others total in around $25 a month.

Worse, subscriptions aren’t getting any cheaper. Amazon Prime just increased its price to $120 a year, Netflix increased its popular middle-tier plan to $11 a month late last year, and YouTube increased its TV pricing to $40 a month last month. Add in new paywalls, and the burden of subscriptions is rising far faster than consumer incomes.

I’m frustrated with this hell. I’m frustrated that the web’s promise of instant and free access to the world’s information appears to be dying. I’m frustrated that subscription usually means just putting formerly free content behind a paywall. I’m frustrated that the price for subscriptions seems wildly high compared to the ad dollars that the fees substitute for. And I’m frustrated that subscription pricing rarely seems to account for other subscriptions I have, even when content libraries are similar.

Subscriptions can be a great tool, but everyone seems to be doing them wrong. We need to transform our thinking here if we are to move on from the manacles of the ad networks.

Before we dive in though, let’s be clear: the web needs a business model. We didn’t need paywalls on the early web because we focused on plain text from other users. Plain text is easier to produce, lowering the friction for people to contribute, and it’s also cheaper to store and transmit, lowering the cost of bandwidth.

Today’s consumers though have significantly higher standards than the original users of the web. Consumers want immersive experiences, well-designed pages with fonts, graphics, photos, and videos coming together into a compelling format. That “quality” costs enormous sums in engineering and design talent, not to mention massively increasing bandwidth and storage costs.

Take my colleague Connie Loizos’ article from yesterday reporting on a new venture fund. The text itself is about 3.5 kilobytes uncompressed, but the total payload of the page if nothing is cached is more than 10 MB, or more than 3000x the data usage of the actual text itself. This pattern has become so common that it has been called the website obesity crisis. Yet, all of our research shows people want high-definition images with their stories, instant loading of articles on the site, and interactivity. Those features have to be paid somehow, begetting us the advertising and subscription models we see today.

The other cost is content production itself. Volunteers just haven’t produced the information we are seeking. Wikipedia is an extraordinary resource, but its depth falters when we start looking for information about our local communities, or news, or individuals who aren’t famous. The reality is that information gathering is hard work, and in a capitalist system, we need to compensate people to do it. My colleagues and I are passionate about startups and technology, but we need to eat to publish.

While an open, free, and democratized web is ideal, these two challenges demonstrate that a business model had to be attached to make it function. Advertising is one such model, with massive privacy violations required to optimize it. The other approach is charging for access.

Unfortunately, subscription seems to be an area filled with product engineers and marketers led by brain-dead executives. The default choice of Bloomberg this week and so many other publications is to simply put formerly free content behind a paywall. No consumer wants to pay for something they formerly got for free, and yet we repeatedly see examples of subscriptions designed this way.

I don’t know when media started hiring IRS accountants, but subscriptions should be seen as an upgrade, not a tax. A subscription should provide new features, content, and capabilities that didn’t exist before while maintaining the former product that consumers have enjoyed for years.

Take MoviePass for instance. Consumers can continue to watch movies as they always have in the past, but now they have a new subscription option to watch potentially more movies for a set price. Among my friends, MoviePass has completely changed the way they think of films. Instead of just seeing one blockbuster every month, they are heading to an art house film because “we’ve essentially already paid for it, so why not try it?” The pricing is clearly too cheap, but that shouldn’t distract from a product that offered a completely new experience from a subscription.

The hell is even worse though. We not only get paywalls where none existed before, but the prices of those subscriptions are always vastly more expensive than consumers ever wanted. It’s not just Bloomberg and media — it’s software too. I used to write everything in Ulysses, a syncing Markdown editor for OS X and iOS. I paid $70 to buy the apps, but then the company switched to a $40 a year annual subscription, and as the dozens of angry reviews and comments illustrate, that price is vastly out of proportion from the cost of providing the software (which I might add, is entirely hosted on iCloud infrastructure).

For product marketers, the default mentality is to extract a lot of value from the 1% of readers or users that are going to convert to paid. Subscriptions are always positioned as all-or-nothing, with limited metering or tiering, to try to force the conversion. To my mind though, the question is not how to get 1% of readers to pay an exorbitant price, but how to get say 20% of your readers to pay you a cheaper price. It’s not about exclusion, but about participation.

One way we could fix that situation would be to allow subscriptions to combine together more cheaply. We are starting to see this too: Spotify, Hulu, and Scribd appear to be investigating a deal in which consumers can get a joint subscription from these services for a lower rate. Setapp is a set of more than one hundred OS X apps that come bundled for about $10 a month.

I’d love to see more of these partnerships, because they are much more fair to the consumer and ultimately allow smaller subscription companies to compete with the likes of Google, Amazon, Apple, and others. Cross-marketing lowers subscriber acquisition costs, and those savings should ultimately stream down to the consumer.

Subscription hell is real, but that doesn’t mean the business model is flawed. Rather, we need to completely transform our thinking around these models, including the marketing behind them and the features that they offer. We also need to consider consumers and their wallets more holistically, since no one buys a subscription in a vacuum. For too long, paywall playbooks have just been copied rather than innovated upon. It’s time for product leaders to step up and build a better future.

Freeda raises $10 million for its new media brand for women

Italian startup Freeda Media is raising a $10 million Series A round led by Alven Capital. U-Start and business angels are also participating in the round.

Freeda Media runs the popular Freeda Facebook page. With nearly 1.4 million likes, the page has an impressive reach. 24 million unique users see Freeda content every month in Italy, including 100 percent of millennial women who live in Italy. The company is also quite active on Instagram.

In other words, Freeda Media is a new media company that runs mostly on social media platforms. Many of the Facebook posts are short videos, social cuts with subtitles and quick interviews. Some posts link to Freeda’s own website for more traditional articles with text and photos. But there’s no front page per se.

With today’s funding round, the company plans to expand to other markets, starting with Spain. More interestingly, Freeda is still quite young as it took them 15 months to reach this level.

The company compares itself with other media brands for women, such as Elle, Teen Vogue, Vanity Fair, Cosmopolitan or Man Repeller. According to CrowdTangle, Freeda has a much higher engagement rate compared to its direct competitors.

Freeda Media’s business model is branded content and native advertising. But the startup is looking at other potential revenue streams. There’s clearly a risk of branded content overload for social-first media organizations. When you build a Facebook audience based on trust, your reputation can also quickly deteriorate and the algorithms can turn on you. So far, it doesn’t seem to be an issue.

Internationalization is going to be key to foster Freeda’s growth. If Freeda can replicate the same impressive numbers in multiple countries, the startup could end up convincing bigger advertisers and distributing more or less the same content in multiple countries.

Spotify misses on revenue in first earnings report with 170M users

In Spotify’s first ever earnings report, the streaming music came up short, pulling in $1.36 billion revenue in Q1 2018. That’s compared to Wall Street’s estimates of $1.4 billion in revenue and an adjusted EPS loss of $0.34. Spotify hit 170 million monthly active users, up 6.9 percent from 159 million in Q4 2017 and 99 million ad-supported users. It also hit 75 million Premium Subscribers, up 30 percent year-over-year, and 75 million paid subscribers, up 5.6 percent from 71 million in Q4 and up 45 percent YoY.

Interestingly, the MAU count indicates that 4 million of Spotify’s 75 million subscribers pay but don’t listen. Spotify confirmed as much. For reference, Apple Music has roughly 40 million subscribers.

Spotify’s results were in line with the guidance it gave yet Wall Street was still disappointed. Spotify shares promptly fell over 8 percent in after-hours trading to around $156, beneath its IPO pop a month ago but still above its $149 day one closing price and $132 IPO pricing.

Spotify’s Gross Margin was 24.9 percent in Q1, over the top of its guidance range of 23-24 percent. Its operating loss was $48.9 million, which improved significantly, and come in under the $59 million to $95 million operating loss Spotify warned of. The music company now has $1.91 billion in cash and cash equivalents at the end of Q1.

As for Q2 guidance, Spotify expects 175 to 180 million MAU, 79 to 83 million paid subscribers, and $1.3 to $1.55 billion in revenue, excluding the impoact of foreign exchange rates. It’s planning an operating loss of $71 million to $167 million, in part due to a $35 million to $42 million expense related to its direct listing debut on the public markets.

Spotify is hoping to boost paid subscriber numbers by first luring more users to its free ad-supported service. Last month it unveiled a revamped free tier that lets users listen to songs on-demand on particular Spotify-controlled playlists instead of only being able to play in shuffle mode. The idea is that once users get a taste of on-demand listening, they’ll pay to upgrade so they can listen to whatever they want across the whole catalog.

That strategy could not only boost subscriber numbers, but also give Spotify more leverage over the record labels. More than 30 percent of all Spotify listening now happens on its owned playlists. That gives it the power to choose what will become a hit, and in turn means record labels need to play nice. This could help Spotify secure more exclusive content and a better bargaining position in royalty negotiations.

BuzzFeed built its own editing tool for short, meme-y videos

Although the “pivot to video” has been notoriously challenging for most publishers, they can’t exactly give up on video. In fact, BuzzFeed has been ramping up production with a new editing tool called Vidder.

Vidder was created Senior Product Designer Elaine Dunlap and Senior Software Engineer Joseph Bergen. Dunlap recalled talking to Bergen more than a year ago and pointing out that while BuzzFeed is known for building its own publishing tools, “there wasn’t really the same opinionated software solution” for creating videos.

So they decided to build a video editing product that could be used by anyone, not just experienced producers and editors. Dunlap said the initial goal was to “demystify video production.”

“We basically started out with this hypothesis that if we gave a very simple tool to these editors who are constantly creating very funny, interesting things, they would really be able to fly,” Bergen added.

Fast forward to 2018 and BuzzFeed says Vidder is being used by 40 or 50 team members to create 200 videos each month, with 800 videos created in all since October. Almost none of BuzzFeed’s Vidder users are full-time video producers, and most of them had little to no experience with professional video editing software.

Vidder

For example, Kayla Yandoli was a member of BuzzFeed’s social team (she’s since transferred to the video) when she created this compilation of “shady” insults from The Golden Girls last fall. With 1.1 million shares, it was one of Vidder’s early success stories, and Yandoli estimated that it only took her only an hour and a half to edit.

We moved even faster when the Vidder team demonstrated the product for me last week. We started with a basic template, then customized it by uploading one or two video clips, typing in captions and subtitles, adding emojis, and we had a perfectly serviceable video ready to go in just a few minutes.

The experience had very little in common with the hours I’ve spent fiddling with timelines in FinalCut. It also benefits from being entirely web-based, with no software download needed.

The key to Vidder is simplicity. As Product Manager Chris Johanesen put it, “We’re not trying to recreate Adobe Premiere.” There are teams at BuzzFeed creating more in-depth, highly produced videos, and Vidder isn’t built for them. Instead, it might be used by an editor like Yandoli who wants to quickly translate a regular BuzzFeed post into a video for Facebook or Instagram.

“There was a really big boom with Facebook videos around pop culture, animals, babies and stuff,” Yandoli recalled. “People on my team were interested in creating videos, but everyone couldn’t download Premiere. We were yearning to just find an accessible tool so that we could create things for our social platforms.”

Vidder

And while you might think that Vidder has become less relevant with recent Facebook algorithm changes, Johanesen said the tool allows BuzzFeed to continue experimenting.

“Ever since the big Facebook algorithm changes that happened, our social strategy is less about longer videos and more about making things that will engage communities and conversations,” Johanesen said. “Vidder has helped teams move a little bit faster than might have been possible with other tools. I don’t know that we’ve cracked it, but it’s helping us make progress.”

BuzzFeed is also using Vidder to adapt videos for different platforms, like creating a shorter video for Instagram or compiling several short videos into a longer cut for YouTube. The tool is also being used by international teams who might quickly create a localized version when they see that a BuzzFeed U.S. video is doing well. In fact, BuzzFeed says one international editor was able to “clone” eight Vidder videos in an hour.

Usage is spreading beyond social media teams, with the sales team potentially using it to create “BuzzCuts” for advertisers.  And of course Johanesen and his team are going to continue working on the product — for example, they have plans connect it to a library of licensed content.

Sling TV expands cloud DVR service to a bunch of new devices

Dish’s Sling TV service is expanding its Cloud DVR to a wide variety of new devices.

Chrome browser, Chromecast, Xbox One, LG Smart TVs, and more recent models of Samsung Smart TVs (2016 and 2017 models) will all now support Sling TV’s Cloud DVR service.

For those of you who don’t know, Sling TV DVR is a digital DVR service that lets users record up to 50 hours of content, with an unlimited amount of time for storing those devices. In other words, recorded content in the digital DVR will never expire.

Of note: Sling TV’s DVR service costs an extra $5/month on top of the base package, which starts at $20/month.

The company recently announced that it has 2.2 million users on the service, making Sling TV the biggest internet-based live TV service.

By comparison, Hulu Live has 450,000 users and YouTube TV has 300,000 users, according to a report from January, while AT&T’s DirecTV Now has 1 million users.

To check out the full list of Sling TV’s DVR-supported devices, check out this information page.

Google accused of using GDPR to impose unfair terms on publishers

A group of European and international publishers have accused Google of using an incoming update to the European Union’s data protection framework to try to push “draconian” new terms on them in exchange for continued access to its ad network — which many publishers rely on to monetize their content online.

Google trailed the terms as incoming in late March, while the new EU regulation — GDPR — is due to apply from May 25.

“[W]e find it especially troubling that you would wait until the last-minute before the GDPR comes into force to announce these terms as publishers have now little time to assess the legality or fairness of your proposal and how best to consider its impact on their own GDPR compliance plans which have been underway for a long time,” they write in a letter to the company dated April 30. “Nor do we believe that this meets the test of creating a fair, transparent and predictable business environment of the kind required by the draft Regulation COM (2018) 238 final published 26 April 2018 [an EU proposal which relates to business users of online intermediation services].”

The GDPR privacy framework both tightens consent requirements for processing the personal data of EU users and beefs up enforcement for data protection violations, with fines able to scale as high as four per cent of a company’s global annual turnover — substantially inflating the legal liabilities around the handling of any personal data which falls under its jurisdiction.

And while the law is intended to strengthen EU citizens’ fundamental rights by giving them more control over how their data is used, publishers are accusing Google of attempting to use the incoming framework as an opportunity to enforce an inappropriate “one-size fits all” approach to compliance on its publisher customers and their advertisers.

“Your proposal severely falls short on many levels and seems to lay out a framework more concerned with protecting your existing business model in a manner that would undermine the fundamental purposes of the GDPR and the efforts of publishers to comply with the letter and spirit of the law,” the coalition of publishers write to Google.

One objection they have is that Google is apparently intending to switch its status from that of a data processor of publishers’ data — i.e. the data Google receives from publishers and collects from their sites — to a data controller which they claim will enable it to “make unilateral decisions about how a publisher’s data is used”.

Though for other Google services, such as its web analytics product, the company has faced the opposite accusation: i.e. that it’s claiming it’s merely a data processor — yet giving itself expansive rights to use the data that’s gathered, rather like a data controller…

The publishers also say Google wants them to obtain valid legal consent from users to the processing of their data on its behalf — yet isn’t providing them with information about its intended uses of people’s data, which they would need to know in order to obtain valid consent under GDPR.

“[Y]ou refuse to provide publishers with any specific information about how you will collect, share and use the data. Placing the full burden of obtaining new consent on the publisher is untenable without providing the publisher with the specific information needed to provide sufficient transparency or to obtain the requisite specific, granular, and informed consent under the GDPR,” they write.

“If publishers agree to obtain consent on your behalf, then you must provide the publisher with detailed information for each use of the personal data for which you want publishers to ask for legally valid consent and model language to obtain consent for your activities.”

Nor do individual publishers necessarily want to have to use consent as the legal basis for processing their users personal data (other options are available under the law, though a legal basis is always required) — but they argue that Google’s one-size proposal doesn’t allow for alternatives.

“Some publishers may want to rely upon legitimate interest as a legal basis and since the GDPR calls for balancing several factors, it may be appropriate for publishers to process data under this legal basis for some purposes,” they note. “Our members, as providers of the news, have different purposes and interests for participating in the digital advertising ecosystem. Yet, Google’s imposition of an essentially self-prescribed one-size-fits-all approach doesn’t seem to take into account or allow for the different purposes and interests publishers have.”

They are also concerned Google is trying to transfer liability for obtaining consent onto publishers — asserting: “Given that your now-changed terms are incorporated by reference into many contracts under which publishers indemnify Google, these terms could result in publishers indemnifying Google for potentially ruinous fines. We strongly encourage you to revise your proposal to include mutual indemnification provisions and limitations on liability. While the exact allocation of liability should be negotiated by individual publishers, your current proposal represents a ‘take it or leave it’ disproportionate approach.”

They also accuse Google of risking acting in an anti-competitive manner because the proposed terms state that Google may stop serving ads on on publisher sites if it deems a publisher’s consent mechanism to be “insufficient”.

“If Google then dictates how that mechanism would look and prescribes the number of companies a publisher can work with, this would limit the choice of companies that any one publisher can gather consent for, or integrate with, to a very small number defined by Google. This gives rise to grave concerns in terms of anti-competitive behavior as Google is in effect dictating to the market which companies any publisher can do business with,” they argue.

They end the letter, which is addressed to Google’s CEO Sundar Pichai, with a series of questions for the company which they say they need answers to — including how and why Google believes its legal relationship to publishers’ data would be a data controller; whether it will seek publisher input ahead of making future changes to its terms for accessing its advertiser services; and how Google’s services could be integrated into an industry-wide consent management platform — should publishers decide to make use of one.

Commenting in a statement, Angela Mills Wade, executive director of the European Publishers Council and one of the signatories to the letter, said: “As usual, Google wants to have its cake and eat it. It wants to be data controller — of data provided by publishers — without any of the legal liability — and with apparently total freedom to do what they like with that data. Publishers have trusted relationships with their readers and advertisers — how can we get consent from them without being in a position to tell them what they are consenting to? And why should we be legally liable for any abuses when we have no control or prior knowledge? By imposing their own standard for regulatory compliance, Google effectively prevents publishers from being able to choose which partners to work with.”

The other publishers signing the letter are Digital Content Next, News Media Alliance and News Media Association.

We put some of their questions to Google — and the company rejected that it’s seeking additional rights over publishers’ data, sending us the following statement:

Guidance about the GDPR is that consent is required for personalised advertising. We have always asked publishers to get consent for the use of our ad tech on their sites, and now we’re simply updating that requirement in line with the GDPR. Because we make decisions on data processing to help publishers optimize ad revenue, we will operate as a controller across our publisher products in line with GDPR requirements, but this designation does not give us any additional rights to their data. We’re working closely with our publisher partners and are committed to providing a range of tools to help them gather user consent.

A spokesperson for the company also noted that, under GDPR, controller status merely reflects that an involved entity is more than a data processor for a specific service, also pointing out that Google’s contracts define the limits of what can be done with data in such instances.

The spokesperson further emphasized that Google is not asking publishers to obtain consent from Google’s users, but for their own users on their own sites and for the use of ad tech on those sites — noting this could be one of Google’s ad products or someone else’s.

In terms of timing the Google rep added the company would have liked to put the new ad policy out earlier but said that guidance on consent from the EU’s Article 29 Working Party only came out in draft in December, noting also that this continues to be revised. 

Europe eyeing bot IDs, ad transparency and blockchain to fight fakes

European Union lawmakers want online platforms to come up with their own systems to identify bot accounts.

This is as part of a voluntary Code of Practice the European Commission now wants platforms to develop and apply — by this summer — as part of a wider package of proposals it’s put out which are generally aimed at tackling the problematic spread and impact of disinformation online.

The proposals follow an EC-commissioned report last month, by its High-Level Expert Group, which recommended more transparency from online platforms to help combat the spread of false information online — and also called for urgent investment in media and information literacy education, and strategies to empower journalists and foster a diverse and sustainable news media ecosystem.

Bots, fake accounts, political ads, filter bubbles

In an announcement on Friday the Commission said it wants platforms to establish “clear marking systems and rules for bots” in order to ensure “their activities cannot be confused with human interactions”. It does not go into a greater level of detail on how that might be achieved. Clearly it’s intending platforms to have to come up with relevant methodologies.

Identifying bots is not an exact science — as academics conducting research into how information spreads online could tell you. The current tools that exist for trying to spot bots typically involve rating accounts across a range of criteria to give a score of how likely an account is to be algorithmically controlled vs human controlled. But platforms do at least have a perfect view into their own systems, whereas academics have had to rely on the variable level of access platforms are willing to give them.

Another factor here is that given the sophisticated nature of some online disinformation campaigns — the state-sponsored and heavily resourced efforts by Kremlin backed entities such as Russia’s Internet Research Agency, for example — if the focus ends up being algorithmically controlled bots vs IDing bots that might have human agents helping or controlling them, plenty of more insidious disinformation agents could easily slip through the cracks.

That said, other measures in the EC’s proposals for platforms include stepping up their existing efforts to shutter fake accounts and being able to demonstrate the “effectiveness” of such efforts — so greater transparency around how fake accounts are identified and the proportion being removed (which could help surface more sophisticated human-controlled bot activity on platforms too).

Another measure from the package: The EC says it wants to see “significantly” improved scrutiny of ad placements — with a focus on trying to reduce revenue opportunities for disinformation purveyors.

Restricting targeting options for political advertising is another component. “Ensure transparency about sponsored content relating to electoral and policy-making processes,” is one of the listed objectives on its fact sheet — and ad transparency is something Facebook has said it’s prioritizing since revelations about the extent of Kremlin disinformation on its platform during the 2016 US presidential election, with expanded tools due this summer.

The Commission also says generally that it wants platforms to provide “greater clarity about the functioning of algorithms” and enable third-party verification — though there’s no greater level of detail being provided at this point to indicate how much algorithmic accountability it’s after from platforms.

We’ve asked for more on its thinking here and will update this story with any response. It looks to be seeking to test the water to see how much of the workings of platforms’ algorithmic blackboxes can be coaxed from them voluntarily — such as via measures targeting bots and fake accounts — in an attempt to stave off formal and more fulsome regulations down the line.

Filter bubbles also appear to be informing the Commission’s thinking, as it says it wants platforms to make it easier for users to “discover and access different news sources representing alternative viewpoints” — via tools that let users customize and interact with the online experience to “facilitate content discovery and access to different news sources”.

Though another stated objective is for platforms to “improve access to trustworthy information” — so there are questions about how those two aims can be balanced, i.e. without efforts towards one undermining the other. 

On trustworthiness, the EC says it wants platforms to help users assess whether content is reliable using “indicators of the trustworthiness of content sources”, as well as by providing “easily accessible tools to report disinformation”.

In one of several steps Facebook has taken since 2016 to try to tackle the problem of fake content being spread on its platform the company experimented with putting ‘disputed’ labels or red flags on potentially untrustworthy information. However the company discontinued this in December after research suggested negative labels could entrench deeply held beliefs, rather than helping to debunk fake stories.

Instead it started showing related stories — containing content it had verified as coming from news outlets its network of fact checkers considered reputable — as an alternative way to debunk potential fakes.

The Commission’s approach looks to be aligning with Facebook’s rethought approach — with the subjective question of how to make judgements on what is (and therefore what isn’t) a trustworthy source likely being handed off to third parties, given that another strand of the code is focused on “enabling fact-checkers, researchers and public authorities to continuously monitor online disinformation”.

Since 2016 Facebook has been leaning heavily on a network of local third party ‘partner’ fact-checkers to help identify and mitigate the spread of fakes in different markets — including checkers for written content and also photos and videos, the latter in an effort to combat fake memes before they have a chance to go viral and skew perceptions.

In parallel Google has also been working with external fact checkers, such as on initiatives such as highlighting fact-checked articles in Google News and search. 

The Commission clearly approves of the companies reaching out to a wider network of third party experts. But it is also encouraging work on innovative tech-powered fixes to the complex problem of disinformation — describing AI (“subject to appropriate human oversight”) as set to play a “crucial” role for “verifying, identifying and tagging disinformation”, and pointing to blockchain as having promise for content validation.

Specifically it reckons blockchain technology could play a role by, for instance, being combined with the use of “trustworthy electronic identification, authentication and verified pseudonyms” to preserve the integrity of content and validate “information and/or its sources, enable transparency and traceability, and promote trust in news displayed on the Internet”.

It’s one of a handful of nascent technologies the executive flags as potentially useful for fighting fake news, and whose development it says it intends to support via an existing EU research funding vehicle: The Horizon 2020 Work Program.

It says it will use this program to support research activities on “tools and technologies such as artificial intelligence and blockchain that can contribute to a better online space, increasing cybersecurity and trust in online services”.

It also flags “cognitive algorithms that handle contextually-relevant information, including the accuracy and the quality of data sources” as a promising tech to “improve the relevance and reliability of search results”.

The Commission is giving platforms until July to develop and apply the Code of Practice — and is using the possibility that it could still draw up new laws if it feels the voluntary measures fail as a mechanism to encourage companies to put the sweat in.

It is also proposing a range of other measures to tackle the online disinformation issue — including:

  • An independent European network of fact-checkers: The Commission says this will establish “common working methods, exchange best practices, and work to achieve the broadest possible coverage of factual corrections across the EU”; and says they will be selected from the EU members of the International Fact Checking Network which it notes follows “a strict International Fact Checking NetworkCode of Principles”
  • A secure European online platform on disinformation to support the network of fact-checkers and relevant academic researchers with “cross-border data collection and analysis”, as well as benefitting from access to EU-wide data
  • Enhancing media literacy: On this it says a higher level of media literacy will “help Europeans to identify online disinformation and approach online content with a critical eye”. So it says it will encourage fact-checkers and civil society organisations to provide educational material to schools and educators, and organise a European Week of Media Literacy
  • Support for Member States in ensuring the resilience of elections against what it dubs “increasingly complex cyber threats” including online disinformation and cyber attacks. Stated measures here include encouraging national authorities to identify best practices for the identification, mitigation and management of risks in time for the 2019 European Parliament elections. It also notes work by a Cooperation Group, saying “Member States have started to map existing European initiatives on cybersecurity of network and information systems used for electoral processes, with the aim of developing voluntary guidance” by the end of the year.  It also says it will also organise a high-level conference with Member States on cyber-enabled threats to elections in late 2018
  • Promotion of voluntary online identification systems with the stated aim of improving the “traceability and identification of suppliers of information” and promoting “more trust and reliability in online interactions and in information and its sources”. This includes support for related research activities in technologies such as blockchain, as noted above. The Commission also says it will “explore the feasibility of setting up voluntary systems to allow greater accountability based on electronic identification and authentication scheme” — as a measure to tackle fake accounts. “Together with others actions aimed at improving traceability online (improving the functioning, availability and accuracy of information on IP and domain names in the WHOIS system and promoting the uptake of the IPv6 protocol), this would also contribute to limiting cyberattacks,” it adds
  • Support for quality and diversified information: The Commission is calling on Member States to scale up their support of quality journalism to ensure a pluralistic, diverse and sustainable media environment. The Commission says it will launch a call for proposals in 2018 for “the production and dissemination of quality news content on EU affairs through data-driven news media”

It says it will aim to co-ordinate its strategic comms policy to try to counter “false narratives about Europe” — which makes you wonder whether debunking the output of certain UK tabloid newspapers might fall under that new EC strategy — and also more broadly to tackle disinformation “within and outside the EU”.

Commenting on the proposals in a statement, the Commission’s VP for the Digital Single Market, Andrus Ansip, said: Disinformation is not new as an instrument of political influence. New technologies, especially digital, have expanded its reach via the online environment to undermine our democracy and society. Since online trust is easy to break but difficult to rebuild, industry needs to work together with us on this issue. Online platforms have an important role to play in fighting disinformation campaigns organised by individuals and countries who aim to threaten our democracy.”

The EC’s next steps now will be bringing the relevant parties together — including platforms, the ad industry and “major advertisers” — in a forum to work on greasing cooperation and getting them to apply themselves to what are still, at this stage, voluntary measures.

“The forum’s first output should be an EU–wide Code of Practice on Disinformation to be published by July 2018, with a view to having a measurable impact by October 2018,” says the Commission. 

The first progress report will be published in December 2018. “The report will also examine the need for further action to ensure the continuous monitoring and evaluation of the outlined actions,” it warns.

And if self-regulation fails…

In a fact sheet further fleshing out its plans, the Commission states: “Should the self-regulatory approach fail, the Commission may propose further actions, including regulatory ones targeted at a few platforms.”

And for “a few” read: Mainstream social platforms — so likely the big tech players in the social digital arena: Facebook, Google, Twitter.

For potential regulatory actions tech giants only need look to Germany, where a 2017 social media hate speech law has introduced fines of up to €50M for platforms that fail to comply with valid takedown requests within 24 hours for simple cases, for an example of the kind of scary EU-wide law that could come rushing down the pipe at them if the Commission and EU states decide its necessary to legislate.

Though justice and consumer affairs commissioner, Vera Jourova, signaled in January that her preference on hate speech at least was to continue pursuing the voluntary approach — though she also said some Member State’s ministers are open to a new EU-level law should the voluntary approach fail.

In Germany the so-called NetzDG law has faced criticism for pushing platforms towards risk aversion-based censorship of online content. And the Commission is clearly keen to avoid such charges being leveled at its proposals, stressing that if regulation were to be deemed necessary “such [regulatory] actions should in any case strictly respect freedom of expression”.

Commenting on the Code of Practice proposals, a Facebook spokesperson told us: “People want accurate information on Facebook – and that’s what we want too. We have invested in heavily in fighting false news on Facebook by disrupting the economic incentives for the spread of false news, building new products and working with third-party fact checkers.”

A Twitter spokesman declined to comment on the Commission’s proposals but flagged contributions he said the company is already making to support media literacy — including an event last week at its EMEA HQ.

At the time of writing Google had not responded to a request for comment.

Last month the Commission did further tighten the screw on platforms over terrorist content specifically —  saying it wants them to get this taken down within an hour of a report as a general rule. Though it still hasn’t taken the step to cement that hour ‘rule’ into legislation, also preferring to see how much action it can voluntarily squeeze out of platforms via a self-regulation route.