The coming pain: Why 2022 may define FAAMG (and the rest)

One of the topics I am particularly interested in is politics and the implications for business. It is an area that generally does not get that much attention but one that will very much be of fundamental importance for Big Tech (again, I am using shorthand for Facebook, Amazon, Apple, Microsoft and Google). I wrote in January about the implications from the bans on Donald Trump and Parler yet, while much of the recent focus has been on Australia’s moves to get Facebook and Google to pay for content, it is what happens in the United States within the next few years that could determine the fate of the companies.

What risks becoming particularly dangerous for Big Tech – and parts of Big Media, such as Disney and Netflix – is that one side of the political divide i.e. the Republicans now see it as the enemy. Post-the events of January, there have been numerous calls for a boycott of the Big Tech companies, which are seen as inherently biased against Republicans (Link). That has spread to media companies, or what is phrased “mainstream media” or “lamestream media”, which is also seen as a conduit for the Democrat party. That includes the streaming services, where updates on subscriber numbers can have disproportionate impacts on share prices. For example, post-the removal of Gina Carano from Disney+’s “Mandolorian” for social media comments, the phrase “cancel Disney Plus” trended on Twitter (Link). Netflix is also accused widely on the right of proactively pushing a progressive agenda through its shows (Link).

However, consumer boycotts are unlikely to have much success, at least short-term, given the sheer size of the companies involved although, interestingly, Netflix’s subscriber growth in the United States has slowed in recent quarters and there have been some suggestions political considerations and / or controversy has played a part (Link).

The bigger risk, though is that the Republican party has turned decisively against these companies and that these moves may happen sooner rather than later.

The most likely immediate threat is at the state level. The Republicans control the ‘trifecta’ (control of both state houses and the Governor’s mansion) in 24 states – vs 15 for the Democrats – including  Texas and Florida (Link) and there are already moves within Republican controlled states to potentially punish Big Tech companies. Florida has already started moves to punish social media companies that block or remove sites (Link). Other states are also introducing measures, such as Arizona and Texas.

It is no coincidence that Florida’s Governor, Ron DeSantis has aspirations to be the Republican Presidential candidate in 2024 (if Donald Trump decides not to stand again which – in my view he will not but that is for another time). The Republican party, particularly the base but also many of its politicians, believe that Big Tech and Media skewed the rules of the game to favour Democrats. They point to the overwhelming number of donations from Tech companies’ employees going to the Democrats (98% according to one study Link) and the suppression of stories such as the Hunter Biden investigation, which saw Twitter and Facebook restrict the New York Post’s handling of the story less than a month before the election (Link)

Therefore, post-the 2020 election, a hostile stance against Big Tech (and Media) is a defining political issue for the Republicans. If you want to be a serious candidate for the nomination, taking a line against Big Tech is a sine qua non and it is noticeable that the main likely Republican candidates in 2024 including DeSantis (who is one of the leading contenders amongst Republicans: Link) , Senators Ted Cruz of Texas and Josh Hawley of Missouri and (to a lesser degree) ex-Vice President Mike Pence have all been critical of Big Tech’s influence.

However, there may be a big problem sooner for Big Tech companies and that is in 2022 with the mid-term Congressional elections. Currently, the House of Representatives has a narrow Democrat majority (222-213) and the Senate is tied at 50-50, with Vice President Harris having the tie-breaker vote. History points to a good chance the Republicans retake control of both Houses of Congress in 2022. The Republicans are advantaged also in the House elections because their successful defence of majorities in state legislatures in November means they control the redrawing of congressional districts in many states (Link). The issue is less clear cut in the Senate but Republican chances may be helped by recent events in New Hampshire (Link) and Nevada (Link). 

One point to emphasise is that, if the Republicans do pick up seats in the House, many of the candidates – due to the primary process – are likely to take an anti-Big Tech / Media stance. Combined with vocal opponents in the Senate, such as Hawley and Cruz, that is likely to lead to a crusade against these companies, some of which may be bi-partisan in nature particularly against Big Tech (as with the current bi-partisan bill going through Congress to replicate the Australian law on social media companies paying for content - Link).

Regarding the media companies such as Disney and Netflix (as well as the major media organisations), there is probably little that could be done legislatively. There would probably be calls for the media companies to testify over the nature of their content, as has happened before (Link), and / or supposed cancellation of conservative views. However, the US Constitution would act as a powerful brake on any overt measures to take actions against these companies (although rules over content could be tightened). Instead, such pressure is likely to be exerted indirectly and through emphasising that requests from the media companies are unlikely to be sympathetically received.

It is more likely that actions would be taken against Big Tech, given the strength of feeling amongst the Republican base. Almost certainly, there would be in-depth investigations launched into Big Tech and its power. The social media companies may also face numerous other measures including greater transparency and forced opening of platforms (see link). A repeal of Section 230 would also be on the cards although not all Republicans agree on this matter citing its knock-on effects elsewhere (Link). 

(One question that has been floated in conservative circles is whether to set up alternative distribution channels to the existing players, as was the idea behind encouraging people to switch from Twitter to Parler. At the moment, the chances of this are low, especially given the network benefits that accrue to leaders and act as a barrier to new entrants. However, it cannot be entirely ruled out. As Michael Jordan pointed out, Republicans buy sneakers too.)

There could also be indirect knock-on effects. A hostile political environment may lead some advertisers to move spend away to alternative platforms such as Advertising Video on Demand (AVOD) and would put pressure on share prices, creating vicious circles in areas such as stock compensation and financing. Moreover, if the idea of a boycott of platforms for their alleged bias did gain traction, this may feed into boycotts by SME businesses (particularly in the United States), which are the bedrock of platforms such as Google and Facebook, although that is more of a stretch.

Social media companies may be ultimately protected by (a) the view that the First Amendment does not cover companies, only the Government, and (b) that the current composition of the US Supreme Court may make it hard to see sweeping restrictions on social media companies being upheld (although a counter-argument increasingly heard amongst Republicans is that social media companies, because of their size and scale, should be covered by the First Amendment (Link)). However, a Republican House can make life (very) uncomfortable for the platforms.   

The greater risk, though, is probably to the providers of services such as AWS, Apple (via its Apps store) and other digital infrastructure providers such as Twillo. Though it received less attention at the time than the banning of Trump, the removal of Parler by AWS and Apple was seen as a concerted attempt to silence conservative voices and raised numerous concerns not only from those on the Right (Link). It also led to increased calls for providers to be treated as public utilities, given their critical role in supporting the digital ecosystem, a stance taken by Australia (see source - paywall). The recent lawsuit by Epic against Apple and Google for removing its app from their stores may act as a catalyst for more action. 

The key here is the word infrastructure: Governments see regulating infrastructure players as a natural course of action as they act as natural monopolies and perform key functions. The increasing view amongst Republicans is that, just as Gas and Electricity are vital utilities, in the Internet age, so is control of the Internet’s infrastructure. As a result, if regulations happen these platforms could lose much freedom of action, be open to greater scrutiny of their services and operating practices and possibly face limits on margins and / or the cut they take from services (as happens with other utilities). That could be substantial: for FY20, AWS made up nearly two-thirds of Amazon’s operating profit (Link).

The counter-argument to much of this is that, even if the Republicans control Congress, President Biden could veto any laws. That is true and, while Congress can override a veto, it is rare (Link). However, vetoes mean spending political capital blocking measures and prompting tit-for-tat measures. Another complicating factor is there is a serious chance Vice-President Kamala Harris – an ally of Big Tech, having been the Attorney General of and then Senator for California – would face impeachment hearings under a Republican controlled Congress (Link). Such a measure would be very unlikely to pass but it risks putting Harris’ links with Big Tech under the spotlight.  

The bottom line is that Big Tech (and Big Media) are now placed firmly in the crosswires of the political and cultural debate. To one half of the political divide, they are seen as the enemy with all that entails whilst, to the other side, they are seen as insufficiently committed to cracking down on “unacceptable” speech. That is never really a good place to be in, especially in a political and cultural environment that is becoming more divided and where, increasingly, it is seen by either side as acceptable to use more radical measures to get what they want (Link). As a result, there is a very good chance that, within two years, many of the major players in Tech (and, to a degree, Media) start to come under very sustained pressure on the political front.