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In Predatory Contract Negotiations, Google Comes For Roku


For years, small product and technology companies that do business, or attempt to compete, with massive platforms like Google, Amazon, and Apple, have been making painstaking pilgrimages to Congress with harrowing stories.

In January 2020, four business execs went into exacting detail describing what the so-called “fierce competition” lauded as a defining feature of the tech industry was actually like. Lawmakers “appeared stunned,” wrote the Washington Post, as smaller companies discussed technology giants “allegedly copying smaller competitors’ features or tweaking their algorithms in ways that put new companies at a costly disadvantage.”

In April, tech execs from Spotify, Tile, and the dating app giant Match Group told the Senate Judiciary Committee how Google and Apple allegedly exploited their power over the country’s dominant app stores to harm competitors and give their own products a leg up. In one remarkable exchange, it was revealed that Google had contacted Match in advance of its congressional testimony, asking why the group’s public testimony differed from previous statements it had made.

“They could hurt us in little ways, they could hurt us in big ways, Match’s chief legal officer Jared Sine told senators. “We’re all afraid, is the reality.” In a follow-up letter to Google, Senate antitrust subcommittee chair Sen. Amy Klobuchar, D-Minn., joined ranking member Sen. Mike Lee, R-Utah, in asking Google for clarification, stating bluntly, “witness intimidation in any form will not be tolerated.”

This repeated testimony from smaller competitors on all sides of the marketplace has contributed to a growing suspicion in Washington that the excuse of “robust competition” with Big Tech is merely rhetorical cover for dominant companies using their leverage to extract rents on smaller firms.

Google v. Roku

The dispute between Google and the streaming platform Roku is just the latest episode in the ongoing battle between the dominant, feudal tech lords and their competitor serfs.

For months, Roku and Google have been engaged in contract negotiations over the fate of YouTube on Roku’s platform. Last week, Google announced there was still no resolution, and that on December 9 it will end all distribution on new Roku devices. Roku customers will no longer be able to download the YouTube or YouTube TV apps. (Service will remain unaffected for existing users who have already downloaded the apps.)

The issue, according to Roku, is not money — in a recent blog post, Roku claimed the company “has not asked for a single change in the financial terms of our existing agreement” — but the extractive terms of the deal Google is offering.

Specifically, those include demands that Roku turn over vast amounts of consumer data related to what Roku users watch on their devices, manipulate otherwise neutral consumer search results in favor of YouTube videos, and install more expensive parts on its devices, which would drive up the cost.

Google countered by calling the accusations “baseless and false,” stating in a blog post that the company has “never . . . made any requests to access user data or interfere with search results.” Yet in an email from a Google executive to Roku shared with CNBC, Google can be seen asking for just that.

The email from the Google executive to Roku reads: ‘YouTube Position: A dedicated shelf for YT search results is a must.’ A YouTube spokesperson, Mariana De Felice, declined to comment on the email, but said partners like Roku are allowed to rank search results for YouTube ‘as they wish.’

Google’s demands of Roku seem par for the course with how the company does business with smaller competitors: demand terms designed not only to give Google maximum positioning, but to do so while forcing companies to override their users’ preferences while kicking a competitor in the teeth.

This is particularly true for Google’s demand that Roku turn over reams of its user search data. Roku, while dominant in the U.S. streaming market, is a nascent competitor in the connected TV advertising segment of the industry. After an advertising-fueled boom during the COVID-19 pandemic, Roku began highlighting its ability to effectively target ads to specific audiences.

By forcing Roku to turn over proprietary user search data as a condition of hosting YouTube on its platform, Google will undermine Roku’s ability to compete with it; the equivalent of contractually demanding your opponent hand over his gun, only to turn around and shoot him with it.

The same is true of Google’s demand that Roku install more expensive hardware as a condition of hosting YouTube, which would limit YouTube access for Roku’s lower-end and more competitively priced players. The same goes for Google’s demand for priority search placement and permission to override default settings.

If a user sets up Pandora as his preferred music player, how is it good for that consumer (or for Roku, which advertises its consumer preferences) to have his search result for a specific song played, not in Pandora, as they requested, but by YouTube?

Making Roku Ignore Its Own Users Isn’t Competition

If Google prevails over Roku — that is, if Roku concedes to Google because it decides it cannot survive without providing access to YouTube — it won’t be because Google unleashed some ingenious new innovation that out-competed Roku on the merits. And it won’t be because Roku users demanded or even wanted Google products to be prioritized. It will simply be because Google has the power to force Roku to accede to its demands, regardless of what its users want.

This isn’t innovation, and it could hardly be classified as competition that results in better outcomes for consumers. The dispute between Google and Roku traces the now-familiar outlines of the predatory dominance concerns that tech competitors and users have been bringing to Congress for years now: that Big Tech companies have the market power to force competitors to put the preferences of Big Tech companies ahead of the preferences of their own users.

It also represents the actions of a monopoly firm using its dominance to protect itself from market forces. Roku users want YouTube, but they want it to compete against and be compared with other options. Google is trying to force Roku, as a matter of contract, to protect it from that competition.

A free market can solve these problems, but only if it is free in the first place. To that end, vigilant oversight and robust enforcement of the law are required. But new policies may also be required to address dominant new business models that, as currently countenanced, are changing the nature of the market.

In October, Klobuchar, Sen. Chuck Grassley, R-Iowa, and a handful of bipartisan cosponsors introduced the American Innovation and Choice Online Act. It purports to address the paradoxical problem of platforms that host smaller businesses while competing against them in the same lines of business. While there is not yet comprehensive agreement on the legislative approach, there should at least be agreement on the very real aspects of the problem, and a shared urgency to address it.