An antitrust paradox

The rivalry between Mark Zuckerberg and Elon Musk went into overdrive this week after Meta rolled out Threads, a Twitter rival that on its first day became the most rapidly downloaded app ever.

In an era of tighter antitrust scrutiny of Big Tech in the United States, in 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 when players build new services themselves, rather than buy a smaller foe?

Size matters, but it’s just one factor. Threads “sets 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. “Generally, we’d like the big companies to be taking 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 landscape through Instagram, Facebook and WhatsApp. Expanding that empire and enabling it to accumulate more data, he said, “is hard to be that cheerful about.”

Regulators will want to know how Meta is gaining market share: by offering a better product, or by using the advantages of scale to unfairly crush Twitter? Threads is integrated into Instagram, giving it potential access to roughly two billion monthly active users. Another sticky issue: Users have to delete their Instagram account to cancel their Threads account. (It’s unclear how the Federal Trade Commission, which has vowed to crack down on firms that make opting out of a service too onerous, might view this arrangement.)

Data concerns loom large. Threads isn’t available in the European Union, where privacy watchdogs have long been concerned with how Meta handles users’ information. On Tuesday, the bloc’s top court backed an antitrust investigation of Meta over data privacy violations, concluding that data is a decisive factor in establishing market power.

Being big doesn’t run afoul of 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 sign up. Leveraging them to enhance the quality of Threads would not in and of itself violate antitrust laws, Mr. Melamed said.

“There’s a narrative out there that anything a tech company does is bad,” said Daniel Francis, who teaches law at New York University and is a former deputy director of the F.T.C.’s Bureau of Competition. He argues that consumer unhappiness with changes to Twitter drove people to find an alternative. “The Threads example shows that big tech companies can also be valuable entrants, bringing new competitive pressure,” Mr. Francis said. — Ephrat Livni

IN CASE YOU MISSED IT

Elon Musk sues Wachtell for a $90 million fee from his Twitter acquisition. X Corp, the entity that owns the social network, filed a complaint in California this week, accusing the elite law firm of trying to “alter its fee arrangement as litigation counsel” in order to obtain an improper bonus payment for representing Twitter during negotiations with Mr. Musk to buy it.

Jobs growth cools. Employers added 209,000 jobs last month, below economists’ expectations. But it was the 30th consecutive month of payroll gains, pushing the unemployment rate down to 3.6 percent. Investors calculate that 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 is ordered to limit communication with social media companies. A judge in Louisiana ruled that a number of government agencies could not communicate with the platforms about taking down “content containing protected free speech.” The ruling may curtail efforts to combat false and misleading narratives about the coronavirus pandemic and other issues. The Justice Department has appealed.

Inferno on Earth. Global average temperatures hit a record high this week, as forecasters warn that the planet could be entering a multiyear period of exceptional heat. On Tuesday, the global average hit 62.6 degrees Fahrenheit, or 17 Celsius, making it the hottest day on Earth since records began in 1940.

Hollywood’s new China challenge. The Department of Defense will no longer support movie studios if they comply with censorship demands from China in order to distribute their movies there, according to Politico. Last year’s “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 best-connected businessmen. He and his former wife, Duan Weihong used their relationships 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 on a trip to Beijing this week.

Mr. Shum left China in 2015 as 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 detained her after a high-ranking 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 Britain with the couple’s son (neither of them has seen Duan since she vanished) and says it is unsafe for him to travel to China.

Mr. Shum will testify next week in Congress about the challenges for U.S. 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 has had a lot to do with it, especially in shifting the general public’s views. That has helped to speed things up in terms of how policymakers deal with China — they now have a tide to ride.

Second, the outside world underestimates how badly the Chinese economy is deteriorating. Several things have shocked me in conversations I’ve had with businesspeople in China. A big dairy company is producing more milk powder because people are cutting back on buying milk. Normally this is one of the last things you would cut out.

Many executives also say that staff are blatantly robbing and stealing from companies since the pandemic. Why? They have lost hope because the economic outlook is so bad.

How is this affecting governance and business?

It adds to the growing insecurity of the Chinese Communist Party, so the government is tightening control using measures it introduced during the pandemic. That is affecting business: Raids on due diligence firms with Western ties and restrictions on access to Wind, a Chinese data provider, are part of an effort to control foreigners.

How are international companies adjusting?

Companies are overwhelmingly reducing their exposure. People talk about “deglobalization,” but the proper term is “reglobalization minus China.” You won’t have one country replacing China, but operations are spreading 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 friendshoring and nearshoring in Europe.

Does the U.S.’s messaging — tough talk while also saying it wants to maintain dialogue — complicate matters?

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 won’t affect China’s perception that the U.S.’s view of it is set. They need some lessening of tension for the sake of reviving business confidence and bringing in more capital. If they can mitigate or delay U.S. measures, they want to do that. — Ravi Mattu

Taylor Swift re-records her way onto the charts

Taylor Swift on Friday 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 has done three) after the rights to the originals were sold in a contentious deal to the superagent 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.

Ms. Swift argues that re-recording them will allow her to be recognized as the legitimate owner of her work. But while the effort has been cheered 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 re-records 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 were winning out on 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, versus 254 million for the original — down 41 percent from a year earlier.

• For “Fearless,” Swift’s re-release outstreamed the original 401 million to 257 million.

The re-records lifted the entire Swift catalog. Streaming of her six records jumped roughly 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 not yet re-recorded.

Shamrock’s deal is “very vulnerable,” Larry Miller, a director at the music business program at N.Y.U., told DealBook. Still, since the firm acquired Ms. Swift’s catalog after she made her intention to re-record her masters known, it’s possible that Shamrock factored in the possible impact of dilution as part of the deal. (The firm didn’t respond to a request for comment.)

Ms. Swift has made an impact on the broader industry. Universal Music Group has begun to put more restrictive re-recording terms in its agreements with recording artists. And, in due diligence for deals, buyers are now “pretty much universally” looking at contracts to see if there’s a restriction on re-records, said David Dunn, founder of the investment bank Short Tower Capital. — Lauren Hirsch

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