Florida governor Ron DeSantis recently signed a law prohibiting children in the state from having a social media account. The law applies to those under the age of 14 and has understandably drawn the ire of social media companies, most notably Meta (US:META), the parent company of Facebook. Other critics have suggested that the legislation might violate First Amendment rights covering free speech under the US constitution.
The new law has its opponents, and it wouldn’t be surprising if a federal appeals court gets involved at some stage. Any moves in the courts will be closely watched as several other US states have considered similar measures. But whatever the rights and wrongs of the legislation, or even the questions over its practicality, it’s worth examining whether these types of regulatory strictures pose a growing commercial threat to the social media platforms.
It’s difficult to overstate the impact social media has had in a little over a generation. It is estimated that 60 per cent of the global population are regular users. The spread of the so-called ‘online community’ is bound up with the rise of mobile telephony; around three-quarters of social media users access it by their smartphones. Instinctively, you might imagine that it’s also a generational phenomenon, but active usage rates remain high among all brackets of working age people.
It’s not all about individuals, though. A high proportion of businesses employ social media to drive custom; it is interlinked with the expansion of ecommerce. Expenditure in the social media advertising market is projected to reach $220bn (£173bn) this year. This makes it the second-largest segment of the digital advertising market behind the search function – still largely the preserve of Google. And the US remains the world’s biggest marketplace.
The likes of Meta and Google parent Alphabet (US:GOOG) have long pursued an acquisitive business strategy that involves snapping up potential rivals before they get too big – anathema to those opposed to over-concentration in the marketplace. The real trouble comes if companies with dominant market positions buy up smaller potential rivals and simply close them down. This practice was all too commonplace at one point, but it eventually resulted in beefed-up regulatory provisions for oversight bodies such as the European Commission and the US Federal Trade Commission. Meta and Alphabet would point out that they have taken a strategic line where M&A is concerned; if you have a stake in either company, you’re also buying in toplatforms such as Instagram and YouTube.
The Florida legislation was prompted by heightened concerns over the impact of social media on children’s mental health. Last year, US surgeon general Vivek Murthy warned that excessive social media use by children and adolescents can pose a profound risk to their mental wellbeing. He did qualify the statement by noting that the impact isn’t fully understood yet. His conclusion is supported by numerous international studies and has echoes of the initial medical warnings in the 1950s over the health risks posed by smoking. Doubtless the legal fraternity is paying close attention, regardless of whether the surgeon general’s concerns are ever conclusively backed by empirical evidence.
Closer to home, concerns over the content of social media sites have resulted in the passing into law of the online safety bill. Ostensibly, it seeks to force tech firms to take more responsibility for the content on their platforms, but it has faced criticism that it could compromise existing privacy protections for users. Meta subsidiary platform WhatsApp has been leading the dissenting chorus, no doubt due in part to the somewhat draconian fines that can be levied if services breach the related provisions – up to £18mn or 10 per cent of annual global turnover, whichever is greater. It doesn’t end there. In the most extreme cases, Ofcom will be able to compel payment providers, advertisers, and internet service providers to stop working with a platform, assuming permission is granted by the courts.
The gathering regulatory risk matters because the relative size of the social media companies dictates that a sizeable proportion of UK investors will be indirectly exposed through funds as well as direct holdings. Whether the online safety bill and other similar legal measures have been designed to mitigate online harms, or whether they’re really being implemented to clip the wings of social media companies is irrelevant. The point is that regulatory risk is on the rise. And the fact that these risks are multiplying after the horse has effectively bolted is no surprise given the well-established lag between technical innovations and the regulatory frameworks that govern them.
