From Fake News to Real Murder: Facebook’s Incentive Problem

Fake news did not originate with Facebook, nor with the 2016 presidential campaign. Planting damaging stories of dubious provenance about a political opponent in the newspaper  is a tradition nearly as old as newspapering itself. And spreading false rumors is as old as human society.

But as we saw in last year’s election, Facebook and other social media platforms have elevated merely spurious information into a weapon of mass dysfunction. During the final three months of the 2016 campaign, the top 20 fake news stories circulating on Facebook racked up 8,711,000 shares, reactions, and comments on the platform, including such classics as “Pope Endorses Donald Trump” (960,000), and “FBI Agent Suspected in Hillary Email Leaks Found Dead in Apparent Murder-Suicide” (560,000).

BuzzFeed, which compiled those data, notes that those 20 fake stories attracted nearly 1.5 million more instances of engagement than the 20 top-performing stories 19 major news outlets over the same period. But the issue here isn’t so much real vs. fake but the role that Facebook’s massive scale played in encouraging the production of fake stories.

While some of the top fake news items were created by partisan outlets (or foreign intelligence agencies) for expressly political purposes, far more were created for profit, by people like Bela  Latsabidze, a 22-year old computer science student in Tbilisi, Georgia.

“In Tbilisi, the two-room rented apartment Mr. Latsabidze shares with his younger brother is an unlikely offshore outpost of America’s fake news industry,” the New York Times reported shortly after the election. “They say they have no keen interest in politics themselves and initially placed bets across the American political spectrum and experimented with show business news, too.”

Their pro-Hillary Clinton site did not attract many readers and its made-up news stories rarely went viral, so the brothers shifted their focus to making up positive stories about Donald Trump, where they found a more avid and engaged audience. More engagement on Facebook meant more hits on Google, which translated into more ad impressions, which in turn translated into more revenue for the brothers.

“For me, this is all about income, nothing more,” Latsabidze told the Times. Had his pro-Clinton site taken off, he added, he would have pressed on with that.

Facebook is now taking steps to try to limit the amount of fake news on its platform. This week it shut down 30,000 fake accounts in France ahead of that country’s upcoming national elections, and is currently looking to hire a head of news products to help it deal with the problem. It’s also trying to teach its algorithm to better recognize fake news stories and either flag them or deprecate them in users’ news feeds.

But no algorithm can solve the underlying incentive problem created by Facebook’s sheer size. It’s so big, and it’s reach is so vast and indiscriminate that even reaching only a small percentage of Facebook users adds up to substantial audience. You only need to fool some of the people some of the time on Facebook to make money pedaling nonsense.

Facebook obviously didn’t set out to create a platform for pedaling fake news. Nor is it the only social media platform with a fake news platform. But it’s size and scope make fake news profitable. And so long as that profit motive exists, entrepreneurs like Mr. Latsabidze will find ways to defeat whatever tweaks Facebook makes to its algorithm.

A far more chilling example of the unintended effects of Facebook’s ubiquity occurred on Easter Sunday, in Cleveland, when Steve Stephens broadcast himself on Facebook Live as he shot and killed a 74-year old man, seemingly to make some sort of depraved point.

Stephens explained in a rambling narration to the video that he had just broken up with the “love of [his] life” and had recently lost everything gambling. “I’ve run out options,” he could be heard saying. “Now I’m just doing some murder-type shit.” He then picked out his victim at random, forced the victim to say his ex’s name, and shot him dead.

Stephens eventually took his own life, after being cornered by police. Fortunately, he did not broadcast his suicide, but others have, along with beatings, torture, and rapes.

It is neither possible nor reasonable to try to pin responsibility for those horrific acts on Facebook; Facebook did not cause anyone to commit those crimes, any more than it compelled anyone to create fake news sites.

But for better worse, Facebook is becoming the media platform of choice, by dint of its size, for the depraved as well as the decent. Act out on Facebook and you act out in front of the world. And it’s hard to see what Facebook can do to prevent that.

Facebook will try because it must. “We have a lot of work and we will keep doing all we can to prevent tragedies like this from happening,” CEO Mark Zuckerberg said at the company’s F8 developers conference this week. But scale is now the essence of Facebook’s business model, as Snapchat is now learning.

While good for Facebook’s share price in the short term, that scale has begun to generate forces that do not easily yield to algorithms. And in the wake of last year’s fake news controversy and this week’s very real horror show it’s hard not to wonder whether Facebook is still in full control of its own platform.


The Net Neutrality Paradox

One of the more unfortunate wrinkles in the long debate leading up to the Federal Communications Commission’s 2015 Open Internet Order, better known as net neutrality, was its increasingly commercial focus. There were important civil liberties issues at stake, to say nothing of the interplay of engineering and regulation of critical infrastructure and the private ownership of public goods. But much of the public debate boiled down to an argument over streaming — Netflix streaming in particular.

That was due in no small part to the efforts of Netflix founder and CEO, Reed Hastings, who made himself and his company the poster-children of the net neutrality cause by loudly proclaiming Netflix’s oppression at the hands of ISPs looking to impose interconnection fees on the streaming service.

Although net neutrality proponents eagerly embraced Netflix’s cause and Hastings’ pubic advocacy they worked to color the issue as essentially a commercial dispute between different types of service providers, which, paradoxically, is actually an argument against what the FCC did. Disputes between buyers and sellers are not really the FCC’s bailiwick; that’s more a matter for the Federal Trade Commission and the antitrust division of the Justice Department.

It also, ironically, helped set the table for what is shaping up to be another pitched battle over net neutrality, this time over a new FCC chairman’s plan to turn the issue into an explicitly and exclusively commercial matter.

Chairman Aji Pai, who strongly opposed the FCC’s 2015 order while in the minority under previous chairman Tom Wheeler, is moving quickly to try to settle the score. His plan, basically, is to vacate the current rules, then ask the ISPs nicely to commit to certain net neutrality “principles” in their terms of service and turn over resolution of any commercial disputes or consumer complaints that arise to the FTC.

That will require reversing his predecessor’s decision to reclassify ISPs as “common carriers” under Title II of the Communications Act. Under the so-called “common carrier exemption” in the Federal Trade Commission Act, the FTC has no legal authority over services classified as common carriers, like telephone networks, and to give it jurisdiction Pai will have to un-reclassify ISPs.

But the new chairman could find himself looking through the other end of the net neutrality paradox this time. While he may view the issue as fundamentally a commercial matter that the government should largely stay out of, the commercial and strategic interests now at stake in the streaming economy are orders of magnitude greater than the last time around, and their resistance to any change from the current rules is likely to reflect that increase.

Consider the members of the Internet Association, the Washington, DC, lobbying group formed in 2012 by Facebook, Amazon, Google and eBay. Since the current rules went into effect Google’s YouTube has launched a paid music streaming service, YouTube Red, and this month began rolling out an over-the-top pay-TV service, YouTube TV, that competes directly with the cable TV services operated by the largest ISPs.

Amazon has emerged as a formidable competitor to Netflix in the subscription VOD business and has launched a paid music streaming service. That paid streaming service is tightly connected strategically with Amazon’s Echo voice-activated speaker, which is a pillar of the retailer’s in-home strategy. Amazon also signaled its strong interest in live video streaming earlier this month by spending $50 million for rights to the NFL’s Thursday Night Football franchise.

Facebook has made live video streaming the centerpiece of its strategy to grab a chunk of the $70 billion spent annually in the U.S. on TV advertising, some of which is currently spent with ISP owned pay-TV services. Twitter, another member of the Internet Association, is also placing big bets on live video.

This week the Internet Association sent a letter to the FCC declaring its opposition to any change in the current rules:

IA continues its vigorous support of the FCC’s OI Order, which is a vital component of the free and open internet.  The internet industry is uniform in its belief that net neutrality preserves the consumer experience, competition, and innovation online.  In other words, existing net neutrality rules should be enforced and kept intact.

New players like Roku are also thought to be eyeing the live-streaming business. Last month Roku hired a team of lobbyists in Washington specifically to focus on net neutrality.

(Ironically, Netflix, although a member of IA, is likely to sit this round out, having made its separate peace with the ISPs .)

Major media companies have also seen their direct stakes in the streaming economy grow since the current net neutrality rules were implemented. According to the RIAA, streaming now accounts for more than half the music industry’s revenue and that share is growing rapidly. The major record companies are equity investors in Spotify, the leading streaming service, which is currently valued at $8.5 billion and is preparing to go public.

Likewise, Fox, ABC and NBC own Hulu, the subscription VOD service that is also gearing up to launch a virtual pay-TV service (NBC is barred from having a direct operational role in Hulu under the terms of its merger with Comcast).

Those examples just skim the surface of what the streaming economy has become over the past three years premised in part, at least implicitly, on the current net neutrality rules. Undoing those rules at this point, paradoxically, could represent an even greater intervention into the commercial arrangements of the internet by the FCC than implementing them in the first place.


More Than One if Five Broadband Households Have No Pay-TV Service, Study Finds

You don’t have to look far these days for news on cord-cutting. According to a report out this week from Leichtman Research Group the largest U.S. pay-TV providers lost a combined 795,000 subscribers in 2016. According to a report out last week from TiVo the share of cord-cutters who have dropped service within the previous year reached 19.8 percent in the fourth quarter, the highest ever registered, suggesting the phenomenon is accelerating.

In yet another report released this week, The Diffusion Group turned the telescope around and looked not at how many pay-TV households have dropped their service but at the number of U.S. broadband households that are going without pay-TV service. If anything, the view was even worse for the pay-TV industry.

According to TDG’s survey, 22 percent of the 100 million households that subscribe to broadband — some 22 million homes — do not have pay-TV service. That’s up from 9 percent of the 85 million broadband subscribers in 2011, or 8 million households, and up from 18 percent just since the beginning of 2016. Read More »