The EPA’s draft “social cost of carbon” analysis opens up a knotty discussion about US lives versus lives abroad.
On Friday, November 11, the Environmental Protection Agency posted a PDF with a title seemingly designed to be weapons-grade boring:
Supplementary Material for the Regulatory Impact Analysis for the Supplemental Proposed Rulemaking, “Standards of Performance for New, Reconstructed, and Modified Sources and Emissions Guidelines for Existing Sources: Oil and Natural Gas Sector Climate Review”
But the 131-page document is not as dry as it sounds. It’s where the EPA, and the whole Biden administration, lays out an estimate of how bad carbon emissions are for the world. It estimates the “social cost of carbon,” a key variable in climate policy that could affect everything from power plant emissions to fuel economy standards.
The paper estimates that under typical assumptions, a ton of carbon emitted in 2020 costs the world about $190. This calculation is, after adjusting for inflation, dramatically higher than the $1 to $7.50 per ton cost the Trump administration had estimated, and significantly higher than the $51.50 per ton cost the Obama administration estimated in 2016 (and which the Biden administration has reverted to using until the new draft estimate is finalized).
That’s good news for people who want tough EPA rules reducing greenhouse gas emissions — a higher figure would justify more dramatic action to curb carbon emissions. Even the much lower Obama estimate justified that administration’s sweeping Clean Power Plan, and a higher value could justify even more significant action than that.
But there’s an unusual choice buried in the new EPA estimate. Much of the harm of climate change comes from the fact that it literally kills people. Usually, when regulators consider risks of deaths, they put the same value on all lives. But the social cost of carbon is not a normal rule. It is the only federal rule of its kind that explicitly puts a value on the lives of non-Americans, and considers the benefits to them of abating climate change. In doing so, however, the rule does not weigh lives equally.
The draft proposal translates lost lives into dollars, which is standard practice in government rulemaking. But, according to the report, a lost life in Haiti represents a smaller cost than a lost life in Canada. In fact, a Canadian life saved is worth over 16 times as much as a Haitian life saved in the EPA’s calculus. That’s because the EPA has chosen to weigh the mortality costs of climate change in proportion to per capita income of the country where someone dies, and Canada’s GDP per capita is more than 16 times that of Haiti.
We can keep going. A Qatari life is worth 118 Burundian lives — a Qatari life is worth more than an American life, in fact. A German life is worth 12 Cambodian lives. An Australian life is worth four Indonesian lives. A Russian life is worth two Ukrainian lives. All of these judgments are implicit in the way the EPA is calculating the costs of climate change.
To be sure, the agency is not coming to this conclusion arbitrarily. It’s adapting a standard approach for putting a dollar value on American lives, and trying to use it in an international context. Indeed, by putting any weight on foreign lives, it’s taking a major step beyond where most regulations go. “This is a substantial step forward, at least in my view,” Arden Rowell, a professor of law at the University of Illinois and a leading expert on the valuation of non-American lives in climate regulation, told me. “This stuff is legitimately so hard that even just a little bit of progress is really valuable.”
But this approach has both a political and a technical flaw. The political flaw is that it amounts to the US government stating that some foreign persons’ lives are worth more than others — a divergence from a long history of treating all American lives as equal to each other, and a potential insult to countries the US is counting on as partners in climate efforts.
The technical flaw is that the technique the EPA is using makes sense if you’re willing to treat people differently both within and outside the US. In other words, the EPA isn’t willing to value people in, say, West Virginia less than people in Silicon Valley — how, then, can it justify valuing Belgians over Congolese?
So it’s worth digging into the merits, drawbacks, and implications of the administration’s social cost of carbon — and how to improve upon the work that’s been done.
How the US government weighs life and death
The EPA, in this document and others, insists it is not putting a dollar value on human life, or valuing different humans’ lives differently.
“The EPA does not place a dollar value on individual lives,” it insists in an FAQ on its website. “Rather, when conducting a benefit-cost analysis of new environmental policies, the Agency uses estimates of how much people are willing to pay for small reductions in their risks of dying from adverse health conditions that may be caused by environmental pollution.”
The number these calculations produce is usually called (“inaptly,” the new EPA report opines) the “Value of Statistical Life” or VSL, popularized by Vanderbilt economist W. Kip Viscusi. The number the EPA uses is $10.05 million per life in 2020 dollars.
VSL is calculated for a given group by estimating how much individuals in that group are willing to pay to reduce their risk of dying. This is known as a “revealed preferences” approach; the idea is that people’s actual spending gives a truer sense of their feelings than, say, polling them would.
A 2018 paper by Viscusi, for example, used, among other data sources, Bureau of Labor Statistics Census of Fatal Occupational Injuries to measure how much more, in practice, US workers demand to be paid to take jobs that carry a higher risk of death. So when we say the VSL number is $10.05 million, what that really means is that the government estimates the typical American will pay $10,050 for a 0.1 percent reduction in their risk of death, or $100,500 for a 1 percent reduction, etc.
Having a VSL number at all may seem ghoulish, but it’s quite useful in considering the costs and benefits of regulation. Lowering all car speed limits to 10 miles per hour would save many lives, for instance, but at an enormous economic cost that would dramatically reduce many other people’s quality of life; tools like VSL let regulators weigh the trade-offs between those economic costs and public health benefits.
That said, VSL as a tool must be applied carefully. Revealed preferences approaches relying on actual spending decisions usually imply that the value of a statistical life is greater for rich people than poor people, because they have more money to spend on extending their lives. A recent study by Viscusi and Clayton Masterman estimated that for every additional dollar in income an American earns, their VSL goes up between 50 and 70 cents. That implies that if the US were to use different VSLs for different states, people in Massachusetts should count for significantly more than people in West Virginia.
The US does not do that, and did not do that even before West Virginia’s own Joe Manchin became one of the most powerful men in Washington. Cass Sunstein, a legal scholar who has written extensively on cost-benefit analysis and oversaw its implementation in the first Obama term, once noted, “No agency values the lives of poor people less than the lives of rich people. No agency distinguishes between whites and African Americans or between men and women. … With respect to cost-benefit analysis, much is disputed. But on the idea of a uniform value per life saved, there is a solid consensus, at least in terms of regulatory practice.”
Sunstein tried to challenge that consensus (indeed sometimes arguing that VSLs for poor people should be higher than for rich people), but it did not budge.
Weighing lives when people abroad count
Before the climate regulations of the Obama administration, cost-benefit analyses in the US looked exclusively at costs and benefits within the US itself, never beyond its borders. Rowell told me she knows of no rule besides the social cost of carbon that considers the value of foreign lives.
The formulators of the cost of carbon rule, in both the Obama and Biden administrations, have thus had to operate without much precedent. These are, by and large, technical economists asked to operate objectively and by the book.
But in doing so, they are forced to make decisions that carry significant ethical implications. They have defaulted to estimating VSLs for different countries based on their different income levels, and using these as the estimated harm of death to people in those countries.
Just as richer people have higher VSLs than poorer people, richer countries have higher VSLs than poorer countries. Suppose the government of Haiti is considering car safety rules that would ban cars without 360-degree cameras. Haitian citizens would enjoy the benefits of that rule, in the form of fewer accidents, but they would also pay the cost: Cars would be more expensive, and transportation would be harder.
“How much are we actually willing to pay for that safety gain?” is a reasonable question for Haitian citizens and policymakers to ask themselves. Money is way more valuable in Haiti than in the US, because money is always more useful for poor people than for richer people; given that, elected officials may not want to pay for expensive safety improvements that officials in the US would be willing to pay for, which implies they’d use a VSL lower than that of the US. “You could end up imposing a policy on a poor population where the costs that they bear exceed the benefits that they receive,” Lisa Robinson, a senior research scientist at Harvard and expert on VSL and cost-benefit analysis, told me.
But, again, that’s for decisions within poor countries. The social cost of carbon regulation is being proposed not by the government of Haiti but by the US government. It’s being used to allocate not the resources of poor nations but the resources of the US government; Haiti is probably not bearing the cost of any regulations the US may impose. Emissions from the US kill people all over the world, and the US is considering how to value those lives for the purpose of its own cost-benefit analysis.
The political problem, and the technical problem
In the past, cost-benefit analyses where some people’s lives count for more than others have been the topic of major controversy.
In 1995, a report by the Intergovernmental Panel on Climate Change used a similar willingness-to-pay approach to estimate the mortality costs of climate change, which prompted an uproar from developing country governments. India’s then-environment minister Kamal Nath called the approach “absurd and discriminatory.”
In 2003, the EPA floated a proposal to value most lives at $3.7 million but the lives of people over 70 at $2.3 million. The idea was to reflect different life expectancies; since the government cannot prevent deaths, only delay them, extending the lives of young people might have more benefits. But critics like the AARP lambasted the plan as a “senior death discount,” and the plan never took effect.
As these reactions suggest, the statement that adopting varying VSLs makes about the relative value of people in different countries may itself be a political reason to junk this approach. “Part of the reason not to do this is the expressive harms,” Daniel Hemel, a law professor at NYU who has studied regulatory issues with valuing life, told me. “The experience with the senior death discount suggests people do feel bad when they feel the government is devaluing them.”
In a recent paper, economists R. Daniel Bressler and Geoffrey Heal outline a number of technical problems with the approach as well. The technical defense the EPA report offers for its approach is that using different values for different countries satisfies what economists call the “Kaldor-Hicks criterion,” by which a policy is efficient if the winners could compensate the losers and leave everyone better off.
Bressler and Heal note that the EPA doesn’t actually follow a Kaldor-Hicks approach fully; that would require using different values for people within the United States based on income, and require using current exchange rates to compare countries, not purchasing-power parity measures. That is, the agency bends Kaldor-Hicks requirements for US residents but not for people overseas. This choice is hard to justify on the merits.
Bressler and Heal argue a better approach would be “welfare weighting,” which adjusts for “diminishing marginal utility”: the fact that a dollar is less valuable to a billionaire than to a low-income person. That approach tends to result in treating all lives equally regardless of income. This is similar to the policy the German government uses in setting its social cost of carbon.
This, however, raises a more basic question: Whose costs and benefits is the EPA adding up? Its normal approach of only considering US lives when looking at regulation has some conceptual clarity to it. It’s adding up the costs of regulation to Americans, and comparing them to the benefits to Americans. By adding in the benefits of climate regulation to non-Americans, the social cost of carbon rule muddies that situation somewhat, not least because other benefits and costs redounding to non-Americans aren’t considered.
“What’s puzzling about the foreign willingness-to-pay approach is — does that actually represent how much Americans are willing to pay?” Rowell points out. “If what we care about is how much Americans are willing to pay, are they willing to pay more to save a Qatari life than an American life? Surely not, right?” Given that the economic costs of the regulation are mostly borne by Americans, focusing on the benefits to Americans seems to make sense.
One possible way to clarify the approach would be to forthrightly state that saving lives abroad is a benefit to Americans as well. Viscusi and Ted Gayer have argued that plainly stating that foreign lives are included because Americans are altruistic and pursuing their altruistic aims is beneficial to them is one possible approach here.
Such an approach would not need to value foreign lives equally to American lives — altruism only goes so far. But it would be consistent with valuing all foreign lives equally, and avoid the potential insult implicit in the current EPA approach as well as some of the technical problems Bressler and Heal identified.
Depending on how altruistic such an approach takes Americans to be, it could result in a higher or lower social cost of carbon. But this is about figuring out the right formula, not the right answer for that formula to spit out. What formula the US picks matters; Canada, for instance, has more or less just copied the numbers and methodology adopted by the US in setting its social cost of carbon. And getting the formula right is much tougher than it looks.
A version of this story was initially published in the Future Perfect newsletter. Sign up here to subscribe!
Movie theaters are the most fun place to watch a comedy. What if that goes away?
If you don’t count Minions: The Rise of Gru, and I do not, then the highest-earning comedy of 2022 is The Lost City, a genuinely funny vehicle for Sandra Bullock and Channing Tatum. (At one point it was titled The Lost City of D, and the last bit got dropped, more’s the pity.) It handily cracked the top 20 films of the year, with box office returns that just eked over the $100 million mark, the traditional line that separates “pretty successful” from “a hit.” And in 2022, with the theatrical business fighting for survival, that’s no small feat.
But it’s the lone success story this year for the once-vibrant genre of studio comedy. “I’m genuinely worried about movies,” director Greg Mottola told me over Zoom. You almost certainly know Mottola’s work, like the 2007 smash hit Superbad, or the small but beloved 2009 Adventureland. It’s far less likely you saw his very funny movie this year, Confess, Fletch, which reboots the wisecracking detective played by Chevy Chase, with Jon Hamm in the lead role. The movie got a tiny theatrical release, opening on the same day as its on-demand debut; now, you can rent it on a digital platform or watch it on Showtime.
That is, if you know Confess, Fletch exists.
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Paramount Pictures
“The amount of money it takes to promote a movie is so astronomical now that you really can only do it if there’s a great chance of a big return,” Mottola said. He said he doesn’t blame the studio, but finds the situation at large disheartening. It’s not impossible to make a comedy right now — but there are a million other movies out there, too, just giant piles of content for consumption. Studios are only willing to blanket the world with advertising for a specific film if they think they have a slam dunk on their hands.
Judging from domestic box office returns, few comedy slam dunks exist anymore. It’s true that most of the year’s highest-grossing films are, in some respects, a comedy; the MCU has flourished by employing many gifted comic actors to deliver quippy lines, and movies like Top Gun: Maverick, Nope, Bullet Train, and Everything Everywhere All At Once certainly have comedic elements. But their leading foot is not comedy — it’s action, or horror, or family drama.
So the next movie on the year-end list that’s both primarily a comedy and intended for an adult audience is Ticket to Paradise, which didn’t manage to make it to $70 million despite starring George Clooney and Julia Roberts in a much-vaunted reunion. After that the list gets stranger: Jackass Forever comes next, with about $57 million, and then way, way down is Marry Me, the Jennifer Lopez and Owen Wilson movie that barely got past $22 million. Bros, which was heavily marketed, barely cracked $11 million.
That’s a far, far, far cry — a bloodcurdling scream over a distant hilltop, really — from what comedy used to be. The comedy of manners, the screwball comedy, the romantic comedy, the action comedy, and other permutations thereof have been Hollywood bread and butter for a long time. They ebb and flow with the tides of public taste, but they’ve always been designed to make people laugh together.
And that laughter — collective giggle, snort-chuckles, belly laughs that get louder because the guy across the room is howling — is what directors love. “The reason we get into comedy is not so we can go, ‘Oh, I hope people will be amused by what we do,’” Paul Feig, the director of comedy megahits like Bridesmaids and The Heat, told me. “We want to make people laugh. That’s our goal.”
Both Feig and Mottola started their filmmaking careers in a very different era for studio comedies. Bridesmaids and Superbad both changed the comedy game, popularizing a quippy, fast-paced, joke-driven style that’s also raunchy and foul-mouthed and sometimes mixes laughter with groans. You can watch them at home, but everyone knows that it’s much more fun to get hiccups roaring next to your friends and a bunch of strangers.
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Universal Pictures
In that way, comedy stands apart from the kind of movie that is annoying to watch in a theater full of texting, talking people. As with horror, if a comedy is working, you know precisely because the crowd starts making noise. That’s the whole idea.
And so the question remains: Why aren’t as many comedies getting greenlit, and why aren’t they doing as well when they do? “Horror films still draw people in; I don’t understand why comedies wouldn’t draw audiences also,” Mottola says. But he’d heard while making Confess, Fletch — a reboot of a popular series for which people maintain nostalgic fondness, starring the lead from a wildly popular TV show — that there just wasn’t an audience for comedy anymore. Meanwhile, horror continues to make huge profits on very low investments — just like comedies used to.
“I think people trust horror more than they trust comedy because they know they’re going to get scared,” Feig said. But the problem may, indeed, be with the audience. “Everybody can agree on what’s scary. Nobody can agree on what’s funny.”
That’s true not just across generational and regional barriers, but across international borders, too — and of course, that’s part of the problem. Hollywood’s 21st century trend has been to spend more and more on making movies, banking on recouping costs from global audiences (especially in markets like China). Humor is one of the hardest things to translate, which might be a factor in joke-driven comedies falling out of favor, replaced by action-comedies that rely on a lot of physical humor. (To be a human is to find a pratfall funny.)
And thus, as Mottola noted, “Something that’s a bit smaller is going to have a really hard time in this day and age. The math doesn’t add up.” And spending a lot of money to market a film like Confess, Fletch, or the legion of low- and mid-budget independent comedies that still get made (like this year’s Fire Island, or the dramedy Cha Cha Real Smooth), just doesn’t pan out. Better to send it to a streamer, where the algorithm might surface it to someone on a chilly Thursday night.
We don’t really know how well comedies are doing on streamers, because the data provided by the streamers themselves is suspect, for a variety of reasons. (For a long time, if you flicked on, say, Kevin Hart’s Me Time and watch it for two minutes and one second, then turn it off, Netflix would count that as a “watch.” Now it reports “hours viewed” — for the top 10, by week.) A whodunit comedy like the Knives Out sequel Glass Onion, which would probably have made a tremendous return in theaters, was only given a one-week limited theatrical release (in which it grossed over $13 million). Maybe the lost revenue from ticket sales will be made up in subscriptions; Netflix certainly hopes it will, and will almost certainly report that it has.
If comedies get made for streamers, and mainly live there in the future, then Mottola and Feig will keep working, at least as long as the streamers last. Feig noted that he’s done work for Netflix (with The School for Good and Evil) and has a deal with Amazon now. Making movies, and making people laugh at home, is better than watching comedy disappear. And both directors have worked extensively in TV — Feig’s credits include shows like Freaks and Geeks and The Office, while Mottola’s include Undeclared and Arrested Development. They know the power of small-screen comedy.
But as Feig points out, you edit a comedy movie designed for the communal watching experience differently from a TV comedy, in part because the laughs land differently. To him, it would be a massive shame for that communal laugh to fade away. “What you lose is the group experience. During the pandemic, there was this feeling that we don’t need to go out anymore — we can just watch this at home,” he said. But replicating the laughing-with-others experience of comedy is still important. “It’s why the biggest shows on network TV are still the ones with the laugh tracks,” he points out — and he’s right.
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Universal Pictures
Yet the future of streamers is itself rocky, Mottola notes. “Is streaming even profitable?” he asked. “In the long run, the music has been devastated by streaming music. Are we just destroying movies the same way, by making so much content and thus devaluing everything?” Can the cost of a streaming service really replace the revenue generated by ticket sales? And will people ever really want to return?
For comedy lovers, that prospect is the opposite of funny. Yet there could be hope. A movie like Everything Everywhere All At Once made an enormous profit mainly on the strength of word of mouth; one imagines that the same word of mouth for Ticket to Paradise, which is not in the end very funny, may account for its mediocre return. All it really takes for a genre to be revived is a couple of surprising hits. Comedy is resilient, and it’s not dead yet.
But it’s certainly flailing, and with theaters struggling to survive, it’s anyone’s guess what will happen next. Maybe the future of the theatrical comedy is the action-comedy, or the quippy superhero movie, or the campy horror-comedy. And maybe that’s fine. The future of theatrical comedy seems bleak — but if you love it, you know you want it to survive.
Apple’s privacy-friendly ad business is also an antitrust avoidance strategy.
Have you noticed there are more ads on your iPhone this year? You aren’t wrong — there are. Hope you don’t mind, because in 2023 there may be even more of them, and in more places.
Apple is getting more aggressive about its ad business, and the company’s increasingly controversial control over its products is helping that business along. Last year, Apple used its power over the App Store to force apps to get users’ permission to collect data on them across other apps, a feature the company called App Tracking Transparency. This cut off a stream of data that helped power the advertising business of companies like Meta. Apple framed it as a pro-consumer privacy measure. And then, this year, Apple beefed up its own ad arm, which had ended up in an especially good position because it doesn’t rely on the data that App Tracking Transparency cut off. Maybe that was a coincidence. Maybe it wasn’t.
All this comes as Apple faces ever more scrutiny of business practices that some say are anti-competitive. Several countries are investigating its App Store rules or have made laws or issued judgments and settlements forcing Apple to change some of them. In the European Union, that may even include forcing Apple to allow other app stores on its device in the coming years.
Apple has fared better in the US, where antitrust cases are often determined by a “consumer welfare” standard — typically in the form of how much you pay for something. Apple maintains that its rules are how it ensures the security and privacy of its users and that the 15 to 30 percent commissions it takes from a small number of the apps go toward running the App Store. That argument has helped Apple win antitrust lawsuits brought by competitors, avoid action from the Federal Trade Commission and the Department of Justice, and fend off bills that would force it to allow other app stores on its devices.
But Apple’s argument about consumer welfare might be harder to make now, due to a relatively small but growing segment of its business: the ads, which don’t seem to have much of a benefit to the consumer while also taking advantage of a space in the digital advertising market that the App Store rules helped create.
A brief history of Apple’s ad business
The digital ad market is dominated by Google, Meta, and, increasingly, Amazon. But Apple does have a tiny sliver. Much more importantly, it has something those companies don’t: exclusive access to you and your iPhone.
“What makes Apple a major player is how entrenched it is in the consumer device market,” Evelyn Mitchell, a digital ad market analyst at Insider Intelligence, told Recode. In the US, iPhones account for roughly half of all smartphones (Apple’s share worldwide is a smaller 28 percent). “It’s a high penetration — that’s significant. And they’ve got the stranglehold on the App Store.”
Apple’s current ad business has its roots in an older, failed one called iAd. Back in 2010, Apple rolled out the iAd platform, an attempt to create its own ad network within third-party iOS apps. Then-CEO Steve Jobs predicted iAds would get half of the mobile advertising market in the US. They did not, and Apple retired the platform in 2016.
But the company didn’t get rid of ads entirely. Instead, it put them on a few of its own properties: the App Store, News, and Stocks. Apple doesn’t say how much it makes from those ads, but an estimate from Insider Intelligence put US ad revenue at $2.2 billion in 2020. Apple’s total revenue that year was $274.52 billion. So it’s still a very small share, but Apple’s ad revenue is growing in double-digit percentages every year. In 2021, the company made $3.05 billion from ads in the US, and that figure is expected to grow to $4.24 billion in 2022, according to Insider Intelligence. Next year, it should jump to $5.34 billion and then $6.38 billion in 2024.
How will it get there? Likely with more ads in more places, a process that Apple has already started. This year, Apple added new types of ads to its App Store: They’re now on its “Today” section of the store and the “You Might Also Like” section on an individual app’s listing. There are also ads on Apple TV+’s Friday night Major League Baseball games, although those ads were sold by MLB. Bloomberg reports that Apple has considered adding ads to Apple Maps and the Major League Soccer games it will start streaming next year.
It’s not hard to see a near future in which Apple expands ads to other properties, like Podcasts, Music, Books, and Fitness. Maybe it can squeeze a few on the Calculator app. Math needs to advertise, too. Apple could even start using your notifications to send ads, which other companies already do. Apple does, too, if you consider those free trials promoting its Music, Arcade, and TV services to be ads.
For now, Apple hasn’t confirmed that it will do any of this. The company doesn’t, as a rule, comment on potential future projects. But what it has done is put out job listings that indicate it’s going to expand its ad business significantly. Apple is looking for people to build a demand side platform, which automates the process of buying ads and is necessary for a digital ad business to scale. In sum, Apple has a valuable walled garden of data, apps, and devices, and it seems poised to profit from it.
Everything is an ad network. Why not Apple?
Apple’s major revenue driver is and always has been hardware. But it’s not the only one. These days, Apple is increasingly a services company, rapidly growing its entertainment, finance, and software arms. It’s almost a natural progression for it to advertise on some of those services, too.
“[Apple is] starting to see the growth of revenue from their hardware products begin to slow. So they’re thinking, more long term, where do we find new means of revenue?” Tim Derdenger, a professor of marketing and strategy at Carnegie Mellon University, said. “One way to do that is through advertising, and it’s through these services.”
It’s also a good time for Apple to grow its ad business because it has a great source of first-party data — that is, the data its users provide — through its apps and services. That has become more attractive to advertisers with the decline of high-quality third-party data, like the stuff that comes from trackers that advertisers and data brokers put in other companies’ apps and websites.
And just why has third-party data declined? Some of Apple’s competitors say it’s because of Apple itself. Some of the privacy measures Apple has introduced, like blocking third-party cookies on its Safari web browser and forbidding cross-app tracking with App Tracking Transparency, cut off sources of third-party data that advertisers like Meta relied on to target ads and to know how effective those ads are. As in-app ads based on third-party data became less effective, developers and advertisers started spending more on App Store search ads.
“Apple has really grown its ad revenues off the back of App Tracking Transparency,” Mitchell said. “Whether it cares to admit that or not.”
Apple does not want to admit that. An April 2022 report the company commissioned said claims from competitors that App Tracking Transparency cost them billions of dollars were speculative and that Apple’s ad business likely was not a significant beneficiary of the feature. It is true that App Tracking Transparency didn’t harm all digital ad businesses. It may well have helped companies like Google and Amazon, which have more and better first-party data than even Apple does. There’s also the fact that advertisers are spending less across the board because of the economy — a downturn that has nothing to do with App Tracking Transparency.
In an industry that has come to be synonymous with furtive tracking and data collection, Apple is also trying to position itself as a different kind of digital advertiser. This is a company that has made user privacy a big part of its identity and a selling point for its products, and it wants its ad business to reflect that. Users have to opt in to personalized ads, and a majority of them don’t. That’s a significant pro-privacy feature in a world that usually forces the user to search for privacy settings and turn off personalized ads. And if you do opt in, Apple says it doesn’t target or build profiles of you, the individual. You’re placed in various segments with no fewer than 5,000 people, and advertisers target their ads to interests or demographics Apple believes you have.
Apple makes those inferences based on things like the apps you’ve downloaded, in-app purchases you’ve made, which apps you frequently use, your location, things you look at or listen to on Apple’s News and Music, and information you’ve given to sign up for your Apple ID. If you don’t opt into personalized ads, Apple may still use contextual information to target ads to you, like using the app you’re looking up on the App Store in order to serve ads to you in the search results. All of this is to say that Apple’s control over its devices and the App Store plays a big role in its ad business’s success.
Even so, that success is small so far. Apple has but a scant 1.7 percent of the digital ad market in the US, according to Insider Intelligence. It’s still a pretty limited business since it’s only advertising on a few of its own properties for now. That small size and limited reach may help Apple when it comes to potential antitrust issues. It’s hard to make the case that you’re using your market dominance to harm consumers and competitors when you don’t actually dominate that market.
Apple’s ads may even be good for your pockets if Apple uses them to lower the price of the services they’re on. For example, the introduction of an ad-supported tier for Music or TV+ could be cheaper than the tier that doesn’t have ads. Netflix recently started to do this, while Apple has so far held off. It’s a way to both keep the existing subscribers and get more of them, Derdenger said.
Apple’s digital ad market share is tiny but mighty — and antitrust enforcers are paying attention
Apple’s ad push comes at a time when Big Tech is under heavy scrutiny by antitrust enforcers and lawmakers. The App Store has been a big point of contention for some of these parties, and anything that uses that App Store control to fuel success and revenue in a different market is going to get their attention.
“The high-level issue that Apple must wrestle with all the time is that somebody somewhere is going to develop a theory that looks at the use of those advantages in any market in which they operate,” said William Kovacic, who served as chair of the FTC under President George W. Bush. “It doesn’t matter how nascent your effort is, how limited your successes, even if it’s something you’ve never touched before in your life.”
Kovacic said Apple could be seen as leveraging its position of power in one market to get an unfair advantage in another. Apple’s longstanding argument — that it can ensure the privacy and security of its users by maintaining the only app store — has worked for a while, including in its lawsuit with Epic Games. The judge in that case said she found “Apple’s security justification to be a valid and nonpretextual business reason for restricting app distribution.” But that argument may get less convincing the more things competitors and enforcers can point to that show Apple has used its App Store control to enrich itself at the expense of others.
Also on Apple’s side may be antitrust laws in the US and the modern courts’ interpretation of them. As Hal Singer, a professor of economics at the University of Utah and director of the Utah Project on Antitrust and Consumer Protection, put it, “Antitrust tends to grant, like, an immunity to conduct that’s happening within the firm’s boundaries.”
So much of what Apple does occurs within those boundaries because Apple controls so many aspects of its products, including its ad business, from where user data is collected to where the ads appear. Singer, who frequently serves as an expert witness in antitrust lawsuits, thinks that as long as Apple isn’t requiring developers to purchase ads to be allowed into the App Store, it would be difficult to make a case that the search ads are an antitrust violation.
“You have to establish, among other things, that there’s a restraint of trade that is either allowing the firm to maintain its monopoly or to extend its monopoly to some adjacent market,” he said.
The difficulty making antitrust cases against Big Tech companies in the US is part of the reason why some members of Congress wanted to outlaw certain Big Tech business practices that could be seen as anti-competitive. The two bills that made it the furthest in the legislative process would have affected Apple’s App Store. The first, the American Innovation and Choice Online Act, would have forbidden it from giving its own products an advantage over others in its App Store. The second, the Open App Markets Act, would have forced it to allow third-party app stores on its devices. Both bills were waiting for a floor vote in the Senate and neither got one, to what must have been Apple’s delight.
The Department of Justice is reportedly preparing to sue Apple for antitrust violations including its App Store, a case that has been in the works for years. If that case is filed, there will likely be years of litigation that the DOJ may very well not win.
Right now, Apple’s greatest antitrust threat isn’t in the US; it’s in other countries that have stronger antitrust regulations and are ready to use them. The EU’s Digital Markets Act will force Apple to allow third-party app stores on its devices by 2024, something the company has done everything in its power to resist. Apple is reportedly preparing for that eventuality now, although it’s only allowing those app stores where it legally has to — that is, not in the US.
The US will get to watch and see how third-party app stores on Apple devices work out. It could weaken or strengthen Apple’s argument for why they’re so dangerous, depending on how things go. It’s also possible that Apple’s ads push is an attempt to get a more significant revenue stream going in another services arm just in case Apple’s App Store revenue takes a hit when third-party app stores are allowed.
“Advertising is a way to hedge their bet,” Derdenger said.
Very few people want to see more ads in their lives. So when they start appearing in more places on their phones, it’s doubtful that many of Apple’s customers will welcome the change. But Apple isn’t doing anything that its competitors aren’t, and it says it’s doing it in a way that’s better for its users than what those other companies do. If those ads help Apple reduce the price of some of its services, that might not be a bad deal for users, either.
Advertisers who blame Apple for the hit their industry has taken probably don’t feel the same way, but their opinions might not matter much. In the US, antitrust law and how courts interpret it still have a lot to do with consumer welfare. Apple is very good at selling potentially anti-competitive moves as being necessary to keep its customers happy and safe, and it’s making the same case for its ad business.