Is this social media's tobacco moment?

0:09It's been a pretty wild few weeks and it's hard to keep on top of everything you need to know in markets and finance. But don't worry, listeners, we have got your back. One big story that's not about Iran came last week and it's all about social media. A court found that both Meta, which owns Facebook and Instagram, and Google, which owns YouTube, are liable for content that's harmful to children and teenagers, and they must pay a few million dollars in damages. Meta shares are down by about 7 % since that ruling, adding to earlier declines, while Google is down about 5%. Now, how much of that hit to shares is down to the ruling and how much is down to the general hit to markets because of Iran?

0:52We don't know. But these are huge companies with a massive weight in every investor's portfolio. So this stuff matters. Today on the show, do these rulings open the floodgates for social media companies? Is this social media's tobacco moment? This is Unhedged, the markets and finance podcast from the Financial Times and Pushkin. I'm Katie Martin, a markets columnist here at the FT in London, where we have some much needed holiday days coming up. And I'm joined, yes, by the big fella, Rob Armstrong, my partner in crime on the Unhedged Newsletter in New York. But also, big love to Hannah Murphy, one of our super team in faraway San Francisco.

1:34Listeners, it's so early in San Francisco when we record this. Hannah, are you like awake? week. I'm slowly rising and I have a I've got a cold brew here to get me through a very San Francisco.

1:50Katie Martin: Surely you've already been to a yoga class, done a cold plunge, had some centering meditation. So while you're coming off on your cold brew, tell us what's happened. So last week It was the verdict in Los Angeles. The trial was a series, one of a series of nine test cases that are going to set the direction for a kind of larger group of similar claims. That's sort of thousands of individuals, school districts, state attorneys general who are going after Meta and Google and other social platforms at the moment, seeking damages and design changes, arguing that these platforms by design have negligently harmed children and young people and are deliberately addictive.

2:39There will be a second set of cases heard in Oakland over the summer. But these really, the verdict really tells us, you know, what a jury thinks of Mark Zuckerberg and of YouTube when it comes to whether they are in fact negligent in this case. So this is using product liability laws rather than looking at whether the content is harmful. I see.

3:02Katie Martin: Hannah, who got hurt here and what harm did they suffer that they brought Meta and Google to court? So in this case, the plaintiff was called KGM or Kayleigh. It's a 20-year-old woman arguing that over the course of her life, using social media has, it wasn't sort of the only thing. They had to show that it contributed to her mental health problems, anxiety and depression. In turn, the platforms argued, well, there are other mitigating factors. She had suffered familial abuse, for example. This wasn't on us. But really here, what they were looking at was whether features, sort of like Infinite Scroll, for example, where you could just go on and on and on, made her addicted to the platform and in turn then caused her harm.

3:56So it wasn't whether the content was particularly bad, but it's whether by design these platforms are meant to get you coming back just like a, I guess, a slot machine in a casino. And like this stuff all matters to markets, doesn't it, Rob? Because these companies are like almost unbelievably enormous. So Meta is a$1.36 trillion company and Google or Alphabet, that's like$3.3 trillion worth of market capitalization. So you put them together And that is 8 % of the entire S &P 500 US stock index.

4:37Katie Martin: And you might think about it this way. Think about how much internet advertising you see every day, week, month, year of your life. Well, these two companies, along with Amazon, which has a huge ad business, those three companies get half the internet advertising dollars that get spent anywhere. So they're absolutely dominant in this form of advertising that really colors the kind of texture of our whole existence. So if this changes the way they have to do business, it's going to be big news for everyone in a certain way. Market, non-market, whatever. So shares have come off pretty hard. Like I say, it's a little bit difficult to disentangle how much of that decline in share prices is down to just other stuff and how much is specifically down to this.

5:31but they're only having to pay out a few million dollars in damages. What is the market extrapolating from here? So I think to date, the platforms have been protected by a legislation in the US called Section 230 of the Communications Decency Act. And that says that platforms cannot be liable for the user-generated content that they host. And that is broad. that is sort of enshrined in the current discussion in the US around First Amendment rights and free speech. The plaintiffs here have gone a different route by saying, we're not even looking at Section 230. We're going to tap away at the kind of product liability space and look at the sort of negligence there.

6:16And the fear is that now, you know, this is the first of a series of test cases, there will be more, but you see the direction that this could open the floodgates to anyone who says, oh, well, I'm feeling a little bit depressed and I just spent 10 days doom scrolling on social media. I think it was this platform that did that and going after the platforms to try and claim some money.

6:39Katie Martin: I have two things to say about it. One thing I have to say is that I have two 16 year olds in my house and boy, is there a lot of infinite scrolling going on in the Armstrong household. So I'm getting ready for my payday. That's point number one. Point number two is the point that Hannah, you just made, is the point that has Wall Street really excited. This concept that product design is not speech really has people thinking about the whole business model. And you notice in responding to the verdict, it's pretty clear that Meta is still going to fight on the speech line here. they're going to say that they are protected by things like the First Amendment and Section 230.

7:23Katie Martin: But this move of separating product design from freedom of expression or responsibility for expression, it's just a huge deal for the whole industry. It feels like Meta is kind of seizing the political moment when there's a lot of debate about this. But I will say that I've also seen reaction from, you know, academics, safety experts, who typically don't love meta and are very critical, saying this sets a worrying precedent, they don't agree with it, and it could have sort of ramifications down the line. They argue actually both meta and some of these more cautious experts say speech and the design factors are deeply connected.

8:08Nobody will doom scroll if there isn't compelling content on the platform in the first place. If it was just videos of paint drying, you would just put it down immediately.

8:20Katie Martin: But on the other hand, Hannah, let me take the other side of that argument. Suppose in 1972 or whatever it was, the car industry had said, you know, if you make us put seatbelts in these cars, you're encroaching on our freedom of expression. We're expressing a view about a lifestyle, an American way of living, freedom and comfort. And I mean, of course, this is an exaggeration, but you see my point, right? That the freedom of speech broadly construed is very broad. And, you know, you have to draw some lines somewhere to what that allows you to do, right? Where does this fit into the broader tech lash that we're seeing, right so you're seeing lots of countries looking to restrict the use of social media for for children australia has already gone down that route is this sort of of a piece with that is it connected i think so it's a bit of a moment particularly as you note for child safety yeah obviously across the political spectrum there's sort of debates about where people stand on what speech should be allowed harmful versus totally illegal speech what should we be allowed to say on platforms.

9:39But in terms of whether children should be protected, there's a sort of bipartisan agreement that this is an area that you will get politicians on both sides riled up and saying, for the kids, think of the kids. So it seems to be part of that bigger moment where we're kind of having a conversation about what age should children start using social media? Are we now a generation into social media seeing the repercussions on young formative minds of constant social media use? And if so, can we correct that? So this sort of ties into that. I mean, my hobby horse on this whole issue is that certainly I know a good few Gen Xers and boomers who have like really lost the plot online.

10:28And you see lots of people who are not children who are radicalized online. And I don't I'm not aware of very much that's being done about that. That's a whole other topic. But like, Rob, say you assume that this does change the rules of the road for social media companies. These companies are so ginormous. They're such an important part of markets, you know, like it or not. They're a huge part of debt markets. They're a huge part of stock markets. They're everywhere. But like your view that you were talking about in your newsletter just the other day was that this sell-off is overdone. Why are you confident about this, please?

11:07Katie Martin: I have become so professionally deformed by covering tech industry lawsuits for like 20 years. And my basic default position on all of them is this stuff never turns out to matter. You know, you're suing Microsoft. You're having suits over Java. You're having suits over Android. You know, it's this, it's that. and tech companies in general and internet companies in particular just keep rolling. And I think there's a couple of reasons for that. One is the technology changes quickly enough that by the time the legal issues get sorted out, you're on to the next phase of the game anyway. So you're like, you know, this is what happened with like the fight over browsers and antitrust.

12:00Katie Martin: It's like by the time that lawsuit got worked out, browsers weren't important anymore. You know what I mean? They were a commoditized product. And also in the internet services business in particular, these products are given away for free. And demand for them is tremendous. Here is a free product that we all use and get value out of where the harms are almost certainly real, but probably vague and counterbalanced by pretty significant goods. All of this stuff I just mentioned, mix it together. And you get my very cynical attitude that these kind of lawsuits just don't tend to amount to very much.

12:43I mean, I think I agree that the academic literature around whether social media is harmful to children is mixed. There is pretty direct correlation between if you're a young woman and body image issues and dysmorphia, if you're using a platform on earth. But then as you say, Rob, on the counter side, there is people who might not find communities and are not particularly sociable out in the wild who online find their people and derive great benefit for that. And it's very hard to see what's kind of causation versus correlation. The platforms will say there's no link. Some academic studies will find that is and some will say they're not.

13:25But it's all murky, which I think plays to the platform's benefit. I think what worked against them in this trial is that it was a jury trial and that I was there when Mark Zuckerberg testified. and he is not a sympathetic character.

13:46Katie Martin: I tell you what, Hannah, if I'm a lawyer suing one of these companies and Meta in particular, boy, do I want that Zuckerberg on the stand. Let's just have a week of him talking, you know? It's like you've got it in the bag. He came off sometimes kind of a bit arrogant and pushing back up the questions. And so it was a bit sort of like, what are you doing? this is about like a child's mental health. There was also a kind of this line that, oh, we weren't juicing for engagement or time spent. We really care about creating a valued community. Then they would show emails from a few years back that was like, our main goal is increasing time spent.

14:26And he'd say, oh, actually, I meant like we changed. That used to be, but we've changed. We don't do that now. So another, I think, important piece of context here is that we're already seeing some lawsuits come up from people who say they were harmed or their relatives were harmed by AI chatbots. Now, where did they fit into all this? Right, because at the moment, Google and Meta are two of the handful of companies really throwing billions of dollars into this. This is what's really preoccupying these companies, winning this AI race and developing frontier models. What I think is interesting when it comes to the safety piece is that we are yet to know whether Section 230 will protect these companies when it comes to content generated not by users, but by chatbots that they have built.

15:16And therefore, these are products that they have created, and they may therefore have more liability for. The platforms are deliberately not talking about this. I've heard even internally, no one's really supposed to bring it up too loudly because there's a general bit of a fear that this could come into play later down the line. So that's kind of lurking in the longer term.

15:39Katie Martin: I mean, I'd be interested to hear from you, Hannah, what do you think the next steps are on this road? What is the next big point we should be looking forward to? Absolutely, the appeal moment. Meta certainly are going to throw everything at this. And they're already, as you noted, using sort of rhetoric around free speech and First Amendment rights and this will erode God-given First Amendment rights in the US. I was speaking to a policy person who worked for a rival company before the verdict. And there was a moment when, so TikTok and Snap both settled the case and we were sort of gamified.

16:19Okay, well, what position is Meta in now? Meta and YouTube, if they settle, they open the floodgates to many more cases. So that's a lose. if they go to trial and they win all good and done although there might be an appeal process there but it's a good sign if they go and lose what happens next they appeal and they appeal during a trump administration with if it made its way all the way up to the supreme court a sort of conservative supreme court right and this person was like actually you know if i'm them i'm gonna take the gamble and I'm going to go and ride it out and hope that the wider political moment and discussion around censorship versus free speech helps me when it comes to the appeals process, essentially.

17:06Ladies and gentlemen, that is American capitalism in glorious technicolor right there. This is the American dream. We're going to have to break there and come back in just one sec with Long Short.

17:34OK, OK, OK. It is time for Long Short, that part of the show where we go long a thing we love or short a thing we hate. Hannah, it can be anything. So what you got? Today, I am powered by this special cold brew. Inexplicably, it is Wicked branded. I don't know why. Some weird collab. I bulk ordered them and they all came with the Wicked branding on. So it's like witchy, witchy coffee for witches. Witchy coffee. It says it has your daily collagen boost. I don't really know what collagen is, but they love it here at SF. Oh, I bet they do. I'm getting it boosted as I struggle to stay awake during this early morning podcast.

18:13Collagen in your coffee. Rob, what have you got?

18:19Katie Martin: I am long the FT News Briefing podcast for totally non-self-interested reasons, including the fact that I'm going to be on the show later this week talking about the history of the taco trade on the one year anniversary of Trump's disastrous tariff announcements and subsequent chickening out. So I'm long that. Everybody listen in. Shameless self-promotion. Shameless self-promotion. Totally mercenary. I am long the Netflix documentary about America's next top model. First of all, it's a bit of a kind of trip down memory lane. And let's look at how like dreadfully thin and weirdly dressed everyone was in the early noughties.

19:04Katie Martin: Were you a fan of that show back then? Were you at home? I loved it. Yes, I did love it. But it has not aged well. And, yeah, some of the behind-the-scenes drama that they talk about in this documentary is pretty hair-raising. So that was some high-quality entertainment. So speaking of high-quality entertainment, we're going to be back with more for you on Thursday. So listen up then. Unhedged is produced by Jake Harper and edited by Brian Erstad. Our executive producer is Jacob Goldstein. We had additional help from Topher Foreheads. Cheryl Brumley is the FT's Global Head of Audio. Special thanks to Laura Clark, Alistair Mackey, Greta Cohn and Natalie Sadler.

19:47FT Premium subscribers can get the Unhedged newsletter for free and a 30-day free trial is available to everyone else. Just go to ft.com slash unhedged offer. I'm Katie Martin. Thanks for listening.

20:13We'll be right back.