US govt gears up to investigate massive market power of tech giants

The U.S. government is gearing up to investigate the massive market power of Amazon, Apple, Facebook and Google, sources told Reuters on Monday, setting up what could be an unprecedented wide-ranging probe of some of the world's largest companies.

The Federal Trade Commission and the Department of Justice, which jointly enforce antitrust laws in the United States, have divided oversight over the four companies, two sources said, with Amazon and Facebook under the watch of the FTC, and Apple and Google under the Justice Department.

Technology companies are facing a backlash in the United States and across the world, fuelled by some people's belief that the firms have too much power and are exerting a harmful effect on users or competitive marketplaces.

The Justice Department and FTC generally do not acknowledge preparations for any investigations.

U.S. President Donald Trump has called for closer scrutiny of social media companies and Google, accusing them of suppressing conservative voices online, without presenting any evidence. He has also repeatedly criticized Amazon for taking advantage of the U.S. Postal Service, also without evidence.

Shares of Facebook Inc and Google's owner Alphabet Inc both fell more than 6% on Monday. Amazon.com Inc shares fell 4.5% and Apple Inc shares were down 1%.

U.S. media reported on Friday that the Justice Department was laying the groundwork to investigate Google to determine whether the world's biggest online advertising platform was using its size to squeeze out smaller competitors, violating laws designed to ensure fair competition. The company declined comment on Friday.

The Washington Post reported on Saturday that Amazon would come under the remit of the FTC in any probe. Amazon declined comment on Monday.

Apple and Facebook did not immediately reply to a request for comment on Monday.

REGULATORY SCRUTINY

The four technology companies, all with market values in the hundreds of billions of dollars, have drawn scrutiny from regulators and lawmakers around the world over aspects of their business practices, although it was not clear what the U.S. Justice Department or FTC were planning to look at, if anything.

Amazon, the world's biggest online retailer, has been criticized for holding sway over third-party sellers on its website, who must pay for advertising to compete against first-party and private label sales by Amazon itself. Lawmakers have also argued that Amazon's low prices have hurt brick-and-mortar retailers, many of whom have been unable to compete and have closed.

The European Union is investigating a complaint by streaming music provider Spotify Technology SA that Apple abuses its power over app downloads. In 2014, the iPhone maker settled a Justice Department lawsuit alleging it conspired with publishers to raise the price of e-books.

The FTC has already been investigating Facebook's sharing of data belonging to 87 million of its users with the now-defunct British political consulting firm Cambridge Analytica. Facebook said in April that it expected to be fined up to $5 billion by the regulator.

Facebook, which owns one-time rivals Instagram and WhatsApp and has more than 1.5 billion daily users, has a huge influence in many countries and has been criticized for allowing misleading posts and so-called 'fake news' on its service.

The company last month rejected a call from one of its co-founders to split it into three, as lawmakers ramped up pressure on the Justice Department to launch an antitrust investigation.

Google has faced accusations that its web search service, which dominates the market and has become a verb, leads consumers to its own products at the cost of competitors.

The FTC settled an investigation of Google in 2013, concluding that the company had not manipulated its search results to hurt rivals. But the company has been fined multiple times by the European Union's competition regulator, most recently in March for 1.5 billion euro ($1.7 billion) in a case focused on illegal practices in search advertising brokering from 2006 to 2016.

Legal experts have said U.S. regulators are unlikely to attempt to break up the technology giants.

It is rare to break up a company but not unheard of, with Standard Oil and AT&T being two of the biggest examples. U.S. antitrust probes more often result in an agreement to change certain business practices.

Spotify tops estimates with 100 million paid subscribers worldwide

Spotify has reached 100 million paid subscribers, a first for any online music service, adding more customers in the latest quarter than analysts expected and boosting confidence the company has lots of room to grow.

Spotify Technology SA took on 4 million customers in the quarter, compared with the 3.3 million forecast by analysts. But its first-quarter loss was 79 cents a share, wider than the 41-cent loss analysts expected. After a brief rise, the stock fell as much as 2 percent to $135.50 in New York trading.

Competition from Apple Inc., Amazon.com Inc. and YouTube has done little to slow Spotify’s growth around the world, and the company has relied on its independence from some of the world’s largest companies to its advantage. It has boosted its customer base through promotional deals with Hulu, Samsung and even Alphabet Inc.’s Google (YouTube’s parent company).

“The music industry market is way bigger than most people realized,” Chief Executive Officer Daniel Ek said on a call with analysts.

The company forecast it would add a further 7 million to 10 million subscribers in the current quarter. While Spotify has amassed its current user base thanks to music, the company has acquired three podcasting companies in the past few months to drive subscriber growth through other mediums.

Spotify spent about $400 million to buy Gimlet Media Inc., Anchor and Parcast, hoping that podcasting will turn the company into the world’s top audio platform and reduce its reliance on music. Record labels collect the majority of its annual sales.

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Payments to labels are a big reason the Swedish company is still losing a lot of money. Spotify attributed the first-quarter loss largely to higher costs for stock options and restricted stock units, thanks to its share-price gains. Gross margin was 24.7 percent, above the high end of the company’s guidance range.

Spotify is in the midst of negotiations with the world’s three largest music companies -- Universal, Sony and Warner. Executives have cautioned investors not to expect those deals to reduce its costs, but still sounded enthusiastic about concluding talks. “We’re feeling good about the progress we’re making,” Chief Financial Officer Barry McCarthy said in an interview.

Though Spotify’s premium subscribers topped expectations, monthly active users fell just short at 217 million. Spotify was projected to report about 218.3 million total users and 99.3 million premium subscribers, according to estimates compiled by Bloomberg News.

Expansion into new territories, such as India, will sustain growth in free users for years to come, the company said. Spotify has added 2 million customers since expanding to India earlier this year, and McCarthy said Latin America and Asia are growing quickly. Spotify offers a free service with advertisements and limited use, selling a full buffet of on-demand songs and playlists without ads for a fee.

Its growth in recent years has buoyed the entire music industry. Record sales have climbed four years in a row, and surpassed $19 billion in 2018. Shares of the music streaming service have rallied 22 percent so far this year, compared with a 17 percent gain in the S&P 500.