Is this social media's tobacco moment?

Katie Martin (0:06)

Pushkin. It'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, we 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 far away San Francisco. Listeners, it's so early in San Francisco when we record this. Hannah, are you like awake?

Hannah Murphy (1:43)

I'm slowly rising and I've got a cold brew here to get me through, very San Francisco.

Robert Armstrong (1:50)

Surely you've already been to a yoga class, done a cold plunge, had some centering meditation.

Katie Martin (1:58)

So while you're coming off on your cold brew, tell us what's happened.

Hannah Murphy (2:03)

So last week was the verdict in Los Angeles. The trial was a series of nine test cases that are going to set the direction for a larger group of similar claims. That's 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. There will be a second set of cases heard in Oakland over the summer, but these really, the verdict really tells us 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.

Katie Martin (3:02)

I see.

Robert Armstrong (3:02)

Hannah, who got hurt here and what harm did they suffer that they brought Meta and Google to court?

Hannah Murphy (3:10)

So in this case, the plaintiff was called KGM or Kayleigh. So a 20-year-old woman arguing that over the course of her life, using social media isn'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. So 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 slot machine in a casino.

Katie Martin (4:10)

This stuff all matters to markets, doesn't it, Rob? Because these companies are 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 percent of the entire S&P 500 US stock index.

Robert Armstrong (4:37)

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.

Katie Martin (5:21)

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. But they're only having to pay out a few million dollars in damages. What is the market extrapolating from here?