NSR Tech Policy: European Parliament passes the world’s biggest regulatory threat to Big Tech

What’s new: The European Parliament formally passed the Digital Markets Act (DMA) and the Digital Services Act (DSA) on Tuesday. The DMA regulates platform power, and the DSA regulates online content moderation. Passage of both was expected, as we stated in our Q2 assessment of tech regulatory risk (LINK) and as Damien Geradin, the founding partner of Geradin Partners and a professor of law at Tilburg University, described on a New Street Research expert speaker call earlier this year (LINK).

The impact of the DMA: As we stated in our Q2 presentation (LINK), we expect the DMA to have the most significant impact on Apple and Google, given the importance of app stores and vertical integration to their products and business models. The regulation also limits the use of data for personalized advertising, which could also have a significant impact on Meta and Google.

The scale of the DMA’s impact will be shaped not only by its text, but also by how the European Commission enforces it. The Commission has previously emphasized the importance of the enforcement model, and a blog post published by Commissioner Thierry Breton on Tuesday stated that the Commission would “centrally supervise…very large platforms.” The DMA will be much more constraining if it functions more like utility-style regulation — with constant exchanges between the Commission and companies about what’s permissible and what’s not — rather than if enforcement is closer to the current model, where complaints instigate review.

The impact of the DSA: As we detailed in our Q2 risk assessment of tech regulatory risk, the DSA may make it more difficult for smaller platforms, such as Reddit, Snap, and Twitter, to compete with Big Tech. Although the DSA imposes different obligations on companies of different sizes, smaller platforms will be disproportionately burdened by the increase in compliance costs, which larger platforms are better able to bear.

What happens next: The Council of the European Union must adopt the DMA and the DSA, and it is expected to do so this fall. If it does, the DMA would take effect in the spring of 2023, with the remainder of 2023 focused on the process of designating “gatekeepers” under the law. Designated gatekeepers could then be liable under the law in 2024.

Full 12-month historical recommendation changes are available on request

Reports produced by New Street Research LLP, 18th Floor, 100 Bishopsgate, London, EC2N 4AG. Tel: +44 20 7375 9111.

New Street Research LLP is authorised and regulated in the UK by the Financial Conduct Authority and is registered in the United States with the Securities and Exchange Commission as a foreign investment adviser.

Regulatory Disclosures: This research is directed only at persons classified as Professional Clients under the rules of the Financial Conduct Authority (‘FCA’), and must not be re-distributed to Retail Clients as defined in the rules of the FCA.

This research is for our clients only. It is based on current public information which we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied on as such. We seek to update our research as appropriate, but various regulations may prevent us from doing so. Most of our reports are published at irregular intervals as appropriate in the analyst's judgment. This research is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer or solicitation would be illegal. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual clients.

All our research reports are disseminated and available to all clients simultaneously through electronic publication to our website.

New Street Research LLC is neither a registered investment advisor nor a broker/dealer. Subscribers and/or readers are advised that the information contained in this report is not to be construed or relied upon as investment, tax planning, accounting and/or legal advice, nor is it to be construed in any way as a recommendation to buy or sell any security or any other form of investment. All opinions, analyses and information contained herein is based upon sources believed to be reliable and is written in good faith, but no representation or warranty of any kind, express or implied, is made herein concerning any investment, tax, accounting and/or legal matter or the accuracy, completeness, correctness, timeliness and/or appropriateness of any of the information contained herein. Subscribers and/or readers are further advised that the Company does not necessarily update the information and/or opinions set forth in this and/or any subsequent version of this report. Readers are urged to consult with their own independent professional advisors with respect to any matter herein. All information contained herein and/or this website should be independently verified.

All research is issued under the regulatory oversight of New Street Research LLP.

Copyright © New Street Research LLP

No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without the prior written consent of New Street Research LLP.