Censorship and the Economics of Digital Media

What's going on?

The Indonesian Communications Ministry (Kominfo) urged local and foreign tech platforms to follow new licensing rule or risk being blocked.

What does this mean?

Tech platforms such as Google, Facebook, Spotify and others have millions of users in Indonesia. The new licensing rule gives government the power to ask these companies to remove or block content that are considered dangerous or disturbs public order.

So why are the government targeting these tech platforms and what led to this decision? To answer that, we need to look at the shift in the business model of news and media in the past two decades.

20 years ago, news was controlled by mass media publishing companies. Think newspaper publishers, radio and TV stations. Names like Kompas, Tempo, RCTI come to mind.

Traditional Mass Media Business Model:

Mass media works by controlling both the supply of content and the distribution of that content to the people. Let's take a newspaper publisher like Kompas for example.

• Supply: Kompas decides which story is worth writing about, hire journalists to investigate and write news. They combine this editorial with advertising.

• Distribution: After editing, they print the day's edition in a printing press and use trucks to deliver printed copies to distribution hubs and eventually reach people's houses.

If they want to reach more readers and expand to new regions, they need to hire more journalists, buy more printing presses and additional trucks for delivery. These are not cheap. In economics, these are called "marginal cost", the cost required to obtain one additional customer.

In traditional physical media like newspapers or TV stations, high marginal cost becomes a barrier to entry for independent publishers who want to compete. Thus, traditional media is controlled by a few large and powerful companies who have the funding and scale to expand and control the market. With more and more readership, advertisers flock to these publishers and provide a rich source of income, in addition to readers' subscription fee.

And then along came the internet.

Tech platforms like Google and Facebook completely disrupt the mass media business model. As more people have access to affordable mobile phones and internet connection, the way we consume news have changed. In 2005, less than 5% of Indonesians have internet access. That number exploded to 71% in 2021. On top of that, 89% consider online and social media as their source of news, compared to 58% for TV and 20% for print.

The shift to the internet is quite clear to see.

New Media Business Model:

In the new online media world, Google and Facebook control the distribution. They have built a platform that are used by millions in Indonesia and billions around the world. (For Google it's their search engine, for Facebook it's the Facebook app, Instagram, and WhatsApp). With more people consuming news through Google and Facebook, the power has shifted away from mass media to these tech platforms.

As news becomes digital, Google and Facebook have reduced distribution cost to zero. No need for expensive printing presses or delivery trucks or TV stations. Traditional media companies no longer have control of distribution, they are simply another supplier to the Google/Facebook algorithm. Any individual creator with limited resources can publish their content for free through these digital platforms and compete for people's attention.

That's the power of the internet.

So how is this related to Kominfo's decision?

Given the increasing reach and influence of these tech platforms as primary sources of news and content, the new rule is a censorship attempt by the government to ensure online content is "positive and productive".

The rule also compels companies to reveal communications and personal data of users if requested by the government.

Why should we care?

There are a few issues to consider.

Firstly, the determination of what is dangerous content and what is "positive and productive" is arbitrary. Is the government qualified to make this decision? We know that contents such as hate speeches do exist, and Facebook and Google have their own censorship algorithm to remove these. But should the decision on what's good and what's not rest on the government or the individual? And how do we fairly determine what are and are not acceptable for an entire society, especially one with such diversity as Indonesia.

And then there is the political risk. What is stopping a future political party in power from using the censorship rule to shape public opinion in their favour by removing content that provides an opposing view? This is not without precedent.

We can look to China as an example. The country is well-known for highly restrictive censorship of the media. Remember the Jack Ma incident a few years ago? His criticism of Chinese financial regulation led to a very public fallout, with his company Alibaba being immediately investigated and fined for anti-competitive behaviour.

Another example is the restrictive rules on online gaming where livestream creators can only use certain games deemed fit by the government. Public valuation of Chinese gaming companies have plummeted since then.

These are real risk not only to the freedom of speech, but also to the economy. Economic growth is dependent on entrepreneurship and creativity. The rise of the internet has made it significantly easier for anyone from any social or educational background to be creative, express themselves, take risk, and create wealth.

Just look at how many small businesses have become successful by selling through Google, Instagram, or Tokopedia. How many freelance workers are able to support themselves through Upwork or Toptal. Or how many Youtubers have build massive audience and create real businesses.

Would we want to risk this powerful digital movement full of individual creativity, and trade it for a China-like autocratic internet where the government decides what's good for you?

The internet is a powerful tool that has shifted the power of media from a few gatekeepers to the masses. However well-meaning in intent, the content moderation rule runs opposite to the trend of information liberty, equal opportunity, and freedom of expression that the internet affords.

Until next time...

- Jason

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