Jury Finds Meta, Google Liable for Addiction

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Yeah, this is difficult and worse some analysis. So two of the big movies to the downside within the technology sector are Alphabet, the parent of Google, and Meta. Meta having its worst day since the end of October. October of twenty twenty five last year. The morning started with mag seven under pressure because of the belief by the

Madelin Right, So, a jury in Los Angeles spent about nine days deliberating on evidence that they heard over a roughly four week trial. They heard from people including Meta CEO Mark Zuckerberg, Instagram head Adam Aseri. But then they also heard from people within the life of this young woman who brought the suit, who were able to speak about the harms and suffering that she experienced as a

There in lies the crux Madeline, because before the arguments have been about the content from what in many ways they are shielded. But this is about how we are served said content. More broadly, what is it that is deemed to be harmful? And all we already expecting the business model changes are going to be interpreted from this because things have changed. Companies have responded to stain extent, but they were deemed in many ways negligent because there weren't warnings to younger people.

Right.

That's why you've heard this case be referred to as a landmark case, because this really is a novel legal theory. As you know, these companies have been shielded from immunity from suits alleging harm by users due to content on their platform. But this is about the design. So jurors heard a lot about the algorithm itself, and then they heard a lot about features that these companies use that they had experts come in to say are designed to

We just showed statements on the screen, But in summary, both companies disagree with the verdict. Metas looking at its legal options. Google plans to appeal, and as we said at the start of the segment, both stocks are under pressure. Later in the show, we'll get into the kind of business and what the side and why the stocks under pressure.

The whole point of the jury trial is that we needed an answer from average Americans about how they viewed the culpability of social media services, and we got unanswered. It's an answer that I think the defendants don't like. The planners I think are happy with it, but it's just one answer of what is expected to be multiple answers coming from additional trials.

Again, the companies do not agree with the outcome. Google plans to appeal. We know Meta is looking at his options. One of the things that you're cited as looking at is the level of damages awarded in this specific case. And I think we discussed in prior conversations the context that there are other legal proceedings going alongside this, in parallel with this case. But why focusing on the damages? Why is that important?

It allows the parties to start to estimate how much money are we even talking about? And until we got a data point like the jury verdict. Really the parties couldn't even imagine any agreement.

They work so far apart. Now it can start to quantify the number.

So if there's three thousand plaintiffs that are currently pending, we're talking about roughly close to twenty billion dollar. Now those are numbers that are huge, and yet there are numbers that Google and Meta might think that they can afford. So now that we know how much money might be in play, there's new grounds for discussions about settlement.

It's not just the consumer protection angle though, but there's also the public schools.

There's a states eric.

But I want to go to what happened earlier in the week on Tuesday in New Mexico because actually a much larger summer money was being demanded of Meta after it was deemed not to have protected teenagers in that particular state when it came to sexual predators.

Now, can you weave in that particular.

Legal strike on Meta and what that means more broadly in this context, Yeah.

It's a reinforcement that again, a different jury was asked essentially the same set of questions, how response on our social media for the harms that their user suffer and the jury came back with functionally the same answer.

Now, in that case, they were limited.

In in terms of how many damages they could assign to any particular victim. Really know how that number might have looked if a different set of legal theories were used. But it is the sign that we have two juries saying we will impose substantial damages on social media.

Those are two really key data points.

And Eric, of course, as we've mentioned, both companies disagree and Google is coming out strongly saying you.

Misinterpret our very business model.

YouTube is not a social media platform, it's a streaming platform. Whereas Meta is looking at its own arguments, but more broadly, its argument has been there is so much more to mental health than one particular platform, one particular app, And they actually had some evidence from various doctors showing that in some ways certain of these social media platforms offered.

Positive narratives to that.

It was indeed a woman called Kaylee we understand who brought up the particular court case in this hearing.

Eric, what do you make of those arguments?

I think that it's we're so easy to focus on the parties in the courtroom. We have Kayleie the victim and telling her story, and we've got the social media services telling their story. But there's a whole bunch of other individuals who are affected by the discussions taking place in that courtroom. There are many users who benefit extensively from social media, who make it an intual part of their day and often the best part of their day.

And none of that was really relevant to the trial. And as a result, there's a lot.

Of people who are going to be affected by these cases who don't even have a voice in the proceedings.

Well said Eric Olman.

Appreciate you coming on Santa Clara University School of Law.

Really deep dive.

Then now coming up, we've got more on the wider market implications to tech. After the landmark social media addiction verdict against Meta and Google from New York and San Francisco discipluembog Tech.

We're looking at Meta and Google.

Meta in particularly on track for its worst day since October. The summary of the cell side is that there is going to be an overhang on this name a headwind, a risk relating to social media addiction because the Landmark jury verdict holding Google Meta liable for harming a young user is being compared to the groundbreaking cases that force changes for Big Tobacco that could have an impact on social media firms, advertising businesses.

Let's get out to bloemas Kirk.

Wagner, who leads our coverage of social media as an industry, this is what you've been writing about, that Meta and Google risk a Big Tobacco like response because of the outcome of yesterday's trial. What's the reporting telling.

Us, Yeah, well, you know, the jury found that these products can be a right. You think of other consumer products over the years that have been found to be addicted, Big tobacco is probably top of that list, and you see the tarnish on an industry like that, and you have to sort of think, is this the same kind of thing that's going to be happening to the social media platforms. You know, Eric was just talking with you guys in the last segment about the fact that there

And Kurt, this comes with the current context that already the landscape has shifted. Australia has a ban on sixteens anunder we're looking at as you're replicating, Europe is discussing, even California thinking about it. And at the same time, we've actually seen the companies try to respond with changes, and we're certainly telling us about the changes and the protections that certain parents and kids have.

Will business models have to change?

I think that's the ultimate question, because if they just simply have to write a check and this problem goes away, what's the incentive. These are trillion dollar companies. They're not going to clock at writing a six million dollar check. If Congress, especially in the US, sees these types of trials, sees these verdicts, sees the momentum that's being built around the child's safety sort of movement here and says, hey, look, this is sort of what we've been talking about but been dragging.

Our feet on.

We're going to pass a law that changes some of these features and forces the companies to change their products. Now it gets really interesting because if these companies can't get people to come, spend as much time, spend as much time scrolling, obviously that's going to affect, you know, how much money they can make from revenue. These are attention based businesses and so anytime the attention is not on them, it could hurt.

In the report that you did with Alex on the possible product changes, what are they? And they're you know, part of those that are taking legal action against the companies. They are pushing for specific changes or features on those platforms.

And what are they.

So the individual plaintiffs, like what we saw this week in LA, those are personal injury cases. They're not seeking changes to the product. But the school districts that are suing these platforms are seeking changes. I spoke to one of the lead lawyers who's going to be representing the school district yesterday. She talked about notifications as being a big one, right, bringing people and sometimes in the middle of the night, to open up their phone and go on these services.

She talked about parental controls.

Age verification is a big one, making sure that young kids that aren't supposed to be on these services are not on them. So those are the types of things they're going to be pushing for, and you know, those also aligned with what we see members of Congress talk about. They just haven't really gotten anything over the line in terms of a law.

Here, I most Kat Wagner, who's been across this story.

We thank you so much.

Let's get more of what this means for the business model, what means in the market. Minusmiley senior analysts covering social media and E Marketer, it joins us. Now, minda, do you anticipate significant changes to revenue these companies off the back of these landmark cases?

Yeah, I mean, I don't think we're going to see any big changes happen overnight, right. I think I'm going to I'm going to draw a pairallel of TikTok here. You know, whenever we saw a lot of uncertainty around the bin and we didn't know exactly what was going to happen to the app in the US, we actually didn't really see a lot of advertiser pullback or even

Is so interesting that, of course you reference TikTok, because we should remind the audience that TikTok and Snap settled ahead of this trial, But they too are implicated in a lot of the other cases. And this isn't just a meta and a Google issue or broadly, so how far and wide could this not be cast?

Yeah, it's a great question. I mean, obviously, in this exact case. Like you said, it was just meta and YouTube. But this is just the very beginning, and I think ultimately we could see a world where yeah, all of the major all of the major social network Snapchat, Instagram, Facebook, you know, are the ones that continually come up in these conversations could be implicated.

I mean, there's i thing I think that you guys at e Marketer recognize is that away from that specific case, broadly, the social media industry is facing change. Young people and I don't use that term to aldi or lightly don't consume as much or spend as much time on social media. That's a kind of conscious thing. Equally, you know, the landscape is a battle for ibles. You know, you have a choice of where you spend your screen time. Where does best factor into that broader landscape.

Yeah, it's a great question to me that That's something I've been talking about a lot lately, is that none of this is happening in a silo. I mean, these verdicts are our landmark cases for sure, but we are seeing just generally, social behaviors evolve and shift as they always do. I mean, we are seeing time spent on social media in the US kind of hit a wall.

Minda big tech more specifically social media having a big tobacco moment. That's not you we've heard that before. It kind of comes and goes. This time, is it any different?

Yeah, I does feel like this time is going to be different.

I do think so.

I mean again, I don't think we're going to see massive changes overnight, but the you know, these are being called landmark cases for a reason, and the fact that these juris are not coming out, you know, in the favor of these social media companies is not a good

For sure, Meta is down more than five percent, having its worst day since October. Minda smiley senior analyst that E marketered, thank you very much. We have got a lot more on this topic. Our own original investigation can't look away. The case against social media is available.

On all Bloomberg platforms. Now coming up.

Regulators in Europe are also stepping up scrutiny of online platforms.

We have more on that next. This is Bloomberg Tech.

It's time now for talking tech and first up. China's food delivery leader, that's Mate one posted a modest four point one percent increase in sales. The company's expansion efforts outside of China helped offset price wal pressures from Alibaba and JD dot Com. Still, that rivalry has weighed on the stock, which is had forty five percent over the past year plus. Moonshot Ai is in early stages of considering an IPO in Hong Kong.

Now That's according to sources.

The company behind the Kimni chatbot has reportedly held talks with China International Capital and Goldman Sacks, though deliberations are still ongoing. And in Europe, more regulators are stepping up scrutiny of online platforms now the EU has launched an investigation into Snapchat, focusing on how it verifies as users

Ed.

Just taking another quickly at Metacarra because the stock is down severely two standard deviation move on track for its biggest drop since October, and actually that drop is deepening. Remember a jury verdict finding both Meta and Google liable of harming a young user with negligible, deliberate products designed to make social media addictive.

Okay, Coming up on the.

Program, Rachel Holt from Construct Capital is going to join us to discuss early stage investments in startups, modernizing critical industries, venture capital, startups, and the private markets. It is halftime from San Francisco and New York. This is Bloomberg Tech.

Welcome back to Bloomberg Tech. Let's check in on a specific set of movers right now, because we're on draw attention to memory makers and the chip sector. More broadly, we are down by seven percent. If you looked at Asian trading of sk Heinez so Samsung it was off by six percent as well at Micron. Here in the United States it's or by four percent. We are going

Ed.

But this is about the fact that you perhaps need less memory when running large language models, to a factor of six fold less. But if I hear Jevins paradox talked one more time they're an analyst, I need to start getting some money for each time I read it ed because there is this view that if you can do more with less, well you keep doing more.

Yeah, that's the basic sum of it. Turboquont is an algorithm that, in the context running an NLM has an up to factor of six x less memory requirements. The market's taking that and saying that just means the piper scalers, those building out infrastructure.

Will buy less memory.

And that kind of went round the clock US Asia back to US.

And now though we're still sort of having that knee joke reaction more broadly, because these focks will run up so far so fast. Look, some of the names in Asia are up seven hundred percent. Micron was up about what's three hundred percent in the previous fiscal year in terms of share prices. Maybe it's a bit of profit just coming off the table as we do assess what our memory needs are and what the bottles really are.

It is one of the top most read stories on the Bloomberg terminal on dot com couragees go get some of the detail. In private market, shield Ai has announced its raise two billion dollars, hitting evaluation of twelve point seven billion dollars, more than double from a year ago. The defense tech startup raised one point five billion dollars in Series G funding led by Advent International. Blackstone is putting in an additional five hundred million in preferred equity financing.

Look, defense tech, we've been talking about it all week ed and that was after we were course at Heilen Valley Forum and we talked also about reindustrialization more broadly. And one venture firm that's been focused on exactly that is Construct Capital, which recently raised three hundred million dollars in a vehicle to back early stage startups focused on

Defense technique in the US. Are you seeing enough?

Were buyer activity, the government realizing this and allocating money for you to put your money to work in an early stage Yeah?

Well, thank you so much for having me, Caroline. It is so interesting to see what has happened in a really short period of time. We launched construct Capital early in twenty twenty pre COVID twenty twenty with this belief that we needed to see productivity technology enter what we describe as foundation industries. Areas like manufacturing, supply chain logistics, certainly defense tech, because when you look at the numbers, productivity was declining in these spaces. It was literally taking

You and Dana Grayson have, as you mentioned, been doing this since twenty twenty, let's say, before for a cool and now everyone piling in. How have you distinguished yourselves with LPs? How have you managed with were looking at your pol potio companies? The growth in Hadrin, for example, is that what's brought people forward to want to back the next fund?

Well, I think, first of all, we didn't turn our attention here. You know, we were in a crypto investor Web three investor in twenty twenty, twenty twenty one, when that was cool. We have been dedicated our entire careers really to investing and operating in and around these spaces. I joined Uber in twenty eleven when they had just had a Series A. Everyone told me I was crazy to go join a taxi company their words, not mine.

But it was slow moving.

Heavily regulated, high caf X, and of course Uber is none of those things. Dana similarly investing at a ne EA, you know in around the earliest SaaS in the cloud, the earliest three D printing companies, these companies that were not seen as venture scale outcomes. When you know when we made those moves, and I think founders LPs certainly recognize that there.

Is a distinction between an effort to reindustrialize and what's happening in defense technology. And there is a distinction on the policy side with artificial intelligence. But what broadly connects all of those is this administration focusing on cutting red tape, expediting permitting, and basically giving political will to bring more things back to America at the early stage, how does that present an opportunity.

Yeah, that's a great point, and I really see you know, we many of these companies are dual use companies, and I think that's important to distinguish. There are a lot of amazing companies in the defense tech space, but companies like Hadrian didn't start just selling into governments. And I think particularly at the early stages, it's as sale cycles are still long. You need to have a lot of

Do these companies have a future that's more focused on selling to government and the public sector or is there an addressable market where all of these different companies are doing business with one another. I think there's a real distinction there too.

Yeah.

I think Look, I think you need volume, you need the supply chains you need, and those things happen in a very symbiotic way.

You know.

What we see is there are a lot of companies that are using maybe their commercial non government contracts to sort of build up initial capabilities, to build up supply chains, to start developing the relationships they need, and then you get one of these massive needle moving contracts like Hadrian just announced last week with the Navy, and that can just completely accelerate a company's trajectory.

Rachel, how do you get that confidence before that contract is signed. There has been a lot of hype dare I say it, around certain defense tech names, and many people worrying that actually the proof point really isn't there.

Look, I think, first and foremost it comes down to backing the most exceptional founders. Exceptional founders find ways to make things happen in ways you know, you and I can only dream up. And I think what we what we see is those founders are finding a way to do that.

Today I have to jump in, but we so appreciate you joining us today. Rachel Holt, a co managing partner at Construct Capital