Is this social media's tobacco moment?

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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 seven percent since that ruling, adding to earlier declines, while Google is down about five percent.

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. 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 faraway San Francisco. Listeners, it's so early in San Francisco when we record this.

Hannah, are you like awake? I'm slowly rising and I have a I've got a cold brew here to get me through. Very San Francisco. Surely you've already been to a yoga class, done a cold plunge. Uh had some centering meditation. So while you're coming up on your cold brew, tell us what's happened.

So last week was the verdict in Los Angeles. The trial was a series, uh one one of a series of nine test cases that are gonna set the direction for a kind of larger group of similar claims that sort of thousands of individuals, uh school districts. uh 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 a second set of cases heard in Oakland over the summer. But these really the the verdict really tells us, you know, 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. I see. Hannah, who got hurt here a and what harm did they suffer?

that they brought Meta and Google to court. So in this case the plaintiff was called KGM or Kaylee, so twenty year old woman arguing that over the course of her life using social media has uh it wasn't 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 I 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 the content was particularly bad, but it's whether by design these platforms are meant to get you get you coming back just like a I guess a slot machine in a casino.

And like this stuff all matters to to markets, doesn't it, Rob? Because these companies are like almost unbelievably enormous. So Meta is a one point three six trillion dollar company. And Google or Alphabet, that's like 3.3 trillion dollars worth of market capitalization. So you put them together, and that is eight percent of the entire S P five hundred US stock index. 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 the kind of texture of our whole existence. So if this changes the way they have to do business,

It's gonna be big news for everyone in a certain way. Market, non market, whatever. 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?

So I think to date the platforms have been protected by a law a legislation in the US called Section two hundred and thirty of the Communications Decency Act. And that says that platforms cannot be liable for the user generated content that they host. And that is broad, that is sort of enshrined in the current discussion in the US around First Amendment rights and free speech.

The plaintiffs here have gone a different route by saying we're not even looking at a section two hundred thirty. We're gonna tap away at the the kind of product liability space and look at the sort of negligence there. And the fear is that now

You know, this is the first of a series of test cases, there will be more, but you you see the direction that this could open the floodgates to anyone who says, Oh well, I'm feeling a little bit depressed and I just spent ten days doom scrolling on social media, I think it was

this platform that did that and going after the platforms to try and claim some money. I I I have two things to say about it. One thing I I have to say is that I have two sixteen year olds in my house and boy is there a lot of infinite scrolling. going on in the armstrong household. So I'm getting ready for my payday. That's that's point number one. There you go. Point number two is the point that Hannah you just made is the point that has Wall Street really excited.

This concept that product design is not speech really has people thinking about the whole business model. Right. And and you notice, you know, in responding to the verdict. It's pretty clear that Meta is still gonna fight on the speech line here. They're gonna say that they they are pr they are protected by things like the First Amendment and section two hundred thirty.

But this move of separating product design from freedom of expression or responsibility for expression, it's just a huge deal for the whole industry. It feels like Metra is kind of Seizing the political moment when there's a lot of debate about this, but I will say that I've also seen reaction from you know academics. safety experts who typically don't love meta and are very critical, saying this sets a worrying precedent. They don't agree with it and it could have sort of ramifications.

down the line, they argue actually both Meta and some of these more cautious experts say. Speech and the design factors are uh deeply connected. Nobody will doom scroll if there isn't compelling content on the platform in the first place, if it was just videos of

paint drying, you would just put it down immediately. But on the other hand, Hannah, let me let me take the other side of that argument. Suppose in nineteen seventy two or whatever it was, the car industry had said You know, if you make us put seatbelts in these cars. You're encroaching on of our freedom of expression. We're we're expressing a view about a lifestyle, a way an American way of living, freedom and comfort and I mean I of course this is an exaggeration, but y you see my point.

Right. That that the the freedom of freedom of speech broadly construed is very broad. And you know, you have to draw some lines somewhere to what that allows you to do, right? Where does this fit into the broader tech clash that we're seeing, right? So you're seeing lots of countries looking to r restrict the use of social media for for children. Australia has already gone down that route. Is this sort of of a piece with that? Is it connected?

I think so. It's a bit of a moment, particularly as you note, for child safety. Yeah. Obviously across the political spectrum there's sort of debates about where people stand on what speech should be allowed harmful versus totally illegal. speech, what should we be allowed to say on platforms?

But in in terms of whether children should be protected, there's a sort of bipartisan agreement that this is an area that you will get politicians on both sides riled up and saying we need for the kids, think of the kids. So it it seems to be part of that bigger moment where we're kind of having a conversation about what age should children start using social media? Are we now a generation into social media seeing the repercussions on young formative minds?

uh of of uh constant social media use and and if so can we correct that? So this sort of ties into that. I mean my h my hobby horse on this whole issue is that Certainly I know a good few Gen Xers and boomers who have like really lost the plot online and you see lots of people who are not children who are radicalized online and I don't I'm not aware of very much that's been done about that. That's a whole other topic. But

Like Rob, say you assume that this does change the rules of the road for social media companies. These companies are so ginormous, they're such an important part of of markets, you know, like it or not they're a huge part of debt markets, they're a huge part of of stock markets, they're they're everywhere. But like your view that you were um talking about in your newsletter just uh just the other day was that this sell off is overdone. Why why are you confident about this, please?

I have become so professionally deformed by covering tech industry lawsuits for like twenty years. And my basic default position on all of them is this stuff never turns out to match. You know, you're you're suing

Microsoft, you're having suits over Java, you're having suits over Android. You know, it's this, it's that. And tech companies in general and internet companies in particular just keep rolling. And I think there's The technology changes quickly enough that by the time the legal issues get sorted out, you're on to the next phase of the game anyway.

So you like you know, this is what happened with like the the fight over browsers and antitrust. It's like by the time that lawsuit got worked out, browsers weren't important anymore. You know what I mean? They were a commoditized product. And also in the internet services business in particular, these products are given away for free. And demand for them is tremendous. Here is a free product that we all use and get value out of where the harms

are almost certainly real, but probably vague and counterbalanced by pretty significant goods. All of the stuff I just mentioned mix it together And you get my very cynical attitude that these kind of lawsuits just don't tend to amount to very I mean, I think I agree that the the academic literature around whether social media is harmful to children is is mixed.

There is pretty direct correlation between if you're a young woman and body image issues and dysmorphia if you're using a platform alphabet, Rob, on the counter side there is you know, people who might not find communities and are not particularly sociable out in the wild, who online find their people and derive great benefit for that and also it's very hard to see what kind of causation versus correlation. The platforms will say there's no link.

Some academic studies will find that is and some will they're not, but it's all murky, which I think plays to the platform's benefit. I think what worked against them in this trial is that it was a jury trial and that Um, I was there when Mark Zuckerberg testified and he is not uh he is not a sympathetic character.

I tell you what Hannah, if I'm a lawyer suing one of these companies and Meta in particular, boy do I want that Zuckerberg on the stand. Let's just have a week of him talking. You know? Yeah. It's like you've got it you've got it in the bag. Kind of a bit arrogant and pushing back at the questions. And so it was a bit so like, what are you doing? This is about like a child's mental health. There was also a kind of

this line that, oh, we we weren't juicing for engagement or time spent. We really care about creating a valued community. then they would show emails from a few years back that was like Our main goal is increasing time spent. And he'd say, Oh, actually I meant like we changed. That used to be, but we've changed. We're gonna do that now.

So another I think important piece of context here is that we're already seeing some lawsuits come up from people who say they were harmed or their relatives were harmed by AI chatbots. Now where do they fit into all this? Right,'cause at the moment Google and Meta are two of the a handful of companies really throwing billions of dollars into this. This is what that's really preoccupying these companies, winning this AI race and and developing frontier models.

What I think's interesting when it comes to the safety piece is that We are yet to know whether Section 230 will protect these companies when it comes to content generated not by users but by chatbots that they have built and therefore, you know, these are products that they have created and they may therefore have more liability for. The platforms are deliberately not talking about this. I've heard even internally, no one's really supposed to bring it up.

uh too loudly because there's a a general bit of a a bit of a fear that this could come into play later down the line. So that's kinda lurking in the longer term. I mean I'd be interested to hear from you Hannah, what do you think the next steps are on this? road. What what is the next big uh point we should be looking forward to?

absolutely the appeal moment. Meta certainly are going to throw everything at this. And they're already, as you noted, using sort of rhetoric around free speech and First Amendment rights and this will erode our God given First Amendment rights in the US. I was speaking to a policy person who worked for a rival company before the verdict, and there was a moment when so TikTok and Snap both.

settled the case and we were sort of gamifying, okay, well what what position is Meta in now, Meta and YouTube? If they settle, they open the floodgates to many more cases. So that's a lose. If they go to trial and they win, all good and done, although there might be a an appeal process there, but It's a good sign. If they go and lose, what happens next? They appeal

And they appealed during a Trump administration with if it made its way all the way up to the Supreme Court, a sort of conservative Supreme Court. Right. And this person was like actually You know, if I'm them, I'm gonna take the gamble and I'm gonna go and ride it out and hope that the wider political moment and discussion around censorship versus free speech helps me when it comes to the appeals process, essentially. Ladies and gentlemen, that is American capitalism in

Inglorious Technicolor right there. This is the American dream. We're gonna have to break there and come back in just one sec with long short. Buller Bear, Trade or Tariff. Or fad. There's more than one side to every story. With the Flip Side podcast from Barclays Investment Bank, you'll hear two research analysts having a provocative debate on hot topics in business and markets. Listen to the flip side on your favorite platform.

Okie doke, it is time for long short, that part of the show where we go long a thing we love or short a thing we hate. Hannah, it can be anything, so what you got? Today I am powered by this. Special cold brew. Inexplicably it is wicked branded. I don't know why. Some weird collab. I bulk ordered them and they all came with the wicked branding on. But So it's like witchy witchy coffee for witches. Witchy coffee. It says it has your daily collagen boost.

I don't really know what collagen is, but they love it here at SF. Oh, I bet they do. I'm getting it boosted as I struggle to stay awake during this early morning podcast. Collagen in your coffee. Rob, what do you got? I am long, the FT News Briefing Podcaster. For totally non self interested reasons, including the fact that I'm gonna be on the show later this week talking about the history of the taco trade on the one year anniversary of Trump's

disastrous tariff announcements and subsequent chickening out. So I'm long that everybody listen in. Shameless self promotion. Shameless self promotion. Totally mercenary. I am long the Netflix documentary about America's next top model. First of all it's a bit of a kind of trip down memory lane and let's look at how like dreadfully thin and weirdly dressed everyone was in the early noughties. But Were you a fan of that show back then? Were you at home with the five years? I loved it. Yes.

I I did love it. But it has not aged well and yeah, some of the behind the scenes drama that they talk about in this documentary is is pretty hair raising. So that was some high quality entertainment. So speaking of high quality entertainment, we're gonna be back with more for you on Thursday. So listen up then.

Unhedged is produced by Jake Harper and edited by Brian Erstadt. Our executive producer is Jacob Goldstein. We had additional help from Topha Forhead. Cheryl Brumley is the FT's global head of audio. Special thanks to Laura Clark, Alistair Mackey, Greta Calvin. Cohn and Natalie Sadler. FT Premium subscribers can get the Unhedged newsletter for free, and a 30-day free trial is available to everyone else. Just go to FT.com/slash unhedged offer. I'm Katie Martin. Thanks for listening.