Hey guys, it's sasha, the eu has just agreed a new law that is going to significantly affect tech companies. This law may cause a substantial drop in revenues for companies like apple facebook and google. It will also increase their cost of doing business in europe and the penalty for failing to adhere to this new law could be tens of billions of dollars per company. So how worried should you be if you are invested in online tech companies or even if you just invested in the stock market index overall, where the likes of apple, meta and google are some of the biggest constituents? Well, a few days ago, the eu parliament and eu council have agreed the rules of a new european law called the digital markets act.

The original proposal for this law was put forward in december 2020, but it took over a year for the principles and wording to finally be agreed. The digital markets act will be a new law that specifically targets large tech companies. It is very prescriptive. A company has to have an annual turnover of over seven and a half billion euros within the eu and have a market cap of 75 billion euros.

That's a turnover within the eu of about eight and a half billion dollars and a market cap of 85 billion dollars, and if you go and look at it, there are only about 98 publicly listed companies in the united states at the moment that have a market Cap of 85 billion dollars or more and the vast majority of those 98 companies do not have a turnover of over eight and a half billion dollars just within the european union. This legislation specifically targets companies that provide online intermediation services, search engines, social networks, video sharing services, online messaging services, operating systems, cloud computing services and online advertising, and, in the agreement a few days ago, they also added web browsers and virtual assistants to this list. Now, in order to qualify, the company also has to have more than 45 million active users within the european union. So if you go and look through that list of the 98 biggest companies in the united states, you might begin seeing exactly who you think could be the target companies, because there are not very many that actually fit the bill.

Specifically, apple microsoft, google, amazon and meta are the big five that are being classified as gatekeepers under this law, although some others will as well, but those will be the primary companies affected. The smaller companies are not automatically exempt either because article three paragraph six of this law. Yes, i did read it says that the eu commission can add any other company to this list, even if they do not satisfy those financial criteria. So long as that company has a significant impact on the internal market and it operates a core platform service that serves as an important gateway for business users to reach end users.

So if you're, a smaller up-and-coming search engine on a social media platform, the eu can just decide that this law applies to you as well. If they just feel like it now, this draft legislation is pretty long, so i won't be able to cover everything it says, but i have read it and i've read the amendments that haven't yet made it into the actual paperwork. But here are some of the highlights. Article 5 on page 40, is where some of the juicy content really starts.

You don't have to look too far down to see some of the very serious implications. In section b, it says that the gatekeeper shall allow business users to offer the same products or services to end users through third-party online intermediation services at prices or conditions that are different from those offered through the online intermediation services of the gatekeeper. This sentence has huge repercussions. Let me explain: this section is an effective ban on the monopoly.

The tech giants have on the provision of services like app stores, apple pay, 68.4 billion dollars from services in 2021, which is about 19 of their total revenue, and the services segment of apple have a 70 margin, so services actually earned apple 47.7 billion dollars in gross Profit in 2021, which is 31 of the total gross profit figure. So this is a very, very substantial part of apple's business. An article 5 section b of this new law is saying that apple will now have to allow users to access any other app store. They want to buy their apps, just let that sync in - and it gets worse.

Section c says that the gatekeeper shall allow business users to promote offers to end users acquired via the core platform service and to conclude contracts with these end users, regardless of whether, for that purpose, they use the core platform services of the gatekeeper or not. Now, at the moment, apple takes 30 percent of all sales through its app store, and this new law is saying that the apps will no longer have to run their payments through apple anymore. They are free to charge you, according to the slaw via any other means that they determine appropriate and they do not have to pay apple 30 for the privilege and the provisions here run on and on and on, basically banning the entire business model of forcing people Forcing users into a closed ecosystem and then charging them through the nose once they're inside article 6, section b also says that users should have the ability to uninstall any pre-installed software unless it is strictly essential to operate the gadget. So if you have spent a thousand dollars or fifteen hundred dollars on a phone, you should be able to use that phone in whichever way you like an interesting concept, article six section d says that these companies must refrain from treating more favorably in ranking services and Products offered by the gatekeeper itself, this is going to have massive ramifications for the likes of google, because technically this means that if you go and look up a product, google should not.

According to this law, show you the google shopping, links above or more prominently than other content, and it should not show you, google maps, for example over other content if you're trying to find the location of a business, the penalties for companies breaking this new law are Severe if one of the designated gatekeepers breaks any of these 18 new rules that they're putting in place, they can be fined up to 10 of the company's global turnover, so that is around 26 billion dollars for google or 38 billion dollars for apple. Those are pretty staggering numbers remember that this legislation is coming hot, on the heels of the ongoing work to ban third-party cookies. This has already caused facebook to have the biggest ever one-day drop of any company in the stock market when they announced their q4 results. In february and this law is not the only law making its way through the european parliament because at the same time, back at the end of 2020, there was another draft piece of legislation that was put together.

That hasn't been in the news recently because it hasn't had that final agreement yet, but it is going to the law that we just looked at is called the digital markets act, and this one that i'm going to talk about just now is called the digital services Act: this second piece of legislation is a lot less specific and more wordy, but it does cover companies that provide intermediary services in the transmission of communications that does not initiate. The transmission does not select the receiver of the transmission and does not select or modify the information contained in the transmission. So an encrypted messaging service, where you send something to your friend, is not covered, but a service like twitter or facebook is covered because those services do select the receivers of the transmission by deciding who gets to see what updates by trying to do discovery, and they Do initiate transmission by sending you arbitrary notifications and showing you content, not the time at which it was initially provided. Articles 19, 20, 21 and 22 of this new law place a lot more weight on social networks, to moderate content and to appoint independent bodies to oversee this moderation.

This is probably going to put a lot of extra cost on operating those services, quite how it's actually going to work in practice. I have no idea, but that is what the legislation is proposing, but it is an article 25, section 4, where the fun really starts, because this section is specifically for companies that have 45 million or more users within the eu. Again, if you think about it, you might begin guessing who is being targeted here, and article 26. Section 1 says that these companies must at least once a year, identify analyze and assess the dissemination of illegal content through their services.

Okay, any negative effects for the exercise of fundamental rights, the respect of private and family life, freedom of expression and information, the prohibition of discrimination and the rights of the child. Okay makes sense - and this is the most important bit intentional manipulation of their service, including by means of inauthentic use or automated exploitation of the service, with an actual or foreseeable negative effect on the protection of public health, minors, civic discourse or actual or foreseeable effects related To electoral processes and public security, the wording of this paragraph is eerie under this law. Social networks will be culpable for any intentional manipulation of their service. That includes inauthentic use, and it is an interesting conundrum.

What exactly is intentional manipulation and inauthentic use and who gets to decide? Well, we do know who gets to decide. It is the european commission but we're getting into all kinds of very dangerous territory with infringements on freedom of speech. If you question an eu policy, for example, on twitter or provide a contradicting point of view or something that they disagree with, for whatever reason does that constitute inauthentic use and intentional manipulation, if you're not quite sure, they did provide the specific examples of things that you Should be particularly careful talking about within this law, public health, civic discourse and any effects to electoral processes very interesting and extremely specific selection, given what has happened in the world in the last two years, but putting the politics of it aside, this will just give the Eu a stick with which they can smack the social media companies with fines if they just want a bit of free money. Imagine somebody writes on twitter, something questioning and the eu country's latest private lockdown, oh dear, that is most definitely an inauthentic use of a service with a foreseeable negative effect on the protection of public health and civic discourse.

The penalty, a fine of up to six percent of the company's total annual turnover, and that is, in addition, remember to the fines of up to 10 percent that that other law allows for breaking other rules. The way that this one is worded, it almost reads like a permission for the eu to collect fines from social media companies. If the annual budget is running a little short, the digital markets act will now be scheduled for a debate in the european parliament. But, given that they have been negotiating it for 16 months already, i am guessing.

That is mostly going to be a formality. It is expected to pass fairly quickly and then will take 20 days to take effect after passing, and the stipulation is then going to apply. Six months after that moment happens the 20 days after when they approve it. So we're probably looking at something like december this year or sometime early next year, for when this law will take effect and imagine if european users can suddenly pay 30 percent less for their ass than us users, because they don't have to let apple or google take Their cut, i imagine that u.s legislation to the same effect and in other countries would be coming really quite fast, no matter how much lobbying those companies try to do and the sale of customer data ads and services by those companies is the fastest growing revenue stream.

For all of these tech giants now, i am sure that they will lawyer up to their teeth and figure out ways to fight this law. But this is a very big indicator that the optics for the next few years for those companies are going to get hit. The wild west time of earning huge revenues by monetizing, your personal data, might be coming to an end if you're interested in my recent analysis of apple or google stocks feel free to check both of them out over here. Thank you so much for watching this video.

I really appreciate it and, as always i'll see you guys later, you.