No Mercy / No Malice: Little Tobacco Moment

0:00Support for the show comes from Northwest Registered Agent. Your business identity is everything that makes your business legitimate and professional. With Northwest Registered Agent, you don't just form a business, you start a complete foundation built for privacy, credibility, and growth. That includes registered agent service, a business address, operating agreement, domain, website, professional email, phone number, and built-in privacy. In other words, your home address, personal email, and phone number stay private. Don't pay hundreds or thousands of dollars where you can get from Northwest for free. Visit NorthwestRegisteredAgent.com slash profG free and start using free resources to build something amazing. Get more with Northwest Registered Agent at NorthwestRegisteredAgent.com slash profG free. The problem isn't your finance team, it's the spreadsheet they're stuck using. With the American Express Corporate Program, you get real-time visibility into company spending. Issue employee cards or virtual cards, second trolls upfront,

1:01and see transactions as they happen. So there are fewer surprises at month end. Learn more at americanexpress.com slash corporate. Terms apply. If you're looking to hire, you need indeed. With indeed sponsored jobs, you can spend less time searching and more time actually interviewing candidates who check all your boxes. Less stress, less time, more results, and listeners of this show will get a $75 sponsored job credit to help your job get the premium status it deserves at indeed.com slash podcast. Just go to indeed.com slash podcast right now and support our show by saying you heard about indeed on this podcast. Indeed.com slash podcast. Terms and conditions apply. Need to hire? This is a job for indeed sponsored jobs. I'm Scott Galloway and this is No Mercy, No Malice. Met a $17 billion social media addiction

2:07settlement is being called a big tobacco moment. It isn't. It's another meta win. Little tobacco moment as read by George Han. We've been played again. Last week, 47 states and the District of Columbia settled with meta, resolving claims that the company had designed addictive algorithms targeting minors, violated youth privacy, and endangered children. The company didn't admit to any wrongdoing, but it agreed to pay up to $17.1 billion in penalties and make changes to its products. Texas settled separately on the same day for $1 billion and similar terms. The markets shrugged off the settlements, however, with meta shares rising 1% on the news.

3:11For those keeping scored home, a 1% increase in market cap on a $1.4 trillion company means the settlements breaking the fever of uncertainty paid for themselves. I often call meta the big tobacco of the attention economy. Tobacco destroys individual lungs and pollutes the immediate airspace. Meta's cancer metastasizes across our entire society. The conventional wisdom says this settlement is meta's big tobacco moment. Finally, justice. Bullshit. This is the meta knife thrust a foot deep into the West's corpus pulled out a centimeter. Let's start on a positive note. A bipartisan group of state attorneys general took action against a harmful organization run by amoral people, disgusted by the company's scant regard for child safety, but evidencing some

4:18measure of self-awareness, one meta employee acidly noted, targeting 11-year-olds feels like tobacco companies a couple decades ago. Others likened their products to drugs and themselves to drug dealers. It's great that state AGs acted, but that it fell to them shows just how feckless Washington is. The settlement calls for changes to meta products, though meta began introducing some of those changes last year and simply agreed to follow its own roadmap. The changes include limiting teens to two hours of scrolling per day, unless their parents say otherwise, barring usage between midnight and 6am, and turning off notifications during school hours. That's telling your kids they can only light up after class and not between midnight and 6am. Teen's can also turn off auto play

5:20and switch their settings from the 4U style algorithmic feed to a chronological one. Meta promised to disable counting on the like button and ban extreme makeup filters, which will supposedly throttle back teen anxiety, depression, and body image issues. Meta said it would strengthen protections against unwanted contact from strangers, a weird thing to have ever opposed as the absence of such safeguards was a gift to child predators. Lastly, Meta promised to invest in age verification, though responsible corporate citizens already do this. What the settlement doesn't do is change Meta's design priorities. As my friend and colleague Jonathan Height, an NYU social psychologist noted, the settlement leaves many of the most harmful features untouched, including the algorithm.

6:20Meta's AI-powered recommendation engine is still running, engineered to maximize young people's engagement even with content that harms them. The ugliest part of the settlement? It makes meta stronger. First, the company can weaponize compliance, digging a moat against new entrance. Second, by conditioning additional safeguards and $5 billion of the fine on YouTube and TikTok agreeing to similar terms, Meta has turned its competitors into corporate shields. Maison Zuckerberg even launched an ad campaign to pressure YouTube and TikTok and position itself as the leader on child safety. If latering is highlighting your brand's strengths while depositioning a competitor and illuminating their weaknesses, the way I use the term in my brand strategy course at Stern, Meta's settlement is a roundhouse kick, knocking the feet out from

7:25under its rivals. Fun fact, Don Draper deployed latering to weaponize government regulation to Lucky Strikes Advantage in the pilot episode of Mad Men. Meta's behavior is far worse, and it's reached far greater than those of its competitors. But sure, they're all the same. Mark Zuckerberg coined the phrase move fast and break things in 2012 to describe the culture of innovation he built at Facebook. Now, Meta, more than a decade later, it's clear that by things he meant us. Fines are supposed to be a financial deterrent against future breakage. $17 billion is real money, but applied to an enterprise of Meta's scale. It's a speeding ticket. Imagine if I told my prof-g media team to create an addictive product that's always in your ears,

8:26inspires 5 plus hours a day of doom-scrolling, leverages network effects and addictive design to lock-in users, renders them depressed and anxious, and envelops society in a toxic fog of rage and polarization. Some prof-g media employees would likely blow the whistle. But imagine if I responded by deploying publicists and lobbyists to smear them, conceal our culpability, promise to do better, and engineer legislative paralysis such that prof-g media operated with impunity. How big would the fine have to be to determine my behavior? Prof-g media generates $20 million in annual revenue with an operating margin of 60%. Its valuation is around $100 million. Meta's 2025 revenue was $200 billion

9:29with an operating margin of 41%. Its market cap is $1.4 trillion. A $17 billion fine scaled down to prof-g media and spread out over 10 years would equal a $256,000 annual hit to our operating profit. That's not a deterrent, but a green light to move faster and break more things. The 1998 Tobacco Master Settlement Agreement levied a fine of $206 billion, $422 billion adjusted for inflation, payable over 25 years against the four largest cigarette makers. Two of those companies, Philip Morris, now Altria, and RJ Reynolds are still selling cancer sticks. The other two, Brown and Williamson and Laura Lard, are now owned by RJ Reynolds.

10:31Regulatory friction catalyzes consolidation. Since 1998, federal taxes on cigarettes have increased fourfold while state taxes on average have increased by six X. Smoking rates among adults dropped 73% between 1965 and 2022, and rates for teens fell by 86% from 1997 to 2021. But the Tobacco companies didn't stand still. They innovated. In 2019, one in three American teens reported using e-cigarettes, which are taxed at lower rates than the analog version. The numbers have fallen thanks to some states banning flavored e-cigs, but curbing the negative externalities of tobacco is a game of whack-a-mole. As Stanford historian Robert Proctor told The New York Times, today is not the beginning of the end for social media. Any more than 1998 was the

11:36beginning of the end of big tobacco. Americans still smoke more than 170 billion cigarettes every year, and inhale tons of additional nicotine from electronic variants. The picture is even grimmer if you widen the lens. Globally, one out of every five adults is a customer, and 80% of them live in low- and middle-income countries. This is by design, as tobacco companies pivoted to developing nations with a continued emphasis on targeting young customers. Big tobacco is still killing it, i.e. others. The media business is built on the back of an attention to profits arbitrage, but for centuries, the conversion technology was rudimentary, and its emissions were tolerable. Also, because distribution was physical, age-gating was practical. The US has a long history of age-gating harmful

12:39things that are otherwise legal for adults, guns, booze, porn, etc. This isn't paternalism, it's common sense. When we released ad-supported reticulated pythons into the online ecosystem, however, they became an invasive species and common sense died. Zuckerberg didn't invent social media emissions, but Metta scaled them to over half the planet. Despite the proliferation of content that would earn R, NC17, and X ratings at the movies, we've treated social media as G-rated. An overwhelming majority of Americans support age restrictions. In fact, nine states have active age verification laws, while another eight have passed laws that courts have subsequently blocked. If there's a problem with age-gating, it's that we have bought the free

13:40speech versus child safety narrative, i.e. bullshit. Assuming it passes constitutional scrutiny, however, age-gating only restricts the flow of new customers, not the product. Reform with teeth will require changing the incentives. Here are three angles of attack. First, reform section 230, which protects platforms and websites from legal liability for the content their users post. The 1996 law was written for online bulletin boards, not trillion dollar behavioral engineering machines. A better framework? Keep immunity for third-party speech, but impose liability for algorithmic amplification, just as we impose liability for physical products. If you elevate content, you've made an editorial decision. Our immediate company and should be held to the same

14:42standards as every other media firm. Social media would change overnight, not because executives would grow a conscience, but because the chief legal officer would have a bigger number legal risk than the head of growth, revenue upside. Incentives drive behavior and the upside of continuing to harm kids is still greater than the downside. Second, reboot antitrust. Technology isn't neutral. Its design is a function of the degree to which economic power is concentrated. The great monopolists are not passive. Columbia Law Professor Tim Wu wrote in the age of extraction. They actively defend their market position by acquiring threats or competitors. C Meta's acquisitions of Instagram and WhatsApp or Google's acquisitions of YouTube and Deep Mind.

15:48Going Teddy Roosevelt on information monopolists would benefit everyone. The lessons of Standard Oil in AT&T are that breakups unlock shareholder value, ramp up innovation via competition, reduce rents on consumers, and provide workers with more bidders for their labor. The framing antitrust could be the biggest tax cut in history. Finally, tax social media's emissions. If the tech platforms are too big to regulate, shrink them by taxing revenue from sales of targeted digital ads. As economist Paul Romer wrote in 2019, companies seeking to avoid the tax play into our hands as they're likely to pursue an ad-free subscription model, like Substack. Success for those companies would no longer hinge on surveillance and addiction, but a clear

16:53value exchange. Some platforms will continue with the targeted ad model regardless, but a progressive tax with higher rates for larger companies would render big tech tech. Our big tobacco moment ended with Meta's shareholders, Richard, competitors Weaker, and its business model intact. We've been played again. Life is so rich. How many third-party vendors does your company use? 20, 200? Thanks to AI, someone on your team probably added three more this week. And your security lead has no idea. Traditional third-party

17:56risk management can't keep up. Vanta gives you continuous coverage across every vendor, automatically, so you actually know what's in your stack and what to do about it. AI on, risk off. Vanta.com slash TPRM The world of business is constantly evolving, and Comcast Business keeps you in step, with secure AI-backed networking in more than 100 countries. Powering over 90% of the Fortune 500 and millions of small businesses, and behind it all, thousands of experts answering your call at 2 a.m. like it's 2 p.m. One partner, that's it. Powering how business gets done for companies around the globe. When you add it all up, no one does business like Comcast Business. Go to ComcastBusiness.com slash Enterprise to learn more. Do you hear that? That's how it's meant that summer is officially

18:57here. It means that grown adults just sprint into the street for a frozen dessert shaped like a cartoon. But this summer, Mint Mobile has a better tree. Every plan, including unlimited, is $15 a month. And unlike Ice Cream, it won't drip down your wrist or look nothing like the picture. Does anyone have any cash? Give it a try at MintMobile.com slash Switch. A front payment of $45 for three months, $90 for six months, or $180 for 12-planned plan required, $15 per month equivalent to taxes and fees extra. New customer offer for initial plan term only greater than 50 gigabytes, me slow, and network is busy. See terms.