GOOGL Alphabet Inc

By Rob Copeland 

YouTube agreed to provide new protections for children on its platform and pay a $170 million fine, in a settlement that sharpened government debate over how to rein in technology giants.

The Federal Trade Commission and the New York state attorney general announced the penalty for YouTube following a yearlong investigation in response to complaints from consumer groups, which said the video platform illegally collected data on children to sell ads for products such as Barbie dolls and Play-Doh. The FTC said YouTube tracked internet activity for children under age 13, with the goal of keeping viewership high.

YouTube neither admitted nor denied wrongdoing as part of the settlement. No executives at YouTube or its parent, Google, were penalized. Democratic commissioners on the FTC, including the outspoken Rohit Chopra, voted against the action, losing in a 3-2 vote.

YouTube Chief Executive Susan Wojcicki said YouTube would make changes to its platform, including switching off comments on children's videos and cutting off data collection on videos aimed at kids. These changes, YouTube said Wednesday, would take effect in January to give video creators time to adjust.

The broad outlines of the settlement were previously reported, but the comments from commissioners show that regulators remain divided on the best approach for reining in Silicon Valley's biggest powers.

The FTC's Republican leadership noted that the fine far exceeded previous penalties in similar cases. But minority Democrats said the FTC should have sought bigger financial penalties and also larger changes to YouTube's business practices. The disagreement reflects a debate largely between Republicans and Democrats in Washington over how -- and how much -- to ramp up regulation of the major tech platforms.

Yet even some Republicans objected to the pact announced Wednesday.

Sen. Josh Hawley (R. Mo.), who has been a persistent critic of Silicon Valley, tweeted that the fine is "an insult to every parent in America who has had their children's privacy violated."

Google, a unit of Alphabet Inc., is at the beginning of widening regulatory interest in Washington. The Justice Department has opened an antitrust investigation into the company's dominant search platform, while a series of state attorneys general are expected to unveil their own intentions next week. Google executives have previously contended the company doesn't have monopolistic power in its various markets.

The enforcement action echoes the controversial post-financial-crisis enforcement of big banks and other financial institutions. Left-leaning politicians and other consumer-advocacy groups have said big banks didn't pay stiff enough penalties.

The $170 million in fines from the FTC and New York state amount to less than 2% of Google's profits in the past quarter. The settlement mandates that YouTube in the future not violate the federal Children's Online Privacy Protection Act, though child advocacy groups have argued YouTube wasn't permitted to violate the law in the first place.

FTC Commissioners Joseph Simons and Christine Wilson, both Republicans, said the settlement forestalled a potentially drawn-out legal battle. "We choose not to gamble the protection of children now in hopes of hitting a jackpot in the future," the two said in a joint statement.

Mr. Chopra said in dissent that the penalty was too weak to deter Google or YouTube from trying again to capitalize on its young users. "The company baited children using nursery rhymes, cartoons and other kid-directed content on curated YouTube channels to feed its massively profitable behavioral advertising business," he said.

The partisan divide also may reflect the influence of progressive Democratic presidential candidates such as Elizabeth Warren and Bernie Sanders, who often criticize tech platforms. Ms. Warren has made tougher regulation of big tech a high profile issue, and Mr. Chopra, who previously served at the Consumer Financial Protection Bureau, is an ally of hers.

"I am a little saddened, I have to say, by the partisan divide personally," Andrew Smith, director of the FTC's bureau of consumer protection, said Wednesday. "I think this is a really strong settlement, and I think that it passes muster under anybody's standards."

The FTC voted in July to impose a $5 billion penalty on Facebook Inc. for broader deceptions that included luring consumers into sharing personal information. The Democratic commissioners also voted against that action.

Amid the partisan battles, there are signs that the two parties might find ways to work together. New York Attorney General Letitia James, a Democrat, joined the FTC's settlement Wednesday.

The Wall Street Journal first reported in June that YouTube was preparing major changes to its children's platform in response to the FTC's investigation. The FTC said it launched its own investigation but also got help from advocacy groups including the Campaign for a Commercial Free Childhood and the Center for Digital Democracy.

The changes announced Wednesday fall on the lighter end of what was under consideration internally by regulators. No children's content will be removed from YouTube, though it may become less appealing or harder to find once YouTube turns off commenting on content aimed at children under 13.

"We will treat data from anyone watching children's content on YouTube as coming from a child, regardless of the age of the user," the company said.

YouTube said it recommends children younger than age 13 use its YouTube Kids platform when watching videos independently, adding that YouTube Kids attracts tens of millions of viewers each week.

The changes will require creators themselves to mark their videos as aimed at youngsters and they remove the option for creators to serve personalized ads on children's content. Advertisers say understanding users' online browsing activity helps provide more relevant ads.

The company said it is establishing a $100 million fund for creators to develop original children's content on YouTube and YouTube Kids.

With the settlement, Google said updating its rules around children's content has become necessary because YouTube's audience has evolved over time.

"From its earliest days, YouTube has been a site for people over 13," the company said, "but with a boom in family content and the rise of shared devices, the likelihood of children watching without supervision has increased."

--Sarah E. Needleman, John McKinnon and Ryan Tracy contributed to this article.

Write to Rob Copeland at rob.copeland@wsj.com

(END) Dow Jones Newswires

September 04, 2019 15:08 ET (19:08 GMT)

Copyright (c) 2019 Dow Jones & Company, Inc.