Sixty years ago, a giant industry was on the verge of a meltdown…
Cigarettes had been increasingly linked with cancer. And that was just as per capita consumption in the U.S. was hitting new highs almost every year.
So in January 1964, the U.S. surgeon general took action. He issued a scathing report stating that smoking was a health hazard and needed immediate action.
That meant placing a health warning label – for the first time – on packs of cigarettes.
Tobacco companies lobbied hard against it. They knew it would be a big blow to their business.
It’s as if McDonald’s (MCD) had a warning label on every Big Mac meal. Imagine if the label said that eating too many burgers could lead to high cholesterol, hypertension, and heart failure.
Sure enough, per capita cigarette consumption in the U.S. never recovered. And by 2000, Americans were lighting up cigarettes at less than half the rate they were doing before the warning went on the label.
But that didn’t mean the end of Big Tobacco…
In fact, 60 years after the label was imposed, Philip Morris is still selling tobacco products. And it has even expanded into the new “e-cigarette,” or “vape” category.
In other words, Philip Morris adapted and evolved.
And today, the current surgeon general is worried about the potential health hazards of a different kind of addictive “substance.” It’s turning plenty of heads. So let’s take a closer look…
I’m talking about social media.
And Surgeon General Vivek Murthy is concerned with how it relates to mental health in America’s youth. As he put it in a recent op-ed piece in the New York Times…
The mental health crisis among young people is an emergency – and social media has emerged as an important contributor.
Now, he does have evidence for this. Daily and excessive use of social media can significantly increase the risk of depression among teens.
It’s a similar situation to what led the surgeon general in 1964 to call for a warning label on physical packs of cigarettes. Today, Murthy is calling for a label for social media platforms.
And that’s sparking concern about the future of social media companies…
As you would expect, these are among some of the world’s biggest businesses.
I’m talking about YouTube, which is owned by Alphabet’s (GOOGL) Google… Facebook and Instagram, which are owned by Meta Platforms (META)… Snapchat, which is owned by Snap (SNAP)… and Pinterest (PINS).
These social media platforms’ business models rely on users spending more time on the sites every year.
That’s proving more difficult in the U.S. Here, nearly 75% of the population already actively uses social media. And usage could face headwinds if warning labels ever appear on social media sites.
But like what Philip Morris and other Big Tobacco companies did, social media companies can still find growth outside the U.S.
Just consider India. With more than 1.4 billion people, it has the world’s largest population. But its social media penetration rate is only about 33%.
Globally, just about 61% of the world’s population actively uses social media.
And like how cigarette companies introduced e-cigarettes that removed tobacco and tar from their products, social media companies are also adapting…
For example, they’re using technologies like artificial intelligence (“AI”).
This could be used to monitor usage and prevent folks from spending too much time on an app. AI can also be used to make curated suggestions to users. That can increase usage by people who aren’t as active as they could be.
Sure, the latest move by the surgeon general to call for warning labels on social media as a health hazard is drawing a lot of attention…
But a label would have to be approved in the U.S. by Congress. If it did get approved, it would take time to implement. It’s also unclear what the label would actually end up looking like.
And you can bet that the social media companies would lobby against it. They could also challenge it in court.
So here in the U.S., a label would first need to be implemented. And beyond our country, social media still has a huge market internationally.
Meanwhile, these companies are leveraging AI to make it even more difficult for users to switch off.
In short, don’t get caught up with the media attention…
I wouldn’t be too worried right now about the potential effects of a warning label on social media companies.
Good investing,
Vic Lederman
Editor’s note: Regardless of the long-term outcome with social media, AI, and tech stocks… there’s no doubt that a major shake-up is currently taking place at the top of the market.
Big-name stocks are in a period of transition. And tonight, at 8 p.m. Eastern time, Chaikin Analytics founder Marc Chaikin is going on camera with a special presentation to explain what it all means.
Put simply, a massive monetary shift is unfolding in America today. And what Marc is sharing will affect you for years to come – whether you take action or not.
Tonight’s special event has all the details. And it’s free to attend. We just ask that you save a spot in advance. You can do so before it’s too late right here.
