Fate of big media mergers in 2018 remains uncertain
By Curtis Eichelberger Originally published on FTC:Watch on December 15, 2017
Whether buoyed by the notion that a Trump antitrust regime would take a hands-off approach, new telecom rules encouraging consolidation or huge payouts available to CEOs, 2017 became the year of the media merger.
AT&T-Time Warner, Sinclair Broadcast Group-Tribune Media, Discovery Communications-Scripps Networks, Meredith-Time Inc. and CBS Radio-Entercom Communications amounted to more than $107 billion worth of combinations. Even Walt Disney Co. agreed to buy 21st Century Fox’s movie and television studio,networks like FX and National Geographic and some assets abroad.
Whether the party surrounding this media mania runs through 2018 or gets crashed by the Department of Justice remains to be seen. Here’s a synopsis of deals that could change how consumers around the world get their news and entertainment for years to come.
— AT&T looked like a simple deal —
AT&T’s $85.4 billion acquisition of Time Warner was a simple vertical merger that would be approved with a few behavioral remedies. At least, that’s what the antitrust bar was saying last spring.
Today, DOJ antitrust chief Makan Delrahim is suing to block the mega-deal, claiming the merger will allow the company to hike prices for content or withhold its must-see programs from competitors.
Supporters recall that Republicans and Democrats alike have long preferred structural remedies to behavioral ones, which members on both sides of the aisle agree are difficult to enforce.
It’s been reported that the DOJ wants AT&T to divest its Turner Broadcasting System content or DirecTV subsidiary. In answering the DOJ’s complaint to block the deal, AT&T suggested a fix with behavioral remedies similar to those used in the Comcast NBCUniversal merger in 2011.
Yet both appear ready to resolve the matter in court.
“The burden is on the DOJ’s economists,” said Herbert Hovenkamp, a law professor and antitrust expert at the University of Pennsylvania.
“We try and predict what the firm’s profit maximizing strategy will be after the merger by assuming they are setting out to maximize profits. And if the economists can show they will make more money by withholding programming or through price discrimination, then we assume it’s a substantial danger and [it] meets the probability test,” he said.
Hovenkamp thinks the DOJ is more likely to prove a case of price discrimination, where AT&T would charge competitors like Comcast, Dish, Verizon and others more for its Time Warner content than it would charge its own customers — increasing revenue or encouraging some to switch to AT&T’s distribution platforms for the cheaper rate.
“The complaint alleged what they fear will happen, but that’s not evidence,” Hovenkamp said. “Now they have to prove it.”
Arguments will be heard by US District Judge Richard Leon in the US District Court for the District of Columbia starting March 19.
— FCC clears the way —
While the DOJ is moving to block the AT&T-Time Warner deal, the Federal Communications Commission is taking steps to make it easier for companies to merge and control larger swaths of the industry. In April, the FCC voted to revive an old practice of allowing UHF stations to count fewer coverage areas against a cap that limits the national TV viewership broadcasters can serve to 39 percent.
This has the effect of allowing big broadcasters to own more stations with greater reach and still stay under the cap — something that would benefit Sinclair and Tribune because the merged company wouldn’t have to divest as many stations as it would under the old rule. The FCC voted to tee up a proposal to revisit the issue at a meeting this month.
In November, the FCC voted to relax local ownership rules by no longer requiring there be at least eight independently owned TV stations in a market before any of them can buy a second station in that market. The FCC also voted to allow a company to own two of the top four stations in a market if it can show the ownership would be in the public interest.
These moves will help Sinclair and others take greater control over local news and advertising markets in ways they couldn’t in the past.
FCC Chairman Ajit Pai has said we must recognize and adapt to an evolving media landscape, where newspapers and TV stations are being supplanted by other forms of media. And that the old regulations,
passed more than 40 years ago, have become outdated.
“The marketplace is nothing like it was in 1975,” Pai told House lawmakers at an October hearing. “The FCC's rules still presume the market is defined by pulp and rabbit ears.”
Sinclair got a DOJ second request for more information on Aug. 2. The companies have a timing agreement that forbids them from completing their merger before Jan. 30.
— Some mergers easier than others —
On July 31, Discovery, which owns TLC and Animal Planet in addition to Discovery Channel and other networks, offered to pay $14.6 billion for Scripps and its portfolio, which includes HGTV, Food Network and the Travel Channel.
The deal would bring together two companies with nonfiction content that fits into various categories in cable lineups, including lifestyle, entertainment and family programming.
The combined company would have a 20 percent share of the primetime 25-54-year-old viewership, up from Discovery’s current 12.5 percent and Scripps’ 7.5 percent. Rival Viacom has a 15 percent share in that same market, followed by Comcast-NBCU at 14 percent and Turner at 14 percent.
The market, even after the combination, would qualify as unconcentrated, according to the antitrust agencies’ 2010 Horizontal Merger Guidelines.
Discovery and Scripps received a second request on Oct. 13. They expect the deal to close in the first quarter of 2018.
—Magazine, radio consolidation —
Media conglomerate Meredith said last month that it will acquire magazine powerhouse Time for $2.8 billion. Once the deal closes, the combined enterprise would become a Top 10 digital media company with 170 million unique monthly visitors in the US and more than 10 billion annual video views.
More importantly, Meredith would have more than 250 million e-mail addresses-device IDs, which it can pair with advertising technology platforms to reach consumers.
The company filed its Hart-Scott-Rodino paperwork on Dec. 11 and expects to close its deal by the first quarter of 2018.
Meanwhile, CBS Radio and broadcaster Entercom recently received antitrust clearance to merge in a deal that will give Entercom a national footprint, with more than 200 radio stations in 23 of the Top 25 US markets.
— What does it all mean? —
Does the bevy of media deals in 2017 tell us something about the agencies’ willingness to approve mergers in a world where technological advances broaden the relevant markets and threaten to alter the government’s traditional measures of concentration?
Cornell University Professor George Hay, a former director of economics at the Department of Justice, views the AT&T-Time Warner case as a unique combination involving a dominant content producer and distributor Curtis Eichelbergerthat can’t be compared to other media deals in 2017.
In that sense, Hay says AT&T is a one-off with few implications for future deals, unless “Judge Leon were
to say that there is nothing close to a dominant position amongst programmers because it’s a whole new world out there with content coming from
everywhere — Netflix, Amazon, Google, you name it.”
“Well, that would have an impact because it would really open the road and give everyone a green light,”
he said. “That’s the most radical thing that could come out; that would have implications for the future.”