Concerns for Hollywood Megadeals Emerge Amid Justice Dept. Posturing

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After decades of lenient enforcement, federal antitrust enforcers under the Biden administration are signaling they will increasingly challenge mergers as part of an effort to address the consolidation of various industries by a handful of companies. Proposed mergers between Hollywood conglomerates, studios and major talent firms that have yet to be approved may fit the bill.

But whether the Justice Department and Federal Trade Commission will be able to stop deals like Amazon’s $8.45 billion bid to acquire MGM or AT&T’s proposed megamerger between WarnerMedia and Discovery remains to be seen.

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On Jan. 18, the Justice Department and FTC launched a joint public inquiry aimed at strengthening enforcement against illegal mergers in a move that signaled stricter oversight of dominant companies.

“Illegal mergers can inflict a host of harms, from higher prices and lower wages to diminished opportunity, reduced innovation, and less resiliency,” stated FTC Chair Lina M. Khan. “This inquiry launched by the FTC and DOJ is designed to ensure that our merger guidelines accurately reflect modern market realities and equip us to forcefully enforce the law against unlawful deals.”

And, on Jan. 26, Jonathan Kanter, assistant attorney general for antitrust, followed up by announcing that federal antitrust regulators will move to block mergers they find to violate U.S. antitrust laws instead of seeking complex settlements that “suffer from significant deficiencies” and “too often miss the mark.”

He added, “We’re currently going through a truly unprecedented explosion” in merger requests.

Under the Hart-Scott-Rodino Act, companies are required to provide the FTC and DOJ advance notice of mergers of at least $92 million. (In 2022, that figure was raised to $101 million.) After an initial 30-day review period during which deals are not allowed to close, the agencies can follow up with an additional requests for information to decide whether they will sue to block proposed mergers.

There were over 3,500 such HSR merger requests in 2021, according to the DOJ, which said that it was the most number of filings in a year in agency history. The second-highest annual total in the last 20 years was in 2008, when there were 2,200 filings.

Kanter said that the pace “shows no signs of slowing down” amid historic consolidation of multiple industries that has led to less competition and more market power. The surge in the number of filings was among the factors that spurred the FTC in September to rescind guidelines that say vertical mergers largely benefit consumers by creating efficiencies that lower prices. The business friendly approach essentially presumed that all such transactions are lawful.

In antitrust law, the consumer welfare standard directs courts to focus on the effects anticompetitive business practices have on consumers, typically through higher prices or reduced output. It’s debatable whether a Discovery-WarnerMedia merger or Amazon’s MGM buy would have a major impact on pricing for consumers, although independent sellers of film or TV projects may see the marketplace for buyers reduced. In theory, Amazon could include MGM content to viewers as part of its $13 a month Prime membership, just as a newly titled Warner Bros. Discovery could find ways to bundle its HBO Max and Discovery+ services with pricing discounts.

And some experts say the federal agencies face an uphill battle in court if they were to unwind the Hollywood mega deals. “If you focus on the media marketplace, it’s difficult for me to see how there’s a rational for government intervention,” says Alex Alben, UCLA professor of privacy, cybersecurity, and internet law. Alben was skeptical the FTC could block Amazon’s bid to acquire MGM under the rigid standard it the agency chooses to sue.

“I definitely don’t see traditional antitrust rationale if a case is brought against Amazon,” Alben said. “We don’t want cases that are brought just because there’s negative publicity about a company or public sentiment is shifting one way or the other. We want to bring cases that are grounded in principles. One of those principles is consumer protection.”

The deal occurs against the backdrop of widespread integration between content producers and streamers, as each major Hollywood conglomerate is now backing their own in-house streaming service, whether that’s Disney+ or Peacock or Paramount+. Alben questioned why Amazon should be singled out when others, including Netflix and HBO, produce and distribute their own programs.

While Amazon may have a robust defense if the FTC tries to block the transaction, Steve Cernak, a partner at antitrust firm Bona Law, said antitrust laws account for deals that “may substantially lessen competition.” He pointed to Amazon’s history of “starting small in an industry and growing really big.”

The takeover is the second largest acquisition Amazon has ever made after its $13.7 billion purchase of Whole Foods in 2017, which federal regulators passed because they are not direct competitors in the same industry.

Amazon’s bid to acquire MGM, if approved, will boost offerings on Prime Video to include MGM’s library of more than 4,000 films, including the James Bond and Rocky franchises, as well as a TV producer behind Hulu’s The Handmaid’s Tale, FX’s Fargo and History’s Vikings.

Alben contends that the merger between WarnerMedia and Discovery is “actually deconcentrating the market” given that the telecom giant is divesting of its entertainment assets. “I had issues with AT&T’s purchase of Warner because I thought that was getting into very big media merger territory,” he said. “Now that it’s fracturing, it seems to me that this is a good move by traditional competition standards.”

Under the terms of the deal, AT&T will reverse its $85 billion acquisition of Time Warner and create a new media entity with Discovery. The agreement combines WarnerMedia’s entertainment, sports and news assets with Discovery’s nonfiction and international entertainment and sports businesses.

Cernak said “the deal may be subject to heightened scrutiny” because it’s a horizontal transaction between competitors, but pointed out that “there are so many other purveyors and producers of content,” a key consideration when evaluating the antitrust implications of proposed merger.

On Wednesday, AT&T moved up its timeline for the close of its deal to spin off WarnerMedia, now saying that the merger is expected to close sometime in the three months ending in June. “All that is going right to pattern, as we expected, and we don’t see anything that causes concern,” AT&T chief John Stankey said on an investor call about regulatory scrutiny of the deal.

But federal regulators’ increased scrutiny on proposed mergers have already slowed down some deals. CAA’s purchase of ICM was pushed back after top executives at the agencies were interviewed by the DOJ.

The DOJ also filed an antitrust suit in November seeking to block ViacomCBS from selling its publishing unit, Simon & Schuster, to Penguin Random House. The agency alleged that the $2 billion deal “would give Penguin Random House outsized influence over who and what is published, and how much authors are paid for their work.”

Asked about the chances federal regulators sue to block proposed mergers in the media industry, Cernak said “they may challenge it just to challenge it to be seen as the tough antitrust cop on the beat.”

He continued, “They want to challenge mergers even if they’re not certain or have a fantastic slam dunk case” because they want to “disincentivize other mergers.”

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