How Joe Biden Administration’s Stricter Scrutiny Of Mergers May Impact Pending Media Mergers

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SECOND UPDATE, 2:34 PM PT: The Justice Department and the Federal Trade Commission will review merger guidelines in the wake of President Joe Biden’s executive order, promising “a hard look to determine whether they are overly permissive,” in the words of a joint statement.

That has obvious potential implications for some pending media mergers, including Amazon’s proposed acquisition of MGM, and Discovery’s combination with WarnerMedia.

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Much depends on just what any new guidelines are, but it’s pretty clear that the political environment, at least, is far different that it was ten years ago, when Comcast’s merger with NBC Universal was approved, and perhaps even from a few years ago, when The Walt Disney Co. got the greenlight to acquire many of the Fox assets.

Diana Moss, president of the American Antitrust Institute, noted that the DOJ and FTC will be looking at both horizontal and vertical merger guidelines.

The Amazon-MGM and Discovery-WarnerMedia deals “flag areas where enforcement has been excessively permissive, on efficiencies and on higher concentration,” she said via email. “So, to the extent that these deals are before the agencies at a time when merger guidelines are getting a fresh look, we will be monitoring the outcomes for signals of how that matches up [with] invigorated enforcement.”

Shortly after the DOJ and the FTC announced that they would review merger guidelines, The Information reported that the FTC had opened a lengthy investigation into the Amazon-MGM deal.

In making the case for regulatory approval of the merger, Amazon has pointed to the size of MGM, with a tiny sliver of the box office gross in 2020 (1%) and that much larger media mergers over the past decade have gotten the OK. But lawmakers have seized on Amazon’s size as a reason to give the deal careful scrutiny, and Sen. Elizabeth Warren has suggested that the FTC has broad authority. She wrote in a letter to FTC Chairwoman Lina Khan that Section 7 of the Clayton Antitrust Act of 1914 prohibits any acquisition whose effect “may be substantially to lessen competition, or to tend to create a monopoly” in “any line of commerce or in any activity affecting commerce.”

Others, however, are a bit more skeptical that even rewritten merger guidelines would spell doom for the deals on the table, even if they may delay their approval.

Larry Downes, senior industry and innovation fellow at Georgetown U, said via email, “The FTC and the Antitrust Division must follow existing law regardless of aspirational executive orders, introduced legislation that hasn’t been passed, or general anxiety. If they don’t, they will lose in court, as the Trump administration learned all too well in its merger cases.”

He was referring to the Trump-era DOJ’s challenge to AT&T’s merger with Time Warner, which led to a rare antitrust trial in which the government’s case was soundly rejected.

“It’s certainly possible that the government will drag out the process and make it more difficult for the parties, but in the end, the only way the government can block a proposed transaction is to sue,” Downes said. “The statutes, the guidelines and existing case law are clear, and have not changed in decades.”

That is part of the reason that lawmakers have proposed a series of antitrust bills, aimed at big tech, including ones that prohibit large platforms from buying competitive rivals, and another that bans discriminatory business conduct. The legislation, which passed the House Judiciary Committee last month with bipartisan support, nevertheless has yet to be brought for a full vote in the chamber, and it is unclear when or if it will be.

In his speech, Biden suggested that the government should diverge from the way that mergers have been evaluated over the past four decades, with reviews rooted in the impact that transactions have on consumer welfare. Hal Singer, managing director at Econ One, said that even if the FTC and DOJ guidelines are changed, the government would still have to contend with judges who would decide cases on years of established case law.

Rather, Singer said that he sees Biden’s executive order as a way to direct the energies of the antitrust agencies. He’s particularly supportive of the Executive Order’s call for restrictions on “self preferencing.” That is the way that companies like Amazon can create their own copycat products to compete with small rivals who need the Amazon platforms to sell their goods.

A problem, though, is that even if the DOJ and the FTC create new merger guidelines, the next administration could reverse them. That is what happened when the Obama-era FCC passed a set of robust net neutrality rules, only to have them repealed when Donald Trump took office. (Biden’s executive order also calls for reinstating those rules).

That’s why Singer thinks its also important for the administration to get behind legislation, something that will “create a legacy that will exist beyond the administration.”

UPDATE, 11:04 AM PT, with DOJ-FTC announcement that merger guidelines will be reviewed: Joe Biden signed a wide-ranging executive order signaling that his administration will take an aggressive stance toward antitrust enforcement, with calling on federal agencies to take more than 70 actions to counter the wave of consolidation across the economy.

Standing with Biden as he signed the executive order was the new chairwoman of the Federal Trade Commission, Lina Khan, and the acting chairwoman of the FCC, Jessica Rosenworcel, along with Attorney General Merrick Garland.

The order not only calls for stricter antitrust enforcement, but even a review of mergers that already have gotten the government green light.

“Let me be clear: capitalism without competition isn’t capitalism, it’s exploitation,” Biden said, as he suggested that he wanted to shift direction from the way that antitrust laws have been interpreted in the past 40 years, rooted in the idea that proposed business consolidations should be evaluated on the way that they impact consumer welfare. But Khan and others have argued that such an approach has helped allow companies like Amazon and Google into trillion-dollar behemoths, as they operate at such a scale to offer lower prices or their services for free.

Khan and Richard A. Powers, the acting DOJ antitrust chief, issued a statement announcing that they “plan soon to jointly launch a review of our merger guidelines with the goal of updating them to reflect a rigorous analytical approach consistent with applicable law.”

“We must ensure that the merger guidelines reflect current economic realities and empirical learning and that they guide enforcers to review mergers with the skepticism the law demands,” they said. “The current guidelines deserve a hard look to determine whether they are overly permissive.”

What will be the impact on pending media mergers? After Amazon announced plans to acquire MGM, lawmakers quickly criticized the deal as a further extension of the tech platform’s reach, and have called on federal regulators to take a close look at the transaction. But the relative size of the studio, especially compared to Hollywood’s major studios, has raised doubts among a number of antitrust experts that the government could win a court challenge should it sue to block the deal. Amazon has pointed to other recent, far larger mergers, like The Walt Disney Co.’s combination with much of Fox, that got the government greenlight with relatively little turbulence.

Getting far less attention on Capitol Hill is Discovery’s proposed merger with WarnerMedia, in part because it unwinds a transaction that was challenged, unsuccessfully, by the Justice Department, the AT&T combination with TimeWarner. Biden has yet to name a new chief of the Justice Department’s Antitrust Division, which will give an indication of how major mergers will be reviewed.

Biden also singled out cable and telecom companies as targets of some of his proposals, as he noted that 65 million Americans are in areas with only one high-speed Internet provider. His executive order calls for a ban on such things as excessive early termination fees and ending landlords exclusivity agreements with just one Internet provider.

The industry immediately keyed in on some aspects of the order, including Biden’s call to restore net neutrality rules. NCTA — The Internet and Television Association, said in a statement, “We are disappointed that the Executive Order rehashes misleading claims about the broadband marketplace, including the tired and disproven assertion that ISPs would block or throttle consumers from accessing the internet content of their choice.”

In a statement, Rosenworcel said after the ceremony, “Our economy thrives on competition. It is the reason the United States is home to some of the most dynamic companies in the world. I welcome this effort by the President to enhance competition in the American economy and in the nation’s communications sector.”

PREVIOUSLY, UPDATED: President Joe Biden plans to sign an executive order on Friday that calls for greater scrutiny of mergers, a restoration of net neutrality rules and limits to corporate non-compete agreements.

As much as Biden will highlight the potential benefits to consumers and workers by some of the measures, a number of the proposed changes will require federal agency action or Congressional approval.

But Biden intends to highlight the consolidation in the marketplace to make the case that a lack of competition drives up prices.

The executive order singles out a series of industries, including tech, banking, agriculture, healthcare and transportation, while identifying what the White House sees as specific problems in the marketplace, like Internet providers’ pricing practices.

But the impact of the proposed changes, if implemented by agencies like the Federal Trade Commission, would be across other sections of the economy.

According to an outline of Biden’s executive order released by the White House, he plans to call on the FTC to ban or limit non-compete agreements, commonplace clauses in employee contracts in some sectors of media and other industries, although they are general unenforceable in California. The White House said that half of private sector employers require employees to enter non-compete agreements, and it affects 36 million to 60 million workers.

Another proposal is that the FCC restore net neutrality rules, which were rolled back during the Republican-dominated FCC of the Trump years. But the FCC is split 2-2, and any action is unlikely until Biden nominates a third Democrat to fill the slot.

A large portion of the executive order will focus on the tech sector, as it targets some of the business practices of the large platforms.

The administration wants the DOJ and FTC to give proposed mergers overall greater scrutiny, but to pay “particular attention to the acquisition of nascent competitors, serial mergers, the accumulation of data, competition by ‘free’ products, and the effect on user privacy.” Biden also plans to call for the FTC to establish rules barring methods of unfair competition on internet marketplaces. That clearly is aimed at Amazon, which has been the subject of scrutiny on Capitol Hill for the way that it has been selling its own products on its platform against those of rivals. The administration also wants the FTC to create rules on surveillance and the collection of data by tech giants.

Lawmakers already have sounded the alarm over such practices among the tech giants, including a series of bills that recently passed the House Judiciary Committee, and if they ever became law, they could force platforms to shed some of their assets. But the prospects for the bills are uncertain, even as the legislation has drawn bipartisan support.

More immediate may be action at the agency level, as Biden signals a desire to step up antitrust enforcement.

Biden has in place a champion for rigorous antitrust enforcement on the FTC — Lina Khan, confirmed last month as a commissioner and quickly appointed as chair — but he has yet to nominate someone to lead the Justice Department’s Antitrust Division.

Biden’s EO will not only call on the agencies to enforce antitrust laws more vigorously, but remind them that the law allows them to challenge past mergers. The White House will establish a Competition Council to monitor the progress on the administration’s proposal.

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