A raging policy debate in Washington is forcing Hollywood to curb its enthusiasm for mergers and acquisitions for now.
Federal regulators and some legal experts are conducting a radical overhaul of the way the country enforces antitrust laws. That makes it much harder for dealmakers and large companies to pursue M&A activity. Regulations in Washington, where transactions of any size must be approved by the Justice Department and other agencies, have become downright hostile to large-scale deals.
For Hollywood, the timing is terrible. Disney, Warner Bros. Discovery, Comcast and NBCUniversal are imagining potential new combinations with traditional or digital giants, but they are hemmed in by the chilly atmosphere in DC. The new breed of regulators worries that digital giants like Google, Facebook and Amazon have been given the opportunity to become too big and too powerful.
The Department of Justice and the Federal Trade Commission have issued much stricter guidelines for reviewing transactions than has been the case for the past four decades.
“There are certain parts of the antitrust community that believe that certain elements of antitrust law have been moving in the wrong direction for almost half a century,” said Jonathan Barnett, a professor at the USC Gould School of Law. “The focus was mainly on the rise of digital platforms and the associated degree of concentration that you now observe in those markets.”
Cheyne Gateley for variety
The battle over antitrust enforcement is yet another example of how U.S. laws and regulatory systems are ill-equipped to control the economy in the digital age. Antitrust laws were an outgrowth of the “robber baron” era of the late 19th century, when the progressive movement sought to rein in the power of industrialists like John D. Rockefeller and JP Morgan – the Elon Musks and Mark Zuckerbergs of their day. . Today, countless legal scholars question the logic behind the creation of so many near-monopolies in the digital world.
Luke Froeb, a professor at Vanderbilt University and former chief economist at the Justice Department’s antitrust division, is critical of the Biden-era approach.
“They have distanced themselves from fifty years of case law that has made things reasonably clear [for companies],” says Froeb. “They say, ‘Hey, we’re going back to the ’60s, when we thought, ‘Big is bad.'”
The Biden administration sent its signal loud and clear in November 2021 when it blocked Paramount Global’s planned sale of its publishing arm Simon & Schuster to Penguin Random House. Last year, the Justice Department went so far as to increase merger investigation filing fees by 704% (to $2.25 million) for a deal worth $5 billion or more.
Lina Khan, FTC Chair, has become a leading voice of the modern progressive stance on antitrust law – and a lightning rod in media and digital circles. A new element in merger studies that she champions is examining the impact of a deal on employees, employment levels and the competitive mobility of employees within a sector.
“Over the past decade, we have heard increasing concerns about inadequate competition in key markets in the U.S. economy,” Khan said last September in a speech at a Fordham University conference on antitrust law.
“There are indications that decades of mergers have been a major driver of weakened competition. Evidence suggests that many Americans have historically lost out, with reduced opportunity, higher prices, lower wages and lagging innovation,” she continued. “A lack of competition also appears to have made segments of our economy more fragile, as consolidated supply and reduced investment in capacity could make us less resilient to shocks. These facts have prompted us to assess how our merger policy tools can better equip us to meet our legal obligations and halt this trend.”
Biden administration regulators have a number of high-profile cases before the courts that will test whether their efforts to tighten oversight of mergers and acquisitions will run afoul of case law. In January 2023, the Justice Department sued Google, saying the company has too much control over digital advertising technology tools and uses that iron fist to exclude competitors. Last month, the Antitrust Division filed suit against Apple, alleging that the iPhone giant also uses its power to crush competitors. This month, it emerged in DC regulatory circles that Justice is preparing to file a lawsuit with Live Nation over its dominance of tour promotion and ticket sales.
One factor driving efforts to revise antitrust policy guidelines is that tests to determine the impact of a merger on a market have traditionally focused on price – the impact of a combination on wholesale and retail prices. But in the digital world, products like Google searches and Facebook accounts are free. The value is in the consumer data generated by user activity on the platforms. Federal prosecutors in the Google case will have to dig deeper into market research to show how the search giant’s weight is hurting consumers.
The tenor in DC could change dramatically again in November, depending on the outcome of the presidential election. But for now, at a time when Hollywood needs options, the deal environment is largely on ice.
“The deal risk is now increased,” says USC’s Barnett. “The agencies are challenging deals that we did not expect would be challenged under conventional antitrust doctrines. The agencies are demanding more information and more evidence of efficiency in merger reviews. All this entails more costs and a greater risk of rejection.”
FED VS. MOGULES
Notable antitrust lawsuits in American history:
DEFENDANT: Standard oil
YEAR RESOLVED: 1911
RESULT: The historic case ended with the breakup of John D. Rockefeller’s oil giant into 34 regional companies.
DEFENDANT: Paramount et al
YEAR RESOLVED: 1948
RESULT: Paramount, Warner Bros., MGM, Fox and other studios had to sell their theater circuits after the Supreme Court ruled against Hollywood in a price-fixing case.
DEFENDANT: MCA
YEAR RESOLVED: 1963
RESULT: Robert F. Kennedy’s Justice Department targeted Lew Wasserman in the Camelot era, forcing him to sell the powerful MCA talent agency to keep Universal Pictures.
DEFENDANT: AT&T Time Warner
YEAR DECIDED: 2018
RESULT: A federal judge and an appeals panel ultimately rejected the Trump administration’s reasoning for blocking AT&T’s acquisition of Time Warner.
DEFENDANT: Microsoft Activision Blizzard
YEAR DECIDED: 2023
OUTCOME: The Federal Trade Commission won concessions from Microsoft, but could not stop the video game giant’s $69 billion purchase.
