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AT&T Ruling Tells Government: It's Not 1948 Anymore

June 13, 2018 in Economics

By Walter Olson

Walter Olson

Judge to federal government: The entertainment business has
moved on from the Truman era, and so has antitrust law.

In 1948 the US Supreme Court ordered Hollywood studios to sell their movie
theaters, following the then-popular idea that the government
should police marketplace competition by restraining businesses’
vertical integration — or as we might put it these days, by
ordering content kept separate from distribution.

The surprise in 2018 is not so much that US District Judge
Richard Leon
the government’s challenge to the $85 billion
AT&T-Time Warner merger. That much was expected by most
antitrust watchers. The shock came from the stinging way he
rejected the government’s evidence — using language such as
“gossamer thin” and “poppycock.”

[pullquote[The entertainment business has moved on from the Truman
era, and so has antitrust law.[/pullquote]

That surprise wasn’t an unpleasant one for many. Media and
telecom stocks rose on Wall Street, with the decision
widely seen as green lighting further hookups of cable and wireless
distributors with content providers, such asa potential Comcast deal for 21st Century

While “horizontal” challenges to mergers between competitors who
sell to the same group of customers are alive and well, the
government hadn’t gone all the way to a court decision in a
vertical merger case in 40 years (and it lost then, too). It’s been more than 30 years since the government
successfully opposed a vertical merger, though it’s sometimes
negotiated to attach strings in order to proceed.

Until recently, media companies could do well at either the
content end — like Time Warner, with its properties such as
CNN, Turner and HBO — or at the distribution end, like
AT&T with its vast consumer base including cell phone and
satellite users. You could be good at making shows even if you
weren’t good at getting to know individual customers and their

Now, amid rapid technological change, the advantage has shifted
to companies that can do both, commissioning original programming
while also knowing a lot in real time about who is watching and
how, making informed predictions about what they might want to
watch tomorrow or next year. Netflix, Hulu and Amazon, for example
— with Facebook, Google and others coming up fast — can
do both. Enterprises of this sort, the judge wrote, “have driven much of the recent
innovation in the video programming and distribution industry.”

The government’s own merger guidelines describe vertical mergers as “not invariably
innocuous,” a backhanded phrasing that points to the uphill legal
burden of showing that the case …read more

Source: OP-EDS

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