Are Media Megadeals No Longer a Sure Thing?

Media Maga Deals Dealmaking
Mario Wagner for Variety

When AT&T announced plans to merge with DirecTV last month, the conventional wisdom was that it was a gift to Comcast and Time Warner Cable.

The reason: The government would be more likely to give the Comcast-TW Cable transaction a greenlight with the assurance it would have another competitor waiting in the wings to match its size and scope.

But as much as Comcast executives contend that their merger with TW Cable should be an easy call for the FCC and Dept. of Justice, given that they don’t directly compete with each other in any market, the one-two punch of the two proposed combinations has made for a galvanzing moment among media watchdog orgs. The specter of the two deals, with a combined value of more than $90 billion, has provided a megaphone for populist voices, such as Sen. Al Franken, D-Minn., to rail against the dangers of Big Media getting bigger.

Netflix and Univision have publicly voiced their opposition to the Comcast-TW Cable union, and others are expected to sound the same kind of alarm in the hopes of forcing regulators to be tough in applying antitrust law. The scrutiny and concern has crossed partisan lines in Washington, making media consolidation a thorny issue that many pols wish would just go away.

According to a report in Broadcasting & Cable, the ABC affiliate board is considering a formal filing with the FCC to express its concerns. Also opposing the transaction is the American Cable Assn., a trade association of small- and medium-sized cable operators.

And last week, breaking with newspapers like the Washington Post and Wall Street Journal, the New York Times came out against the transaction, comparing a combined Comcast-TW Cable to AT&T’s telephone monopoly of old.

Foes of the deal share a common fear that Comcast simply will have too much leverage in the marketplace.

In a CNBC interview last week, Comcast CEO Brian Roberts defended the merger, maintaining that the sector is increasingly competitive, and has
never been changing more rapidly. “We lost video customers, unfortunately, for 26 straight quarters until two quarters ago, from satellite, DBS, DirecTV, Dish Network, AT&T, Verizon, U-Verse and FiOS, (as well as) people who are cord cutting,” he said. “We don’t think there should be an issue with going 7 million customers bigger.”

Yet the argument of a fast-changing market is double-edged, and a reason merger skeptics are making for government regulators to slow down and thoroughly assess the transactions. Diana Moss, VP and director of the American Antitrust Institute, hopes both proposed combinations will spur regulators to take a step back.

“When you look at these vertical and horizontal mergers, you are really talking about a fundamental rearrangement of the industry,” she said.

The National Assn. of Broadcasters suggested as much after AT&T revealed its urge to merge. “It is hard to see how decreasing competitors in the pay TV marketplace — while increasing regulatory restraints on local TV stations — truly benefits consumers,” the NAB said. (The org didn’t weigh in on Comcast-TW Cable, given that Comcast-owned NBCUniversal is a member broadcaster.)

The DOJ review will focus solely on whether the transaction violates antitrust law. That means it is more likely to entertain a compelling argument that the merger will reduce competition.

While Comcast rightly points out that it doesn’t compete with TW Cable in any market, that’s not the exclusive criteria the DOJ will consider as it conducts its review.

“Horizontal competition won’t be the only way they look at market dynamics and the competitive effects of the transaction,” said Jamillia Padua Ferris, an antitrust lawyer at Hunton & Williams in Washington, who previously worked in the DOJ’s Antitrust Division. “For example, you can expect that they will examine whether the combined company will have enhanced buying power that results in less or lower quality output when negotiating with content providers. DOJ may also analyze whether that power harms competition with other media companies trying to access content.”

Moreover, approval of one merger in the same industry doesn’t guarantee the next will get the go-ahead. In 2013, the DOJ initially rejected the proposed merger of American Airlines with USAir, even though analysts had assumed it would go forward, given previous sign-offs on United’s combination with Continental and Delta’s with Northwest.

The FCC, meanwhile, has a broader standard of scrutiny — measuring whether a merger is in the public interest. That’s a more ambiguous measure that’s led to a number of controversial decisions: For instance, the panel nixed DirecTV’s plans to merge with Dish Network in 2002, only to approve a News Corp. deal to acquire DirecTV in 2003.

It’s hard to see FCC chairman Tom Wheeler giving the greenlight to the Comcast-TW Cable deal as structured. It’s not much of a stretch to imagine him using the two transactions to try to leverage more robust open-Internet rules. To that end, the FCC boss may join other constituencies on the bully pulpit to make merger mania suit his own agenda.

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