One Thing Is Certain: A Fox-Time Warner Combination Would Get D.C. Scrutiny

Rupert Murdoch Time Warner Bid Media
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A Senate hearing on Wednesday was expected to focus on the proposed combinations of distribution giants Comcast with Time Warner Cable and AT&T with DirecTV. Instead, news of Rupert Murdoch’s idea to merge 21st Century Fox with Time Warner was the new twist for lawmakers watching a simmering wave of consolidation.

“Enormous consequences,” Sen. Jay Rockefeller (D-W. Va.), the chairman of the Senate Commerce Committee, said of a potential deal during a hearing on the future of the video marketplace.

That’s not to say that such a merger would be stopped by antitrust regulators. Already, there has been speculation that Fox would divest CNN to make sure such a deal would go through.

Antitrust experts told Variety that heavy scrutiny of such a deal is inevitable among government agencies.

Such a merger “would be in for a long haul because this touches on multiple markets in areas that have been, if not directly, certainly important to a lot of antitrust focus by the Justice Department and the FCC,” said Mark Ostrau, co-chair of the antitrust and unfair competition practice at Fenwick & West in Mountain View, Calif.

Typically companies at the outset announce divestitures to try to make a merger work from an antitrust standpoint, so it is “hard to tell what the ultimate [scrutiny] will be, except you can be sure it would take a long time to get to that outcome,” he said.

But he cited the historical antitrust interest in movie distribution, perhaps most famously by a Supreme Court decision in 1948 that forced the studios to divest their theater chains. He also said that there could be concerns over what impact a combination of the media giants would have on the cable advertising marketplace, while others say that attention would be paid to how the combined company would handle sports rights.

Already, representatives for talent are worried that such a deal would only increase the leverage of the studios on the other side of the negotiating table. In fact, the research firm Moffett Nathanson already identified “talent, agents and real estate prices in L.A.” as losers in any merger of Fox and Time Warner, “as two of the biggest content studios push for operating efficiencies.” A transaction could impact jobs, particularly if either studio were to eliminate overhead by paring back back-office functions across divisions.

It also may tilt the scales further in favor of media conglomerates, at a time when talent is optimistic about new opportunities from online providers like Netflix and Amazon. Attorney Uri Fleming, who represents content creators at Kleinberg Lange Cuddy & Carlo, said such a transaction would have an “extremely negative impact” because it would “eliminate another buyer potentially, someone else you can sell your product to.”

Yet as Ostrau points out, those concerns about concentration of production in movie and TV don’t necessarily rise to the level of a serious antitrust issue. If the FCC were to also examine a transaction, they also would weigh other factors, like whether it is in the public interest.

“Certainly the film business is fairly concentrated among the majors, but typically in most industries, if you have got three or four other significant competitors you don’t see much of an ultimate [antitrust] concern with a transaction,” he said.

What the merger may do, however, is lead to more mergers, a fear articulated at the Senate hearing. If Comcast and AT&T become bigger, the natural response is for the content side to bulk up as well.

Gene Kimmelman, president of the public interest group Public Knowledge and former senior adviser at the Department of Justice’s Antitrust Division, said the idea of combining Fox and Time Warner “really indicates the nature of the problem in this marketplace.”

“It is not a a problem antitrust enforcers can address directly,” he told the Senate committee on Wednesday. “They have to accept the marketplace as is, short of finding anti-competitive behavior within it.

“We are in an arms race,” he added. “Transmission companies bulk up and, no surprise, content companies would like to bulk up. The problem is the consumer is squeezed. The consumer is between a rock and a hard place.”

Should any deal transpire, what 21st Century Fox will have to be prepared for is the politics, even if it is structured in a way that passes government scrutiny. Through congressional hearings, Fox would have to address myriad concerns, why such a deal would be good for the consumer and even why it would be good for Hollywood.

When Sony bought Columbia, it raised fears of foreign ownership over one of the major producers of American cultural content. This time, the debate will be about consolidation.

“You can be sure that this will play out not just with the regulators, but in a lot of the press and Congress because of the special place the film industry has in America,” Ostrau said. “There’s a cultural legacy notion to this as well.”