Favoring Your Own Content

Once again we are shaking our heads….As the DOJ filed to block the $85 billion AT&T-TW merger today because of foreclosure concerns (e.g. favoring your own content), the FCC announced that, beginning this week, it plans to roll back net neutrality rules. 

The current Title II (Common Carrier) rules tightly regulate the internet, including preventing preferential treatment for those content providers who can pay more or are owned by the distributor.  

Never a fan of Title II regulation of the internet, I think a slight pull back on net neutrality to Title I is warranted and the AT&T-TW merger should go through with some behavioral remedies (e.g. no favoritism).

FOR SALE: 21st Century Fox

Nothing should surprise us anymore in the media industry, but, this gets close.  Supposedly, three of the largest firms (Disney, Comcast, and Verizon) have been talking to 21^st Century Fox about acquiring some of its most valuable movie and television production assets. 

In light of the DOJ’s recent statements about possibly attaching structural remedies to the AT&T-Time Warner deal, other huge deals, vertical (distribution-content) or horizontal (content-content) may get a lower approval probability from the start.  But, then again, there is the Trump factor and the President likes FOX a whole lot more than CNN.

The FCC in action on Thursday, November 16

Acknowledging the rapidly changing competitive landscape, the FCC, in a split vote along party lines (3-2), removed the long-standing ban on cross-ownership of a newspaper and TV station in a major market and made it easier for media companies to own multiple TV stations in the same market.  The changes should spawn consolidation deals among media outlets and pave the way for Sinclair Broadcast Group’s $4 billion purchase of Tribune Media Group.  If this particular deal goes through without divestitures, the combined firm would own 233 stations and cover over 70 percent of the country.

“Trumping” the deal

He hates CNN so maybe President Trump has more influence with the Department of Justice than he admitted a week or so ago.  (See link to CNN article.)

It was announced today that the DOJ is offering AT&T two asset sale options in order to gain approval of its merger with Time Warner – one is to sell off its TV assets (e.g. CNN) and the other is to unload DirecTV, an asset it has only owned for two years but has fully integrated into its packages and marketing efforts.  With declining viewership and a Trump-bashing “agenda”, unloading CNN is the more likely of the two options for AT&T to choose.

http://www.cnn.com/2017/11/02/politics/donald-trump-justice-department-fbi/index.html

Could it be...

..that two media powerhouses, particularly in the area of content creation (versus distribution) might combine?  According to news reports, Disney and 21^st Century Fox have held talks that involve 21^st Century Fox selling its cable networks, TV and movie studio, and international distribution operations to Disney while retaining its broadcast network business.  The motivation for the merger is for Disney to bulk up its content, but to remain fairly agnostic regarding distribution (with the exception of its direct-to-consumer streaming service planned to launch in 2019 using its newly acquired BamTech platform).

Once again, we wait and ponder if a media deal might happen, and if it did, how might competitors, on all fronts (MVPDs, content owners, OTT providers, telecoms), respond.

 

We often worry about regulatory approval too when deals are huge and horizontal.  But, content is so fragmented these days, I imagine this deal will not get much regulatory attention. 

Four is better than three

Sprint and T-Mobile announced today that they have decided to end recent merger talks and continue to go their separate ways in the U.S. wireless telecom market.  This is good news for consumers.  

According to research firm, Mosaik (and cited in the WSJ, 11/4/2017), two-thirds of U.S. counties would have lost a provider if the merger went through.  With one less competitor in the market, the three remaining firms would have benefited from an increase in market power – possibly resulting in higher prices and less innovation.

The Art of the Deal

On Thursday, the Department of Justice (DOJ) signaled that they might sue to block the AT&T-Time Warner mega merger.  Does this put in question the high probability that analysts place on the likelihood that the vertical merger will be approved or is it a ploy by the DOJ to extract rents from the firms?  For sure, it is the latter.

 

While there are anticompetitive concerns with the size and scope of this merger (e.g. foreclosure, vertical price squeeze, and higher entry barriers), regulators typically approve vertical mergers.  But, more likely than not, AT&T will have to commit to “good behavior” and some other minor concessions so that the DOJ gets a “win” too when they approve the deal.