After decades of lenient enforcement, federal antitrust authorities under the Biden administration are signaling that they will increasingly question mergers to address the consolidation of diverse industries by a handful of companies. Proposed mergers between Hollywood conglomerates, studios and big talent firms, which have yet to be approved, could fit the bill.
But whether the Justice Department and the Federal Trade Commission will be able to stop deals like Amazon’s $8.45 billion bid to acquire MGM or AT&T’s planned mega-merger between WarnerMedia and Discovery remains to be seen.
On Jan. 18, the Justice Department and the FTC launched a joint public inquiry aimed at strengthening enforcement of illegal mergers, a move that signaled tighter oversight of dominant companies.
“Illegal mergers can cause a wide range of harms, from higher prices and lower wages to fewer opportunities, less innovation and less resilience,” said FTC Chairwoman Lina M. Khan. “This investigation, initiated by the FTC and DOJ, is intended to ensure that our merger policies accurately reflect modern market realities and enable us to vigorously enforce the law against illegal transactions.”
And on Jan. 26, Jonathan Kanter, Assistant Attorney General for Antitrust, announced that federal antitrust authorities would move to block mergers they say violate US antitrust laws, rather than seeking complex settlements that “suffer from significant flaws” and ” Missing the target too often.”
He added, “We are witnessing a truly unprecedented explosion” in merger proposals.
Under the Hart-Scott-Rodino Act, companies are required to notify the FTC and DOJ in advance of mergers of at least $92 million. (In 2022, that number was increased to $101 million.) After an initial 30-day review period, during which deals may not be completed, agencies may make further requests for information to decide whether to appeal the proposed ban mergers.
According to the DOJ, there were over 3,500 such HSR merger filings in 2021, which it said was the most filings in a year in the agency’s history. The second highest annual total in the last 20 years was recorded in 2008 with 2,200 registrations.
Kanter said the pace “shows no sign of slowing down” amid historic consolidation in several industries that has resulted in less competition and more market power. The surge in filings was one of the factors that prompted the FTC in September to rescind guidelines stating that vertical mergers greatly benefit consumers by creating efficiencies that lower prices. Essentially, the pro-business approach assumed that all of these transactions were legitimate.
In antitrust law, the consumer protection standard directs courts to focus on the effects that anticompetitive business practices have on consumers, typically through higher prices or reduced production. It’s arguable that a merger of Discovery and WarnerMedia or Amazon’s purchase of MGM would have a major impact on pricing for consumers, although independent sellers of film or television projects may see the market narrowed for buyers. In theory, Amazon could offer viewers MGM content as part of its Prime membership for $13 a month, just as a re-titled Warner Bros. Discovery could find ways to bundle its HBO Max and Discovery+ services at discounted prices.
And some experts say federal agencies face an uphill battle in court if they are to pull off the Hollywood mega deals. “If you focus on the media market, it’s difficult for me to see how there is any reason for government intervention,” says Alex Alben, UCLA professor of privacy, cybersecurity and internet law. Alben was skeptical that the FTC could block Amazon’s bid to acquire MGM under the strict standard the agency is suing.
“I definitely don’t see any traditional antitrust justification when a case is brought against Amazon,” Alben said. “We don’t want cases brought up just because there is negative headline news about a company or because public opinion is shifting one way or the other. We want to bring cases based on principles. One of those principles is consumer protection.”
The deal comes amid widespread integration between content producers and streamers, as each major Hollywood conglomerate now supports its own in-house streaming service, be it Disney+, Peacock or Paramount+. Alben questioned why Amazon should be singled out when others, including Netflix and HBO, produce and distribute their own programming.
While Amazon may have a robust defense if the FTC tries to block the transaction, Steve Cernak, a partner at antitrust law firm Bona Law, said antitrust laws account for deals that “can significantly reduce competition.” He pointed to Amazon’s history of “starting small in an industry and going really big.”
The acquisition is Amazon’s second-largest acquisition ever, after its $13.7 billion purchase of Whole Foods in 2017, which federal regulators cleared because they aren’t direct competitors in the same industry.
Amazon’s bid to acquire MGM, if approved, will expand its Prime Video offering to include MGM’s library of more than 4,000 films, including the James Bond and Rocky franchises, and a TV producer behind it record Hulu The story of the maidfx Fargo and history viking
Alben claims that the WarnerMedia-Discovery merger is “actually decentering the market” as the telecom giant divests its entertainment assets. “I had issues with AT&T buying Warner because I thought it was going to be a very big media merger area,” he said. “Now that it’s breaking, it seems to me that by traditional competitive standards that’s a good move.”
Under the terms of the deal, AT&T will reverse its $85 billion acquisition of Time Warner and create a new media company, Discovery. The agreement combines WarnerMedia’s entertainment, sports and news resources with Discovery’s non-fiction, international entertainment and sports businesses.
Cernak said “the deal could be subject to more rigorous scrutiny” as it is a horizontal transaction between competitors, but noted that “there are so many other content suppliers and producers,” an important consideration in the evaluation the antitrust effects of the planned merger.
On Wednesday, AT&T pushed back its schedule for completing its deal to spin off WarnerMedia, now saying the merger is expected to close sometime in the three months to June. “All of this is going according to plan, as we expected, and we don’t see anything to worry about,” AT&T CEO John Stankey said during an investor briefing on the deal’s regulatory review.
But increased federal scrutiny of proposed mergers has already slowed some deals. CAA’s purchase of ICM was pushed back after top agency executives were questioned by the DOJ.
The DOJ also filed an antitrust lawsuit in November to prevent ViacomCBS from selling its Simon & Schuster publishing unit to Penguin Random House. The agency claimed that the $2 billion deal “would give Penguin Random House an outsized impact on who and what gets published and how much authors get paid for their work.”
When asked about the chances of federal regulators suing to block proposed mergers in the media industry, Cernak said, “You can challenge them just to challenge them to be a tough antitrust cop on guard.”
He continued, “They want to challenge mergers even if they’re not sure or have an awesome slam dunk case” because they want to “deter other mergers.”