Growing antitrust scrutiny for media – The Hollywood Reporter

On Oct. 31, the Justice Department’s antitrust division scored a major victory when a federal judge blocked Penguin Random House’s $2.175 billion bid to buy rival Simon & Schuster from Paramount Global. After a legal wrangling in a closely watched process from Hollywood, US District Judge Florence Pan found that merging two of the world’s largest book publishers would hurt competition for best-selling books. “The government has presented a compelling case that it foresees substantial harm to competition as a result of the proposed merger,” Pan wrote. “The post-merger concentration of the relevant market would be concerning: the merged entity would have a market share of 49%, more than double that of its closest competitor.”

The ruling marks a triumph for a rejuvenated DOJ antitrust division after decades of lax enforcement and a troubling sign for Hollywood moguls contemplating mergers. “Anyone who’s looking to do any major M&A in the media industry where you’re going to lose a player should be concerned after this,” the head of a midsize studio, speaking on condition of anonymity, says The Hollywood Reporter.

The case filed by the government argued that the merger would have suppressed competition to acquire the publishing rights to the “expected best-selling books”. Prosecutors have advanced a theory that the deal will hurt authors by giving the newly merged entity “disproportionate influence over who and what is published and how much [they] they are paid for their work”. The lawsuit represented an attempt by regulators to crack down on so-called monopsonies, a dynamic in which a buyer with outsized market power can purchase labor and goods at prices below market value. With the ruling behind it, the government will likely be encouraged to bring more cases involving harm to workers, legal observers say. “They will be looking for potential impacts on labor markets in a way that they haven’t had in mind in the past,” says Benjamin Sirota, a former prosecutor in the Justice Department’s antitrust division.

Judge Pan’s analysis was simple: The fewer publishers there are to bid on books, the fewer authors will be able to apply for publishing rights. Judge concluded that the progress is related to competition in the industry, which would jump from five major publishers to four if the merger is approved. “The record contains numerous examples of books that sold at unexpectedly high advances and obtained other favorable terms for their authors due to the bidding frenzy incited by competitive auctions,” Judge wrote.

The ruling on the publishing deal came as shares of Warner Bros. Discovery — saddled with more than $50 billion in debt left over from its 2018 AT&T acquisition — hit an all-time low on Nov. 9 since its merger is was finalized in April , amplifying rumors that another sale could be just around the corner. While negotiations are deadlocked until 2024, there has been industry speculation that Comcast’s Brian Roberts is looking to combine NBCUniversal with the company headed by David Zaslav. (A Comcast rep declined for comment, while Zaslav told a late September staff town hall that WBD is “definitely not for sale.”)

Meanwhile, the Justice Department’s renewed focus on approval of the 2010 merger of Ticketmaster and Live Nation – which saw high-profile ticket fraud for artists like Taylor Swift and Bruce Springsteen – is amplifying calls from activist groups they called for the settlement to be terminated. “Ticketmaster’s market power over live events is robbing sports and music fans and undermining the vibrancy and independence of the music industry,” said Sarah Miller, executive director of the American Economic Liberties Project. DAY in October. Live Nation, in a statement on its site Friday, responded: “It can’t be seriously argued that Ticketmaster has the kind of market position in secondary ticketing that supports the antitrust claims.”

Under Judge Pan’s reasoning to block the Simon & Schuster merger, a deal that size would now be extremely difficult to pass antitrust review, experts say. There are five major motion picture studios – Disney, Sony, Universal, Warner Bros. Discovery and Paramount – which account for the majority of theatrical film production and distribution in the United States. In 2021, according to data from Comscore, they dominated the domestic box office in terms of market share with 84.8% of the business. Any merger between these companies — where five studios become four — especially one involving Disney, which accounted for 25.5 percent of the box office last year, will likely attract regulatory scrutiny.

“A merger of five to four increases consolidation sufficiently [the deal is] it will likely be blocked in most cases, period,” notes Daniel McCuaig, a former prosecutor in the Justice Department’s antitrust division. The mid-major Hollywood studio executive adds: “If you have four of the biggest studios controlling what enters the market in a significant way globally, that’s not healthy. The regulators should intervene 100%”.

Competitive enforcers are already taking note of the decline in compensation to directors, actors and crew members as a result of the consolidation. “We’ve heard concerns that a handful of companies may now once again control the majority of the entertainment supply chain, from content creation to distribution,” Federal Trade Commission Chair Lina Khan said at a forum in April. hearing on revisions to merger guidelines, in a nod to anti-competitive conduct by studios that led to the Paramount Decrees. “We have heard concern that this type of consolidation and integration could allow companies to exert market power over creators and workers alike and potentially limit the diversity of content reaching consumers.”

Writer and Writers Guild board member Adam Conover said on the forum that his show Adam ruins everything was killed by AT&T’s 2018 acquisition of Time Warner, when truTV’s parent company forced the network to cut costs. He pointed out that a handful of companies “now control the production and distribution of nearly all entertainment content available to the American public,” allowing them to “more easily contain our wages and set onerous terms for our employment.” After Disney acquired 21st Century Fox in 2019, he said they pushed Hollywood to end back-end participation and trap actors in exclusive contracts that prevent them from pursuing other work.

Former Justice Department prosecutor Sirota says the government could challenge future media mergers by promoting cases revolving around potential job harms. “If someone bids on my services and I can get three different bids all competing against each other, I’ll get a better rate if there are three people bidding for me instead of two,” he says. “It’s a simple concept for a judge to follow.”

Taking into account market share and monopsony concerns, studios and distributors outside the five majors make attractive acquisition targets. Take Lionsgate, which has been dealing with sales speculation for years. The company headed by Jon Feltheimer is aiming to separate its studio business from its pay TV and streaming service Starz. If one of the big five studios is in the market to acquire a competitor, a smaller target like Lionsgate might make more sense — as far as antitrust concerns are concerned — because such a merger probably wouldn’t result in the company gaining outsized market share and overly contracting the competitive landscape. Universal, for example, accounted for 15.6% of the domestic box office in 2021. By acquiring Lionsgate, which held 2.3%, the company would still have two competitors ahead of it in terms of theatrical market share for the year . (Antitrust analysis doesn’t stop at one studio’s performance in just one year, but the figures reflect that the deal is less likely to raise red flags than a merger between major competitors, such as Disney and Paramount.)

In March, Amazon closed its $8.5 billion purchase of MGM in a deal that hasn’t been challenged by the FTC. While the e-commerce company is a global retail behemoth, Amazon is not yet as big a player in Hollywood, and MGM lacks a distribution platform that could uncompetitively boost Amazon Prime Video’s popularity among streaming platforms. stream. Considering that regulators have not sued to block the deal, the tech giants have a road map to expand their reach in the entertainment sector as they have a small market share but a treasure trove of cash to grow it rapidly through acquisitions, legal experts say.

Alex Alben, a professor of privacy, cybersecurity and Internet law at UCLA, says the entry of technology into Hollywood has increased competition. “There are new entrants in the market, like Apple and Amazon, competing for consumers,” he says. “You have price competition on the streaming side and you have a lot more content on offer than ever before.” Alben notes that regulators would face an uphill battle arguing that a deal — such as, say, Apple’s purchase of a studio the size of Lionsgate in a merger that mirrors Amazon’s purchase of MGM — violates the antitrust law. Unlike Penguin Random House and Simon & Schuster, who are both considered major players in the publishing industry, Apple is not considered a powerhouse in the entertainment industry when it comes to manufacturing.

That’s not to say the tech giants will be off the hook for Hollywood buyouts, especially in this regulatory environment. “The era of lax enforcement is over,” Justice Department antitrust chief Jonathan Kanter proclaimed in April. “And the new era of vigorous and effective antitrust law enforcement has begun.”

A version of this story first appeared in the Nov. 21 issue of The Hollywood Reporter magazine. Click here to register now.

Leave a Reply

%d bloggers like this: