Fair Play: With Fox-Disney, More Questions About Media Consolidation

21st Century Fox

That happened fast. One week after AT&T Inc. sealed its high-profile merger with Time Warner Inc., 21st Century Fox accepted a $71 billion offer to sell its entertainment assets to Walt Disney Inc. The deal could get cleared by U.S. regulators within weeks, Bloomberg News reported. Comcast Corp. could still come up with a competing bid, but that deal is several steps behind Fox-Disney, making it tough for Comcast to catch up.

A merged Fox-Disney would reduce the number of major movie studios from six to five and give Disney control over Hulu, the streaming video service. Critics note that Disney, already in possession of ABC Broadcast Network and ESPN, would gain some 300 channels. Disney said in a filing last week that it’s prepared to forgo some $1 billion in profits by selling some of its regional sports channels to avoid antitrust concerns.

Even so, the new company would have a behemoth of content under its roof. The enhanced Disney movie studio would be sitting on a gold mine with its Marvel movies alone. The X-Men franchise is currently under the Fox umbrella, while other Marvel movies are produced by Disney. Marvel fans are reeling with excitement at the possibilities. Professor X, meet The Avengers.

Disney and Fox say the merger is necessary to allow it to compete in the emerging digital media market where streaming content is king. If that argument sounds familiar, it’s because AT&T successfully argued exactly the same thing in justifying its tie-up with Time Warner. When competing with Amazon.com or Netflix Inc., the winning argument goes, gather as much content as you can.

Where does that leave the customer? Some industry analysts predict more “bundled” packages of channels, with the bigger, more expensive bundles containing premium content – like HBO, in the newly branded WarnerMedia’s case, or ESPN in the Fox-Disney case. Those bundles come with a lot of “not premium” niche content like the Golf Channel.

That business model, while frustrating for satellite or cable TV subscribers, has thus far skirted antitrust or consumer protection scrutiny. If people are willing to pay and there are at least a few options to get the content, regulators say no harm done.

That may be because streaming video is actually answering the consumers’ desire for à la carte programming. Bloomberg Intelligence says the industry, with companies like Sling TV and Netflix, is experiencing robust growth. Traditional media companies may need to beef up their libraries so they can offer direct-to-consumer alternatives.

No matter what, the media entertainment in general is shaping up to be a battle of the bigs, which concerns media watchers and consumer advocates. Consolidating a bunch of must-have content under one umbrella means less is available for the startups, which means they have a decreased shot of becoming true competitors in the marketplace. That ultimately stifles innovation, advocates say. Customers have fewer choices.

But, a federal judge’s crushing rejection of the Justice Department’s argument that AT&T-Time Warner behemoth would hurt competing content providers and raise prices for customers is a signal to antitrust attorneys and media executives that at least for now, there’s a green light on consolidation.

That may not be the case forever. There is “soul searching” in antitrust law right now, John Marshall Law School professor Daryl Lim recently told Bloomberg Law. Many antitrust lawyers believe narrow questions from 40-year-old laws about whether isolated markets will experience negative effects from a merger don’t accurately reflect the tenor of the current dynamic marketplace. The Federal Trade Commission is launching a series of 15 to 20 hearings over the next several months to pose questions about whether enforcement practices need to change.

When enough people inside and outside of government start asking questions like that, it’s only a matter of time before someone poses an answer. And, it might be that all this consolidation has limits.

What’s Happening

On Wednesday, the Senate Judiciary Committee will hold a hearing on the pending merger between Sprint Corp. and T-Mobile Inc.

Quote of the Week

“I wouldn’t say it’s appeal-proof, but it is such a fact-intensive opinion that it is tough for an appellate court to conclude Leon committed a legal error.”

--Fiona Schaeffer, international antitrust partner at Milbank, Tweed, Hadley & McCloy, on U.S. District Court for the District of Columbia Judge Richard Leon’s decision that AT&T and Time Warner could merge.

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