Justice Dept. Faces Pressure on Media Consolidation

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By Alexei Alexis

Congressional Democrats and consumer advocates, encouraged by the Justice Department’s lawsuit challenging AT&T Inc’s bid to acquire Time Warner Inc., want the agency to stay tough on media mergers amid business-friendly changes at the Federal Communications Commission.

FCC actions so far under President Donald Trump signal a more relaxed regulatory environment, but the picture at the DOJ’s antitrust division is still taking shape. Analysts say we’ll know more after regulators weigh in on a few more big deals like Sinclair Broadcast Group Inc.’s proposed tie-up with Tribune Media Co. and Walt Disney Co.'s bid to acquire 21st Century Fox’s major content assets.Some FCC critics view the DOJ as the best bet to curb media consolidation, particularly in light of the department’s AT&T-Time Warner challenge. They say any perceived inconsistency in the treatment of deals might raise alarm bells.

Clearance of the $3.9 billion Sinclair-Tribune deal by the FCC could come in the next few weeks. The outcome is expected to involve divestitures of TV stations in at least 10 cities where the markets overlap. The deal is also subject to DOJ approval. Both agencies are likely to approve it after Sinclair announces its divestitures, according to Bloomberg Intelligence.

The likelihood that Sinclair-Tribune will be approved has irked some Democrats, in part because the merger was made possible by relaxation of some FCC media ownership rules. “With an FCC chairman so clearly beholden to corporations rather than consumers, it is even more critical for the DOJ to conduct thorough and exacting reviews of every merger that crosses its path,” Sen. Richard Blumenthal (D-Conn.) told Bloomberg Law.

Blumenthal was referring to FCC Chairman Ajit Pai, who has made it a priority to unwind media ownership limitations. Pai says the rules are based on 1970s-era notions about media, where newspapers and TV stations dominated and there was no internet.

Republicans, however, say Pai is actually helping consumers and the media by recasting decades-old laws to reflect new technology. “The FCC, under the leadership of Chairman Pai, is modernizing America’s obsolete media regulations as Congress directed it to do with section 202(h) of the Telecommunications Act of 1996,” former Republican FCC Commissioner Robert McDowell told Bloomberg Law.

The media landscape has become far more competitive for consumers in recent years thanks to digital technologies and the rise of the internet, according to McDowell. “The FCC’s initiatives are merely updating the rules to reflect new competitive realities,” he said.

This isn’t the first time regulators have faced pressure over media consolidation, but advocates say the current situation is unique because the high-profile AT&T-Time Warner suit has vaulted the DOJ’s antitrust division into the spotlight. It’s in the DOJ’s interest not to look inconsistent by approving one media deal and suing to stop another. Questions about Trump’s possible interference in the DOJ review also make it that much more important for the agency to appear impartial.

Sinclair-Tribune’s Broad Reach

Blumenthal recently joined a coalition of Democratic senators urging both the FCC and the DOJ to closely scrutinize the Sinclair-Tribune merger. The combined entity would own 233 television stations and reach 82 percent of American households, affecting tens of millions of consumers, the senators wrote in Jan. 3 letter. Deregulation at the FCC has heightened the need for thorough and impartial reviews of such transactions, they said.

The FCC’s changes to several rules governing media ownership will encourage more broadcast, radio, and print media consolidation, according to the senators. They also said the Sinclair-Tribune merger is a direct result of the FCC’s rule reversal.

DOJ spokeswoman Lauren Ehrsam said the department has received and is reviewing the letter but declined to comment further. The FCC declined to comment.

Trump Muddies Waters

Complicating matters, regulators under Trump face growing questions about their ability to remain politically unbiased. The Sinclair-Tribune deal would give a broadcaster known for its conservative leanings a fresh reach into new media markets as the 2018 elections heat up.

Trump has been vocal about his opposition to the AT&T-Time Warner combination. That transaction involves Time Warner property CNN, which is frequently criticized by Trump because of its coverage. The White House has been mum about the Sinclair-Tribune transaction. Trump congratulated Fox head Rupert Murdoch on the Disney deal shortly after it was announced.

“All mergers deserve equal scrutiny,” Sen. Tom Udall (D-N.M.), told Bloomberg Law. “The Justice Department’s role in approving such mergers is to protect consumers, and the FCC is charged with protecting the public’s interest, and neither can effectively do so under a president who publicly seeks retaliation against media companies,” he said. He also signed the Senate letter about Sinclair-Tribune.

Reps. Frank Pallone Jr. (D-N.J.) and Elijah Cummings (D-Md.) said in a November letter to FCC Inspector General David Hunt that the agency’s review of the Sinclair-Tribune deal raised “serious concerns.” The letter cited reports about meetings between the Trump administration, Sinclair, and Pai’s office, among other factors.

Consistency?

Phillip Berenbroick, a senior policy counsel for the consumer advocacy group Public Knowledge, said it will be incumbent on DOJ to keep up strong enforcement in all merger reviews in light of political questions surrounding the AT&T-Time Warner suit.

“It can’t be just a one-off thing,” he told Bloomberg Law. “DOJ needs to continue to be a cop on the beat for consumers.”

Critics of the DOJ suit are also closely watching how the AT&T-Time Warner situation unfolds, noting that horizontal mergers like Fox-Disney and Sinclair-Tribune are historically more likely to see regulator scrutiny because they remove a competitor from the market.

“Why the government has filed suit to block the AT&T-Time Warner deal remains a mystery,” Larry Downes, an antitrust analyst at the Georgetown Center for Business and Public Policy, told Bloomberg Law. “How it will impact the analysis of Disney-Fox and the continued review of Sinclair-Tribune will speak volumes to whether there is any consistency in the Department of Justice’s emerging view of antitrust in a post-digital media environment.”

To contact the reporter on this story: Alexei Alexis in Washington at aalexis@bloomberglaw.com

To contact the editor responsible for this story: Fawn Johnson at fjohnson@bloomberglaw.com

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