Antitrust Scrutiny Grows for Media – The Hollywood Reporter | Techy Kings


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 legal wrangling in a trial closely watched by Hollywood, US District Judge Florence Pan found that a merger of two of the world’s largest book publishers would harm competition for best-selling books. “The government has presented a compelling case anticipating significant harm to competition as a result of the proposed merger,” Pan wrote. “The concentration of the relevant market post-merger would be worryingly high: The merged entity would have a market share of 49%, more than twice that of its nearest competitor.”

The ruling marks a triumph for a rejuvenated DOJ antitrust division after decades of lax enforcement — and a troubling sign for Hollywood moguls considering mergers. “Anybody who’s thinking about making significant acquisitions in the media sector where you’re going to lose a player should be worried after this,” said the head of a mid-sized studio, speaking on condition of anonymity. The Hollywood Reporter.

The case brought by the government argued that the merger would suppress competition to acquire the publishing rights to “anticipated best-selling books.” Prosecutors theorized that the deal will hurt authors by giving the newly merged entity “great influence over who and what is published and how much [they] get paid for their work.” The suit represented regulators’ attempt to crack down on so-called monopsony, a dynamic in which a buyer with large market power can purchase labor and goods at prices below market value. With the ruling under its belt, the government will likely find the courage to bring forth more cases revolving around injury to workers, legal observers say. “They’re going to look for potential effects on the labor market in ways they hadn’t thought about before,” said Benjamin Sirota, a former prosecutor in the DOJ’s antitrust division.

Judge Pan’s analysis was straightforward: the fewer publishers there are to bid for books, the fewer authors will be able to claim publishing rights. The judge concluded that progress is tied to competition in the industry, which would go from five major publishers to four if the merger were approved. “The record contains many examples of books that sold for unexpectedly high advances and achieved other favorable terms for their authors because of the bidding frenzy that has been induced by competitive auctions,” the judge wrote.

The decision on the publishing deal was issued when the shares of Warner Bros. Discovery — with more than $50 billion in debt left over from AT&T’s 2018 takeover — hit a record low on Nov. 9 since its own merger was completed in April , adding to rumblings that another sale could be around the corner. While negotiations are deadlocked until 2024, there has been industry speculation that Comcast’s Brian Roberts is looking at combining NBCUniversal with the David Zaslav-led company. (A Comcast representative did not return calls for comment, while Zaslav said at a town hall in late September that WBD is “absolutely not for sale.”)

Meanwhile, renewed DOJ attention to the 2010 merger approval of Ticketmaster and Live Nation — which has seen high-profile ticket shortages for acts such as Taylor Swift and Bruce Springsteen — is intensifying calls from activist groups that have called for the deal to be scrapped. “Ticketmaster’s market power over live events is ripping off sports and music fans and undermining the life and independence of the music industry,” Sarah Miller, executive director of the American Economic Liberties Project, told THR in October. Live Nation, in a statement on its site Friday, responded: “No serious argument can be made that Ticketmaster has the kind of market position in secondary ticketing that supports antitrust claims.”

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

“A five-to-four merger increases consolidation enough [the deal is] will probably be blocked under most circumstances, period,” notes Daniel McCuaig, a former prosecutor in the DOJ’s antitrust division. Hollywood’s mid-sized studio head adds: “If you have four of the biggest studios controlling what comes into the market in a globally meaningful way, that’s not healthy. Regulators should step in 100 percent.”

Competitors are already noticing declining compensation for filmmakers, actors and crew members as a result of the consolidation. “We’ve heard concerns that a handful of companies can now once again control the bulk of the entertainment supply chain from content creation to distribution,” Federal Trade Commission Chairwoman Lina Khan said in April during a listening forum on revisions to merger guidelines, in a nod to anti-competitive behavior by studios that led to the Paramount Decrees. “We’ve heard concerns that this type of consolidation and integration could allow companies to exercise market power over both creators and workers and potentially limit the diversity of content that reaches consumers.”

Adam Conover, writer and board member of the Writers Guild, said in the forum that his show Adam ruins everything was killed by AT&T’s acquisition of Time Warner in 2018 when truTV’s parent company forced the network to cut costs. He emphasized that a handful of companies “now control the production and distribution of almost all entertainment content available to the American public,” which allows them to “more easily hold down our wages and impose burdensome conditions on our employment.” After Disney acquired 21st Century Fox in 2019, he said they pressured Hollywood to end backend participation and trap actors in exclusive contracts that prevented them from pursuing other work.

Former DOJ attorney Sirota says the government can challenge future media mergers by bringing cases that revolve around potential harm to the workforce. “If someone is bidding on my services and I can get three different bids all competing against each other, I get a better price if there are three people bidding on me instead of two,” he says. “It’s an easy concept for a judge to get behind.”

Considering market share and monopsonism, studios and distributors outside the Big Five make attractive acquisition targets. Take Lionsgate, which has faced sales speculation for years. The Jon Feltheimer-led company aims to separate its studio operations from its Starz pay-TV and streaming service. If any of the Big Five studios is in the market to acquire a competitor, a smaller target like Lionsgate might make the most sense — in terms of antitrust — because such a merger would likely not lead to the company gaining more market share and unduly reduce competition. Universal, for example, accounted for 15.6 percent of the domestic box office in 2021. By acquiring Lionsgate, which had 2.3 percent, the company would still have two competitors ahead of it in terms of theater market share for the year. (Antitrust analysis is not limited to a studio’s performance in a single year, but the numbers reflect that the deal is less likely to raise red flags than a merger between top competitors, such as Disney and Paramount.)

In March, Amazon completed its $8.5 billion purchase of MGM in a deal that was not contested by the FTC. While the e-commerce company is a global retail broker, Amazon is not yet as big a player in Hollywood and MGM does not have a distribution platform that can increase Amazon Prime Video’s popularity among streaming platforms in an anticompetitive way. Given that regulators did not sue to block the deal, the tech giants have a roadmap to expand their reach in the entertainment industry because they have small market shares but plenty of cash to grow quickly through acquisitions, legal experts say.

Alex Alben, a UCLA professor of privacy, cybersecurity and Internet law, says the influx of technology into Hollywood has increased competition. “You have new players 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 Apple buying a studio the size of Lionsgate in a merger that mirrors Amazon’s purchase of MGM — violates antitrust laws. Unlike Penguin Random House and Simon & Schuster, both of which are considered major players in the publishing industry, Apple is not seen as a powerhouse in the entertainment industry when it comes to production.

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

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


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