A raging policy debate in Washington is forcing Hollywood to curb its enthusiasm for mergers and acquisitions — for now.
Federal regulators and some legal scholars are moving to radically overhaul how the nation enforces antitrust laws. That’s making it much harder for dealmakers and corporate titans to pursue M&A activity. The regulatory mood in Washington, where transactions of any size must be approved by the Justice Department and other agencies, has become downright hostile to large-scale deals.
For Hollywood, the timing is terrible. Disney, Warner Bros. Discovery, Comcast and NBCUniversal are conceiving potential new combinations with traditional or digital giants, but they’re hemmed in by the chilly atmosphere in D.C. The new breed of regulators are concerned that digital giants à la Google, Facebook and Amazon have been allowed to become too big and too powerful.
The Justice Department and the Federal Trade Commission have issued much tougher guidelines for reviewing transactions than have held sway over the past 40-odd years.
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“There are certain portions of the antitrust community who are of the view that certain elements of antitrust law over almost half a century have gone in the wrong direction,” says Jonathan Barnett, a professor at USC Gould School of Law. “The focus has been in particular on the rise of digital platforms and the accompanying level of concentration that you now observe in those markets.”
The arm-wrestling over the enforcement of antitrust laws is yet another example of how U.S. laws and regulatory systems are not equipped to police the economy in the digital age. Antitrust laws were an outgrowth of the late-1800s “robber baron” era, when the Progressive movement sought to rein in the power of industrialists such as John D. Rockefeller and J.P. Morgan — the Elon Musks and Mark Zuckerbergs of their day. Today, numerous legal scholars are questioning the logic of allowing so many near-monopolies to emerge in the digital realm.
Luke Froeb, Vanderbilt University professor and former chief economist for the Justice Department’s antitrust division, is critical of the Biden-era approach.
“They’ve stepped away from 50 years of case law that made things reasonably clear [for companies],” Froeb says. “They’re saying, ‘Hey, we’re going back to the ’60s, when we thought ‘Big is bad.’”
The Biden administration sent its signal loud and clear in November 2021 when it blocked Paramount Global’s planned sale of its Simon & Schuster publishing division to Penguin Random House. Last year, the Justice Department went so far as to increase the merger-review filing fee by 704% (to $2.25 million) for a deal valued at $5 billion or more.
Lina Khan, FTC chair, has become a key voice of the modern progressive viewpoint on antitrust law — and a lightning rod in media and digital circles. One new element in merger reviews that she has championed is to examine a deal’s impact on workers, employment levels and employees’ competitive mobility within a sector.
“Over the last decade, we’ve heard mounting concerns about inadequate competition across key markets in the U.S. economy,” Khan said last September in a speech at a Fordham University conference on antitrust law.
“Evidence suggests that decades of mergers have been a key driver of weakened competition. Evidence suggests that many Americans historically have lost out, with diminished opportunity, higher prices, lower wages and lagging innovation,” she continued. “A lack of competition also appears to have left segments of our economy more brittle, as consolidated supply and reduced investment in capacity can render us less resilient in the face of shocks. These facts have prompted us to assess how our merger policy tools can better equip us to discharge our statutory obligations and halt this trend.”
Biden administration regulators have a number of high-profile cases winding through the courts that will test whether their efforts to toughen up scrutiny of M&A activity will run afoul of case law. In January 2023, the Justice Department sued Google, alleging it has too much control of digital advertising technology tools and is using that iron fist to box out competitors. Last month, the antitrust division filed suit against Apple, claiming the iPhone giant also uses its heft to crush competitors. This month, word surfaced in D.C. regulatory circles that Justice is preparing to launch litigation at Live Nation over its dominance of tour promotion and ticketing sales.
One factor driving efforts to revise antitrust policy guidelines is that means tests to determine the impact of a merger on a marketplace have historically focused on price — the impact of a combination on wholesale and retail prices. But in the digital realm, products like Google searches and Facebook accounts are free. The value is in the consumer data generated by user activity on the platforms. Federal prosecutors in the Google case will have to dig deeper into market research to show how the search titan’s heft hurts consumers.
The tenor in D.C. may shift again dramatically come November depending on the outcome of the presidential election. But for now, at a time when Hollywood needs options, the deal environment is largely on ice.
“Deal risk is now elevated,” USC’s Barnett says. “The agencies are challenging deals that we wouldn’t have expected to be challenged under conventional antitrust doctrines. The agencies are demanding more information and more evidence of efficiencies in merger reviews. That all adds more costs and more risk of rejection.”
FEDS VS. MOGULS
Notable antitrust legal cases in U.S. history:
DEFENDANT: Standard Oil
YEAR RESOLVED: 1911
OUTCOME: The landmark case ended with the breakup of John D. Rockefeller’s oil colossus into 34 regional companies.
DEFENDANT: Paramount et al
YEAR RESOLVED: 1948
OUTCOME: Paramount, Warner Bros., MGM, Fox and other studios had to sell off their theater circuits after the Supreme Court ruled against Hollywood in a price-fixing case.
DEFENDANT: MCA
YEAR RESOLVED: 1963
OUTCOME: Robert F. Kennedy’s Justice Department took aim at Lew Wasserman in the Camelot era, forcing him to sell the powerful MCA talent agency in order to keep Universal Pictures.
DEFENDANT: AT&T-Time Warner
YEAR RESOLVED: 2018
OUTCOME: A federal judge and appellate panel ultimately rejected the Trump administration’s reasoning for blocking AT&T’s acquisition of Time Warner.
DEFENDANT: Microsoft-Activision Blizzard
YEAR RESOLVED: 2023
OUTCOME: The Federal Trade Commission won concessions from Microsoft but could not stop its $69 billion purchase of the video game giant.
