The judge who holds key to future of media

 The judge who holds key to future of media
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Federal Judge Richard Leon is not a household name, but he is one of the most powerful men in Washington. As senior judge of the U.S. District Court for the District of Columbia, Leon’s past decisions have altered the fate of some of America’s biggest companies, and his upcoming decision holds the key to the future of the media industry itself.

Leon made history in 2011 by approving the $38 billion Comcast — NBCU merger, positioning the new company as the largest cable and broadcast entity in the U.S. More importantly, his ruling established a hard-to-overlook legal precedent, which has influenced antitrust law and competition policy ever since.

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Today, Judge Leon presides over yet another ground-breaking case with similar themes: United States v. AT&T and Time Warner. A mega merger valued at $108.7 billion, the deal seeks to marry a major content distributor (AT&T) with a leading video content producer (Time Warner). Beyond the litigants, the media and communications sector anxiously await the judge’s ruling, and with good reason.

 

First, the case marks the first time since the Carter administration (1977) that the U.S. Department of Justice has sued to block a vertical merger (i.e. between two companies that do not compete). Second, it tests the fidelity of the Trump administration’s new — and some say dubious — approach to antitrust policy and enforcement. And third, it will provide a bellwether for those mergers and acquisitions waiting to emerge from the meadows, including some of the biggest media deals under consideration.

With trial set for March 19, the AT&T merger case has engendered much scrutiny and a lot of head-scratching. Antitrust experts say, the DOJ does not appear to have a sound legal basis for the action according to traditional standards. The last time the government succeeded in stopping a vertical merger was during the Nixon administration in 1972. Since then, it has approved hundreds of them, including the Comcast NBCU deal in 2011.

But with a new president comes new policies and people. Despite a slow start, the Trump administration made quite a splash in the normally quiet waters of antitrust law by challenging the AT&T merger. It was thought to be an unusual and uncharacteristic move for a billionaire businessman known more for The Art of the Deal than for promoting competition or consumer protection. Most observers agree the stage was set amid the 2016 presidential election, when then-candidate Donald TrumpDonald John TrumpConservatives express concern over House GOP immigration bill Poll: McSally holds 14-point lead in Arizona GOP Senate primary Trump defends Nielsen amid criticism over family separations MORE was asked to comment on the merger of AT&T and Time Warner (which includes the CNN cable network). He said, "Personally, I've always felt that that was a deal that's not good for the country. I think your pricing is going to go up."

The media immediately seized on his statement, questioning whether Trump opposed the deal because of a legitimate concern over media concentration, or because of his ongoing feud with CNN. After all, CNN has morphed into a 24-hour anti-Trump network, or what I call “Constantly Negative News.” The enmity is both palpable and sad to see. And while the President’s disdain for CNN is well known, experts cannot believe such personal animus could be the rational basis for a major government lawsuit — or could it?

Established antitrust law allows non-competing companies from different industries to combine, unless each is so dominant in its sphere that merging would foreclose competition. This rationale is at the core of the government’s case. The DOJ argues that distributors who control programming will have the incentive and ability to use that control as a weapon to hinder competition. Thus, it concludes that the combined company would force rivals to pay millions more for Time Warner content, resulting in higher prices for consumers.

For its part, AT&T argues that we now live in a world where competition in the video market is rampant. They rightly point out that Amazon, Apple, Alphabet (Google), Facebook, Hulu, Netflix Snapchat and Twitter are all investing billions of dollars to develop their own video offerings and that these over-the-top, direct-to-consumer offerings have an expanding market of customers. The company says its merger will not eliminate any other competitor, which is usually dispositive for antitrust enforcers. While there is more to their legal answer, AT&T lastly argues the government has to prove that the two merging companies have sufficient market power in their respective markets to cause antitrust concerns — and it has not met this burden of proof.

In what promises to be a data duel in the District Court, both DOJ and AT&T will present expert analyses from two distinguished former Justice Department economists now in academia. Perhaps the most interesting wrinkle of all could be the testimony of the DOJ’s antitrust chief, Assistant Attorney General, Makan Delrahim, who is listed on AT&T’s witness list. In October 2016, before he was selected for the job, Delrahim told Canadian television news: “I don’t see this as a major antitrust problem,” and “I think these folks would have an easier route toward approval” compared with other deals.

None of this will be lost on Judge Leon, who is no stranger to high-stakes litigation. He understands that this trial will be dissected for its impact on businesses beyond AT&T and Time Warner. Although he is a George W. Bush appointee, with a distinguished record of high-level congressional investigations, Leon is staunchly independent and no-nonsense. He eschews publicity and is not likely to be swayed by the politics of the day. This should provide some comfort to the industry, because if there were ever a case to be decided on its merits, and a right man for the job, this is it and Richard Leon is that man.

Adonis Hoffman is chairman of Business in the Public Interest and CEO of The Advisory Counsel, Inc. He is an adjunct professor at Georgetown University and served in senior legal posts in Congress and at the FCC.