Thursday, June 21, 2018

Commissioner O’Rielly: Narrow Market Definition No Longer Appropriate for Media Marketplace

In a speech on July 20, Commissioner Michael O’Rielly of the Federal Communications Commission described how the FCC has been using “an extremely narrow definition and scope of the media marketplace” that can no longer be defended, especially after the decision in the AT&T/Time Warner merger:

From the viewpoint of many, both the FCC and Department of Justice have been stuck in administrative molasses, seeking to apply sectoral market analysis, preserve questionable bright line tests, and continue the imposition of rigid restrictions as part of transactional reviews the same way now as in 2008, 1988, or 1958. I would posit that the entire foundation of how the government currently views the “communications” market – be it voice, video, or data – is outdated and misguided.
Free State Foundation President Randy May and I made largely the same argument today in our op-ed posted on Real Clear Markets, where we concluded:
Judge Leon’s decision rejecting the Department of Justice’s case against the AT&T/Time Warner merger should be a spur to further critical thinking regarding the application of antitrust law to today’s technologically dynamic communications and media environment. It’s not acceptable for antitrust authorities to rely on outdated market definitions that bear little resemblance to today’s shifting competitive market realities.
Commissioner O’Rielly went on to explain:
The problem with such an approach, of course, is that when you narrowly define a marketplace and narrowly recognize competition – far devoid from market realities – the result typically leads to the application of additional regulations or limitations beyond what is necessary to protect consumers. Perhaps that’s just the nature of the beast. But, as Judge Leon recognized in his decision, there has been a “veritable explosion” in the media marketplace in just the last five years. In the video space, Netflix, YouTube, Hulu, and so many other over-the-top providers now compete directly for consumer attention and the almighty advertising dollars. In the audio space, there is also satellite radio and a myriad of Internet offerings, including the ability to stream most radio stations from their own websites. This has an impact on the ability of traditional media providers to cover their costs, make capital investments, expand operations to meet consumer needs, and so much more. Broadly, this means that, given the extensive competition from new technologies, the current generation of legacy media will only flourish, and perhaps survive, if the government recognizes this marketplace reality. 
Accordingly, all relevant participants: newspapers, radio stations, broadcast television stations, cable companies, over-the-top providers, Internet sites, social media platforms, streaming music services, and satellite radio must be included in any media market definition. When I talk to existing providers in this space they explain quite clearly to me how their future plans are centered around competing against all of those operating in the market, especially given the development and scale of two large Internet companies: Facebook and Google. In not recognizing this in our rules, we shackle certain competitors, skewing the market in favor of the unregulated industries. 
Having a dynamic understanding of where the marketplace stands at the current time, along with the agility to adapt as the market changes, allows either the FCC or DOJ to conduct a fair but accurate analysis, which should be of top priority. For example, one of the major reasons cited for the AT&T/Time Warner merger was the belief of the companies that the future rested in delivering content in the broadband space, and particularly to mobile devices. 
The FCC will be reviewing several other significant mergers later this year, including the proposed merger of T-Mobile and Sprint. Thus, these comments give an insight into how Commissioner O’Rielly will be evaluating the critical market definition issues for acquisitions before the FCC.
Commissioner O’Rielly’s speech was at an event sponsored by Michigan’s Mackinac Center for Public Policy in Lansing, Michigan. I was a panelist at the event, along with Brent Skorup of the Mercatus Center.