Media acquisitions of all sizes attract public scrutiny, and this week the Senate will hold a hearing about AT&T’s pending acquisition of Time Warner, the media company that owns TV programming like CNN, HBO and TBS. The federal competition agencies, the Federal Trade Commission and the Department of Justice, are staffed with economics experts and should analyze the deal’s competitive effects. At the same time, the agencies should discount the inevitable hyperbole from advocates and competitors.
AT&T And Time Warner Merger
Those merger opponents have a difficult case to make. The media and communications marketplace has changed in the last 20 years. Advocates’ talking points — predicting media monopolies and stagnant markets — haven’t.
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Rapidly improving technology and pro-competition federal policy have created a competitive communications marketplace and the pending merger is an attempt to anticipate consumer demands and gain a head start on swift competitors. TV viewing habits have changed rapidly and younger people in particular are watching more online video and more video on mobile devices. Piper Jaffray found that in 2016, for the first time, teens spent more time watching YouTube than cable TV.
Few people realize, however, that this revolution in consumer habits occurred because of conscious policy decisions. For decades, federal and state lawmakers encouraged phone and cable monopolies. Command-and-control fell out of favor, however — and in the 1990s, Congress reversed course and started encouraging competition in TV, phone and internet service.
At the time, satellite TV was in its infancy and cable operators faced little competition. That all changed after the 1996 Telecommunications Act. Starting in 1996, cable TV’s market share fell from 94 percent to 53 percent today. Telephone companies, which were finally allowed to offer TV, and satellite providers went from 4 million households to more than 40 million households.
Since then, TV programming and choice have virtually exploded. The number of channels received by the typical household went from around 50 channels to nearly 200. That doesn’t include online options, which Congress protected from regulation — like Netflix, Amazon and Hulu — nor the 100-plus niche online video services that launched in 2015 alone. Altogether, there are more than 400 scripted shows. This Golden Age of Television is attributable to deregulation of the TV market — content creators have far more distributors to sell to.
It’s tempting to think that phone companies are simply leveraging their old monopoly status into new markets, like TV, but that’s not really the case. While telephone companies added millions of TV and broadband customers, they saw even larger losses of their phone customers. Phone companies lost more than 100 million landline subscriptions as people switched to voice service from cable companies and wireless operators.
AT&T and other wireless carriers see what nimble internet companies like Google, Facebook and Amazon see: Consumers want quality entertainment, and they want the ability to watch it everywhere. And just as phone companies invaded the video marketplace and cable companies invaded the phone marketplace, internet companies are invading the advertising market once dominated by newspapers and broadcast TV. Google, of course, is the largest, in terms of ad revenue but analysis from The Information, the tech news publication, revealed that Facebook recently surpassed Comcast, Disney and CBS for ad dollars.
No one knows what the winning recipe is for continued profits. Ad-support or subscription? Distribution via the internet or cable companies? Mobile or landline? Live sports or scripted shows or YouTube stars? What is clear is that consumers win as firms scramble to upgrade networks, produce new content and experiment with new business models. Output is up and the old regulatory categories — cable, satellite, internet, phone — are quickly breaking down. The competitive ferment is such that some countries, like Denmark, have decided to eliminate their telecommunications agency in favor of using technology-neutral competition laws.
Lawmakers should skeptically view predictions that the communications industry is sliding toward monopoly. Congress wisely broke down competitive barriers 20 years ago, and consumers are finally seeing the benefits. Yes, U.S. competition authorities need to analyze major media deals for potential anticompetitive conduct. But data, not talking points, should determine policy.
Article by Brent Skorup Inside Sources