Someone sent me the headline about the flurry of House antitrust bills last Friday and said, “Story of the week?” That’s close. It was a big, important move, but it finished just shy from being “actual” news since it hasn’t passed the Senate yet. (And most bills go to die there.)
But then someone else sent me the huge FTC news this week. And that made “antitrust” the story of the week.
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Most Important Story of the Week – More Evidence that Antitrust Enforcement is Back on the Business Agenda
We write a lot about forecasting on this website. Because that’s what executives do every day. They make a guess about the future, then make decisions about their company’s strategy to take advantage of that future.
(Well, ideally, I should say. Some executives simply go to meetings all day, reply to emails, and make decisions haphazardly. They don’t ever take the time to plan for the future.)
The toughest predictions are often the most strategic. Like trying to predict epic shifts in the business, cultural or economic landscape. Think of historical or seismic trends without precedence. As I’ve been exploring for a while (links here, here, or here), the potential reversal in antitrust enforcement in the United States from lax/permissive to strict/restrictive could represent a similarly large historical shift.
Starting in the 1980s, the U.S. (and maybe the world) underwent a shift from broad antitrust enforcement to a focus almost solely on “consumer welfare” as indicated by one factor: prices. As a result, antitrust enforcers—like the FTC or DoJ—simply approved nearly every merger or acquisition, justified it on proposed economic efficiencies, and then ignored whether prices went down or not. This led to consolidation across multiple, multiple industries, including entertainment.
(The only twist was that “conglomeration” fell out of favor. So multiple firms consolidating in one industry? Fine. One firm owning multiple businesses in multiple industries? Bad.)
Has that merger trend hit its peak though?
This isn’t a crazy thought. In the history of business in America, consolidations and breakups have alternated. Historically, companies have moved through waves of mergers (the early 1900s, 1980s to present), then waves of breakups or divestments (1930s through 1960s, 1990s for conglomerates).
If consolidation ends, or even reverses, the ramifications for the entertainment industry are massive. Just as they were in the 1990s for the firms who saw they could consolidate early (think Disney in the late 90s buying ABC, or Viacom rolling up quite a few firms and Comcast buying Universal and so on). Those leaders saw the trends allowing consolidations and took advantage. That was a smart strategy from a business perspective. Now, if breakups are coming, the firms that can see this early and take advantage will be equally well-positioned strategically.
You might be forgiven if you’ve missed the signs of this coming trend (if it is indeed coming). If you simply read the trades after a big merger, the speculation is always on, “What deal is next?”
(Again, as I’ve written a bunch, this overstates the surge in merger activities, which is more like a steady drum beat.)
You’ll also be forgiven by me if you’re still skeptical that anything is changing. When in doubt, believe in the underlying trend lines, right? And those all point to more mergers. Comcast bought NBC Universal, Disney bought Fox, WB bought Discovery and Amazon bought MGM. It’s no secret I think consolidated industries make for stagnant economies; is this wish fulfillment on my part?
I’d agree, except that the trickle of antitrust rumors of 2020 swelled into a flood of action recently. Here’s just a smattering of headlines from June:
For those keeping track, this is an issue that is bipartisan, being tackled by companies, politicians and attorneys general, and driven by both the state and federal governments. Top it off with this news, the biggest of all:
Lina Khan wrote a fairly influential legal paper of the 2010s on Amazon’s antitrust problems. She reported on the issue for Time Magazine, then worked at the FTC for the most anti-consolidation commissioner this decade, and then wrote the House subcommittee report on antitrust last year. And now she sets the agenda for one of the single biggest regulators of the economy in America. That’s a big deal.
Potential Ramifications
The Federal Trade Commission has statutory authority to approve mergers. And Khan thinks Amazon, Google, Apple and Facebook have too much power already. Probably Comcast, Netflix and Disney too. So do we think she’ll let a Big Tech firm buy a Large Entertainment conglomerate? Frankly, I don’t see it.
That doesn’t mean it can’t happen, but the deals will be much riskier. The FTC will likely try to fight any major Big Tech acquisitions, increasing the odds that deals don’t close and that they will take years to close. Moreover, any deal will see extensive document reviews and discovery, which some Big Tech companies may prefer to avoid.
The challenge will be the courts. Essentially, despite all these antitrust laws, a single judge in D.C. gets to decide which mergers are anti-competitive and which aren’t. (Basically, a handful of judges in the DC circuit decide the outcome of antitrust cases.) So with all this movement, the courts could essentially keep mergers alive and well.
As for smaller firms, I don’t see this impacting them from merging. (More on these definitions in a future article.) The ire of antitrust advocates is focused firmly on Big Tech, with Big Pharma/Health next up. (And maybe Big Cable/Cellular.) Given that a Lionsgate or ViacomCBS can emphasize they won’t survive without merging, they have a better case and could escape the same scrutiny.
Long term, could breakups be on the horizon? For Big Tech, I think it’s much more likely than it was a year ago. This is something Lina Khan could put on the FTC agenda, though it would take years to come to fruition.
For Large Entertainment? Much tougher to say. The more likely outcome would be to discourage vertical integration across different windows, but I doubt that is on the FTC’s agenda yet. (And the FCC does not show any signs of movement.) And it’s one thing to argue against future mergers; it’s much tougher to argue for proactive breakups. But honestly, with this much movement, anything is on the table.
If nothing else, the regulatory landscape is uncertain, more uncertain than anytime in the last few years. Which should be fun for strategists!
Other Contenders for Most Important Story
Theaters Have Had a Mixed Few Weeks…Which Could Be a Good Sign?
You want to know the best irrational argument for why theaters are back? We all spent the week debating why one film “underperformed” expectations. Welcome back to the cinema, America!
In a way, the headlines of the last few weeks tell the story:
Unfortunately, the box office is still firmly depressed compared to the non-Covid times. That’s what happens when two horror//thriller sequels are the biggest “tent poles” of the last few weeks. Indeed, A Quiet Place Part II set “Covid” records with a $57 million opening long weekend, but that’s a far cry from the $100 million domestic openings that used to set records.
Most theaters are back across America, as most of the company has reopened. But not all. The biggest hindrance to coming back is probably theater chains that never reopened. (Think the Arclight or Pacific theaters as just one example.)
This will actually help the incumbents like AMC, Cinemark and Regal in the interim. Fewer theaters mean higher revenue per screen in those that remain for the tentpole films. As for those tentpoles, for the summer at least, most of them will have some sort of compromised window, meaning judging total box office hauls will be difficult and with a higher variance than usual. Expect every film that underperforms to blame the PVOD or SVOD releases on the streaming platforms. (As In The Heights is already showing.)
The blockbusters are still key, though. In some ways, going to movies is a habit folks need to rebuild. If Fast 9 into Black Widow can reinspire that habit, all theaters may benefit, even with reduced windows.
Globally, Europe is looking brighter, but China’s prospects are subtly dimming. Not because of Covid, in the latter’s case, but simply because Chinese filmgoers are increasingly turning to local fare, as global politics make it trickier and trickier to navigate.
Broadway Will Reopen…in September
Premiering on Broadway this September: Broadway! That seems far away, but getting casts back, doing rehearsals, staffing up, and ensuring that Covid has truly gone away will slow the return. (In Los Angeles, I’m already inundated with advertisements for Hamilton at the Pantages.) I don’t have a hot take on this one, but it’s good that more live events are returning to normal.
Disney+ Confirms Move to Wednesday Releases for Originals
If you ask most execs, they’ll say they determine their strategy by perusing the landscape, developing their options, and deciding on the best course of action. But you know what most of them secretly do? They ask, “What are our competitors doing?” and then they copy that. Sure, sure, they won’t say they’re doing that. But they do. All the time. (This makes two cynical takes on business execs in one article.)
That’s boring and a recipe for failure, right? Well, maybe not. You don’t get fired for doing what is industry standard, but you can for stepping out of line and failing. (Ask Jason Kilar about this…)
This is why I have a lot of praise for Disney when it comes to Disney+. They could have adopted the Netflix playbook whole hog. In particular, this would have meant releasing their series in binge mode to get eyeballs quickly. But that didn’t/doesn’t make sense for their product, content or brand. So they released their films weekly, and it’s gone very well.
Their latest change is to be the first streamer to step out of the “Release all product on Friday”-mindset. Pioneered by Netflix, it’s been copied by Prime Video, Hulu and Disney+ initially. (And more.) So bravo Disney to actually making strategy, not copying the biggest rival.
CNN Steaming Service is Coming
Despite the headlines, AT&T still owns WarnerMedia until their deal undergoes antitrust review by the Department of Justice. As such, John Stankey confirmed this week that a CNN streamer was indeed coming to America. As I speculated this week, I’m beyond eager to see how the new owners try to incorporate this new streamer into their plans. I’m skeptical that CNN is a must own streamer for most folks, but it also wouldn’t work inside HBO Max either, would it? Hence, I think a bundle is coming. To be determined.
Apple (Finally) Launches Podcast Subscriptions
After announcing podcast subscriptions, then releasing one of the most disastrous updates to an app in recent memory, Apple finally turned on podcast subscriptions. I haven’t updated my phone to see if they’ve fixed all their issues, but I remain convinced that Apple (and Spotify too) don’t understand how folks actually listen to podcasts. They want the same voices, day after day, and want to know if they’ve listened to an episode or not. Discovery is NOT an issue. This is more like newsletter subscriptions than YouTube videos.
M&A Updates – Verizon Sells Yahoo and AOL Business Units
One of my favorite narratives that show the giant cleavage in strategies in the streaming wars is between Big Tech—who sees content as a huge advantage to selling more—and Verizon/T-Mobile/AT&T—who sees content as a liability to be spun off.
Here’s a perfect story for that. A few weeks back—apologies, I missed it—Verizon announced they were selling Yahoo and AOL to private equity firm Apollo for $5 billion. Verizon, joining AT&T, is finding out that content deals help sell more cellular subscriptions, but you don’t need to own the content producer to take advantage of that. (Just don’t tell Big Tech.)
