Idrees Abbas/SOPA Images/Sipa USA via AP
The New York magazine story about “Lina Khan’s rough year” was one of the most inaptly timed media profiles in recent memory. Almost immediately after publication of a story asserting that aggressive antitrust enforcement was a failure, the Federal Trade Commission announced win after win.
In the span of a couple of weeks in December, the FTC forced health care company Illumina’s divestment of cancer test maker Grail (after getting a favorable ruling in the notoriously conservative Fifth Circuit), announced merger guidelines to reshape when the government will challenge monopolization attempts, banned Rite Aid from using flawed facial recognition technology that falsely tagged women and people of color as shoplifters, blocked a hospital merger in Northern California, and won a district court case to stop a merger by health information company IQVIA. Two of those are court victories, which were allegedly impossible for a purported ideologue like Khan.
The clearest proof of success for Khan and her colleagues’ project is the effect on corporate America as a whole. After U.S. antitrust agencies filed 50 enforcement actions in 2022, the highest number in decades, companies got the message. Globally, mergers and acquisitions were at a ten-year low, and in the U.S., activity dropped by 6 percent, despite a late rush of deals that may be a bet on a more lenient Donald Trump presidency. Global private equity buyouts were even more moribund, down 30 percent. (Yes, what the government of the world’s largest market economy does matters globally, particularly for multinationals.)
Some of this was due to the higher cost of financing big deals. But the Biden administration’s posture on corporate consolidation is playing a major role. It’s likely to get more intense in 2024. As Josh Sisco ran down, we can expect major anti-monopolization lawsuits against Live Nation, Apple, and Visa, as well as potential challenges to UnitedHealth’s purchase of home-health company Amedisys, Kroger’s takeover of Albertsons, Roark Capital’s private equity buyout of Subway, Amazon’s rollup of iRobot, and several oil and gas mergers.
For my money, the real test case for the New Brandeis anti-monopoly movement will be seen in what until a couple of years ago was the only real sector of manufacturing dominance in the U.S.: the entertainment business. Missteps in realigning the marketplace, and the surge of worker power preventing executives from pushing those mistakes onto the backs of the talent, have caused a crisis in Hollywood, for which consolidation is increasingly seen as the cure. Will that go unchallenged? Will the studios think twice before teaming up? Or will they recognize the fault with their own business models, rather than trying to merge their way out of it with more market power?
THE FIRST SHOE DROPPED A COUPLE OF WEEKS AGO with news that Warner Bros. Discovery and Paramount had initiated merger talks. These two companies are poster children for studio failures in recent years.
The disastrous Time Warner merger with AT&T was unwound within just a few years, as vertical combination of broadband, satellite TV, and content creation just didn’t work. WarnerMedia then hitched up with Discovery, creating an alleged powerhouse streaming network that is faring just like all the other streaming networks, save incumbent Netflix. The four leading competitors—Comcast (Peacock), Disney (Disney+), Warner Bros. Discovery (Max), and Paramount (Paramount+)—lost $5 billion last year on the streaming bet, and that was before inking deals with the Writers Guild and Screen Actors Guild that enable writers and actors to actually get paid commensurate with their efforts on streaming programming.
After companies spent the GDP of small countries to gain audience share, the subscription-based model of algorithmically serving up a stew of individualized content has been, Netflix aside, a failure. Viewers are longing for communal experiences, and for something original; the superhero tentpole film crashed and burned in 2023, wounding the studios that previously rode them to fortunes. (One of those is Warner Bros., which controls the DC Comics cinematic universe.) The movie business in general has not rebounded from the pandemic, though quality is slowly bringing audiences back. A movie theater recession just magnifies the other problems.
Netflix has stood above the fray largely because of its international market penetration, which gives it room to add subscribers. The company’s successful crackdown on password sharing also helped, but that’s maxed out; it’s the foreign viewers driving growth. The rivals don’t have the money to acquire programming from around the world to attract those viewers. They (and Netflix) have tried to survive by repeatedly raising prices, hoping to get U.S. customers to pay for their miscalculations.
Paramount is in even worse shape. The company built its position through Viacom’s legacy cable channels, which were once attractive to advertisers. Today, scrolling through cable is like walking through a ghost town after an apocalypse; there is practically no original programming (most of that has migrated to the streamers), just endless zombie reruns of old TV shows and movies. MTV and Comedy Central, both Paramount/Viacom staples, are now essentially indistinguishable. This has caused cable advertising rates to crash, which strips even more money from cable for anything but reruns.
If the bundling option preserves competition without it being ruinous competition, the agencies could essentially force that solution on the market.
There’s been talk of selling Paramount for over a year now. The only willing buyers for cable networks are private equity firms seeking discounts, Bloomberg’s Lucas Shaw said on a year-end episode of The Business, a radio show about Hollywood. That makes sense: These networks have few assets of value other than what can be extracted. It puts Paramount in an impossible position.
But industry analysts have been begging for studios to essentially double down on their dubious strategy, to solve their problems with market share. If customers aren’t interested in what they’re selling, then by Jove they’ll force them to watch by removing options. That’s what a Paramount–Warner Bros. deal would attempt to accomplish, though all the existing problems would remain.
A tie-up could join together the Paramount+ and Max streaming networks, which would not be the only streaming consolidation. Hulu, which is owned by Disney, is going to be integrated into Disney+ in some form. Those two and Netflix would be the main competition in streaming; Amazon and Apple keep around their vanity streamers as deliberate loss leaders.
Alternatively, this could be the year that the studios recreate the cable bundle for streaming, offering multiple networks at one price. Among the struggling cable companies, Charter Communications worked a deal with Disney for carrying its programming over the air that bundled in Disney+ and ESPN+ for free. Paramount+ has been talking to Apple TV+ about a bundle of their networks. Verizon recently launched a Netflix/Max bundle.
The bundle would be a better deal for competition and content creators. A full-blown Paramount–Warner Bros. merger would give CNN and CBS the same corporate parent. It would reduce the number of companies vying for production talent, and reduce the number of decision-makers who determine what news, information, and entertainment we get to see. The bundle is the path back to a somewhat more viable industry, modeled on the former success of cable TV. The merging solution is just a plan to dominate through sheer size.
That’s where the antitrust agencies come in. They have the authority to make sure any deal is fair for consumers of entertainment and the industry’s workers. If the bundling option preserves competition without it being ruinous competition, the agencies could essentially force that solution on the market.
Warner Bros. cannot do deals until April 8, when a merger ban tied to a complicated business trust from the Discovery deal expires. At that point, there will be a choice to make. The FTC did pass up looking at Amazon and MGM, which reduced competition. What they do on a potential Paramount–Warner Bros. deal will be a good gauge of their aggression, and whether they can succeed in reshaping powerful industries.
What choices Hollywood makes will speak volumes as well. If there’s a real fear that the antitrust laws have been revived, the bundling option might look better. If there’s a belief that Trump will wipe out the New Brandeisians and make the world safe for consolidation again, maybe the deals get announced one by one.
