In a strange blast from the past, the Trump administration has rejected an uncontroversial vertical merger proposed by AT&T and Time Warner. Oh sure, it’s petty. It’s arbitrary and capricious. It’s economically unjustified. The principal players are right to object. Still, it’s nothing new. Antitrust has always been this way, from Standard Oil to Microsoft. It’s always been about power, not economics.
Vertical mergers haven’t been controversial in a long time. But this one is different, so far as the Trump administration is concerned. It’s a reminder of the old days when Washington was in freak-out mode about Hollywood’s “studio system” in which the producers of movies also owned the theaters. A 1948 intervention set the movies back two decades, which is why you can’t find too many good things to watch from the 1950s and 60s.
What drove the Hollywood decision? The independence and cultural power of Hollywood got on FDR’s nerves. That was combined with the annoyance of independent producers that they didn’t have as easy an access to the movie marketplace as they might want. It took time, but the kvetchers finally got their way and made a mess of a great industry.
AT&T and Time Warner
Vertical mergers haven’t been controversial in a long time. But this one is different, so far as the Trump administration is concerned. It might, just might, be because Time-Warner owns CNN. Trump despises CNN as a political enemy. There are even whispers that the merger will only be approved if Time agrees to offload the network and make it fend for itself.
The whole thing is preposterous because Time Warner is fighting for its life against upstarts like Amazon, Apple, and Netflix. AT&T has a similar problem. These two old-world companies – nay, dinosaurs – need to combine to crawl their way into the media future. Neither company possesses anything that could possibly be called “market power.” This merger is about survival. It wasn’t even controversial until the latest Justice Department move made it that way.
This has caused the speculation by one antitrust watcher:
If the Justice Department cannot cite persuasive antitrust grounds for blocking the AT&T-Time Warner merger, the public will be left wondering whether political motives were involved or that the department’s thinking was muddied by vague opposition to media consolidation.
If politics were involved, it’s hardly the first time that antitrust regulation was tainted by nefarious influences outside of the purely objective opinion of economists who imagine that they can magically both discern consumer interest and the future of industrial organization in a dynamic marketplace.
Let’s do some time travel.
Twenty years ago, antitrust authorities in government were super concerned about consumer access to Mr. Potato Head and Hollywood Barbie. An emerging monopolist called Toys ‘R’ Us was using tough tactics to become the exclusive distributor of these items that absolutely everyone wanted. Authorities leaned in and acted hard against the company, supposedly in defense of consumer rights against this behemoth.
The idea that today’s Toys ‘R’ Us could muscle anyone is preposterous. At the time, I wrote about the case. I recently re-read my article. I had to check to make sure it was all true. Sure enough. I hadn’t made this up. The US government forced Toys ‘R’ Us to carry Mr. Potato Head. The order from the government barred the company from “refusing to purchase toys and related products from a supplier because, in whole or in part, that supplier offered to sell or sold toys and related products to any toy discounter.”
Weird! The idea that today’s Toys ‘R’ Us could muscle anyone is preposterous. The company is barely alive. It has filed for bankruptcy. It is discounting products up to 50%. I just found Mr. Potato Head for $11.69. Who is the discounter now? As for Hollywood Barbie, it doesn’t seem to be for sale on the company’s website, but I can pick it up from Amazon for $14.88.
Or consider the Microsoft frenzy that lasted from 1992 to 1999. Young people would never believe what it was about. There was this browser called Internet Explorer, and other companies were annoyed that Microsoft was giving it away (as people do) rather than selling it (can you imagine?), and this was considered to be unfair competition.
Antitrust is a regulatory tool to enable some companies to beat up on other companies without having to compete in the free market. So the government hectored the company to separate its operating system from its browser to make room for upstarts. But by the time the judgement came down, there were dozens of competitive browsers out there, and the Microsoft operating system itself (Windows) faced enormous competition from iOS, Linux, and then, weirdly, browsers themselves became operating systems (Chrome).
The point is that the government looks rather silly in retrospect. As it always does in antitrust cases. So let’s be clear what antitrust really is: a regulatory tool to enable some companies to beat up on other companies without having to compete in the free market. What you find in every case is a mix of motives: pressure group politics and a pretense of industrial planning.
That’s precisely what is going on with the AT&T and Time Warner case. Anyone looking at media today knows that both these companies are threatened with extinction. Only a mind stuck in the mid-1990s could possibly believe that television and the remnants of the old telephone system could be the future. Or maybe they can be if they are given another chance. The Trump administration – ostensibly dedicated to deregulation – wants to prevent that.
And you know what’s most interesting here? A defeat of the merger will benefit Amazon and Jeff Bezos most of all – which means more power to the Washington Post. Trump just cannot win this one, nor should he be allowed to. The future cannot and will not be stopped by bureaucrats.