Fox-disney deal sails through
The Department of Justice spent nearly two years investigating AT&T’S acquisition of Time Warner and bringing an ultimately unsuccessful lawsuit against the deal that involved two companies not directly in competition with one another. So it was stunning when the department announced last week — just six months after the deal was announced — that it had approved Disney’s $71 billion purchase of the entertainment assets of 21st Century Fox, one of Disney’s top rivals.
The approval of the Disney-fox transaction took about half the time that regulators usually need to evaluate deals of this size. And the Justice Department’s Antitrust Division attached only one requirement — that the companies divest 22 regional sports networks. Government officials appear unconcerned that the combined Disney-fox will account for about half of the box office revenue nationally this year and about 30 percent of scripted TV programming, according to the Writers Guild of America West, a Hollywood labor union.
The Trump administration has denied that politics plays a role in its antitrust enforcement decisions. But it’s hard not to be skeptical of the possible motivations behind the Justice Department’s approach to these deals.
After all, President Donald Trump and his aides have publicly criticized the AT&TTime Warner deal — the president said in November that it’s “not good for the country.” And he regularly lambastes CNN, the news network owned by Time Warner.
But he’s all praise when it comes to 21st Century Fox and its executive chairman, Rupert Murdoch. In December, the White House press secretary, Sarah Huckabee Sanders, told reporters that the president congratulated Murdoch on the impending Disney deal. In addition, Trump praises Fox News and its hosts every chance he gets — and they regularly return the favor. While Disney will not acquire Fox News or the Fox network and stations as part of this deal, the acquisition will make the Murdoch family the largest individual shareholders in Disney, increasing their wealth by billions of dollars.
The Justice Department’s antitrust chief, Makan Delrahim, will surely argue that the president’s feelings about CNN and Fox News have no bearing on his decisions. But it is mystifying why Delrahim took such a hard line against AT&T-TIME Warner, which legal experts argued would be a difficult case to bring because of the nature of the merger, while going so easy on Disney-fox.
By acquiring Time Warner, AT&T was seeking to buy a supplier — a classic vertical integration move that is hard to challenge because it involves businesses in different parts of an industry. In recent decades, judges have typically concluded that such combinations generate efficiency gains that more than offset any harm they might cause to consumers. That’s why regulators have tended to approve these deals as long as the merging companies agree not to take unfair advantage of their market power.
By comparison, antitrust regulators and judges are usually much more dubious of horizontal deals like Disney-fox. In these cases, it’s much easier to show that the combined company would have the power to raise prices and limit choices. In the movie business, for example, Disney already wields considerable clout — its studios accounted for more than a third of box office sales in the first five months of the year. The additional 15 percent share of box office sales that the company will gain through this deal no doubt will increase Disney’s clout when it negotiates with movie-theater chains. For instance, the company might be able to demand top billing for its movies and a bigger share of revenue than smaller studios get. According to a handful of theater owners who talked to The Wall Street Journal last year, Disney has already engaged in such tactics, forcing them to accept more onerous terms if they wanted to show its blockbuster “Star Wars: The Last Jedi.”
Delrahim told The New York Times in the fall, “All enforcement decisions will be based on the facts and the law. Not on politics.” It is becoming harder and harder to believe that.