CNN should be sold, but not for Trump’s rea­sons

Los Angeles Times - - BUSINESS - MICHAEL HILTZIK

Given the hand-wring­ing over the Trump ad­min­is­tra­tion’s re­ported de­mand that AT&T divest CNN as a con­di­tion of ap­prov­ing its $85-bil­lion ac­qui­si­tion of Time Warner, CNN’s par­ent, you’d think that Trump was in­ter­fer­ing in a merger that could only do good things for the pub­lic in­ter­est.

But that’s wrong. It has been crys­tal clear since the deal was an­nounced about a year ago that the gov­ern­ment should block the pro­posed merger. Forc­ing AT&T to sell CNN would be a pos­i­tive step in avert­ing all the ills that will em­anate from the merger, but only a mod­est step. The com­pa­nies shouldn’t be al­lowed to com­bine at all.

Trump’s rhetoric about the deal, which dates from his pres­i­den­tial cam­paign, has mud­dled the is­sues — and may even have in­creased the chances that the deal will go through with all its neg­a­tive as­pects in­tact. His ad­min­is­tra­tion’s al­leged de­mand, de­liv­ered via Jus­tice De­part­ment an­titrust chief Makan Del­rahim, that AT&T sell off the Turner Broad­cast­ing por­tion of Time Warner, and specif­i­cally CNN, has been taken as an ar­ti­fact of Trump’s war with CNN over its re­port­ing on his ad­min­is­tra­tion.

True, Trump whines about any news or­ga­ni­za­tion that re­ports on him neg­a­tively, but he seems to re­serve the great­est venom for CNN — who can for­get the video he posted on Twit­ter in July of him sup­pos­edly beat­ing up on a fig­ure with a CNN logo for its head at a wrestling event?

“The Trump ef­fect is over­shad­ow­ing the un­der­ly­ing is­sues with this deal,” says John Bergmayer, se­nior coun­sel for the con­sumer ad­vo­cacy group Pub­lic Knowl­edge. “We wel­come peo­ple look­ing into the is­sues of po­lit­i­cal in­flu­ence over an­titrust de­ci­sion­mak­ing, but this is still a deal that should be an­a­lyzed on its own mer­its.”

Pub­lic Knowl­edge even joined with a clutch of tea party and other con­ser­va­tive groups to urge Atty. Gen. Jeff Ses­sions to block the deal un­less its harm­ful as­pects can be pre­vented, an un­likely prospect. “Al­low­ing th­ese firms to join forces,” the groups as­serted in an Oct. 26 let­ter to Ses­sions, “would in­tol­er­a­bly limit con­sumers’ con­trol over what they watch and where they get their in­for­ma­tion.”

Let’s look at the un­der­ly­ing is­sues, and then at how Trump has com­pli­cated mat­ters.

AT&T is the na­tion’s largest provider of pay TV (af­ter its 2015 ac­qui­si­tion of DirecTV), as well as its sec­ond-largest wire­less com­pany and third-largest broadband in­ter­net provider. Time Warner is one of the na­tion’s largest con­tent com­pa­nies, the owner of CNN, HBO, Warner Bros. and the ca­ble chan­nels TNT, TBS, Car­toon Net­work and Turner Clas­sic Movies, among nu­mer­ous other en­ter­tain­ment and news of­fer­ings.

In an­titrust jar­gon, the deal would be a “ver­ti­cal” merger, bring­ing to­gether busi­ness at dif­fer­ent lev­els of a given in­dus­try, rather than a “hor­i­zon­tal” merger, which ap­plies to deals that bring to­gether two largely iden­ti­cal busi­nesses — two ca­ble firms merg­ing, for ex­am­ple.

Nor­mally, ver­ti­cal merg­ers are treated as less an­ti­com­pet­i­tive than their hor­i­zon­tal cousins be­cause they don’t elim­i­nate a com­peti­tor from the mar­ket­place. But merg­ers of dis­trib­u­tors of in­for­ma­tion and en­ter­tain­ment con­tent with cre­ators of that con­tent raise spe­cial con­cerns. The dan­ger is that AT&T, which owns the in­ter­net pipe­line into an ever-in­creas­ing share of Amer­i­can homes, could use that power to steer its in­ter­net cus­tomers to its own con­tent and de­grade or block com­pet­ing ma­te­rial.

Kept sep­a­rate, con­tent dis­tri­bu­tion com­pa­nies such as AT&T and Direc­tTV have an in­cen­tive to of­fer their sub­scribers the best pos­si­ble TV pack­age. Con­tent com­pa­nies just want to cre­ate ma­te­rial that will at­tract the largest num­ber of view­ers. Put them to­gether and their busi­ness in­cen­tives change dras­ti­cally.

The new AT&T “might not want to give too good a deal to Dish Net­work (a satel­lite com­peti­tor of DirecTV), be­cause it wants peo­ple to be­come DirecTV cus­tomers,” Bergmayer ar­gues. “There’s not even a ques­tion about whether AT&T’s TV pack­ages are go­ing to carry Time Warner pro­gram­ming, be­cause of course they are. But that may be at the ex­pense of view­ers or com­pet­ing pro­gram­mers that might have some­thing bet­ter but aren’t even go­ing to be con­sid­ered.”

Up to now, Fed­eral Com­mu­ni­ca­tions Com­mis­sion rules pro­mot­ing net­work neu­tral­ity tended to act against such be­hav­ior by man­dat­ing that in­ter­net ser­vice providers give all con­tent equal ac­cess to the cus­tomer. But un­der Trump’s newly ap­pointed chair­man, Ajit Pai, the com­mis­sion is mov­ing to­ward scrap­ping net­work neu­tral­ity prin­ci­ples.

Un­der Pai, the FCC ceded ju­ris­dic­tion over the AT&T deal to the Jus­tice De­part­ment — even though the FCC main­tained over­sight over the merger of Com­cast and NBCUniver­sal in 2011, a smaller deal but one with the same ver­ti­cal struc­ture.

The prospect is that, if only AT&T com­plies with the Jus­tice De­part­ment’s lone po­lit­i­cally mo­ti­vated de­mand over CNN, the merger will be ap­proved. “Every cit­i­zen ought to be in­ter­ested in find­ing out if there’s been po­lit­i­cal pres­sure ap­plied,” says for­mer FCC Com­mis­sioner Michael Copps, now a se­nior ad­vi­sor to Com­mon Cause. “But that shouldn’t side­track us from the fact that this deal is bad for con­sumers, bad for competition, bad for in­no­va­tion, bad for the coun­try in gen­eral. It’s far too much power for any one com­pany to wield in a demo­cratic so­ci­ety. It ought to be un­ac­cept­able on its face.”

The usual so­lu­tion for po­ten­tial con­flicts in ver­ti­cal merg­ers has been to im­pose be­hav­ioral con­di­tions. That was the ap­proach that en­abled the FCC to wave through the Com­cast-NBCUniver­sal merger. The FCC or­dered the merged com­pany not to use its nearly na­tion­wide dis­tri­bu­tion foot­print to squeeze out ca­ble chan­nels or video ser­vices that com­peted with NBC’s chan­nels or Com­cast’s video stream­ing ser­vice.

That didn’t work. Con­tent providers have lodged fre­quent com­plaints about un­fair treat­ment. Bloomberg, for ex­am­ple, com­plained that Com­cast se­questered its news chan­nel in a hard-to-find ghetto on its ca­ble pro­gram­ming grid, re­duc­ing its view­er­ship. Bloomberg won its case be­fore the FCC, but only af­ter two years of lit­i­ga­tion.

The Santa Mon­ica-based Ten­nis Chan­nel also fought a long bat­tle to avoid be­ing iso­lated in what one might con­sider the nose­bleed sec­tion of Com­cast’s chan­nel lineup, os­ten­si­bly to pro­tect Com­cast’s own sports chan­nels, the Golf Chan­nel and Ver­sus (now the NBC Sports Net­work), from competition. The FCC’s en­force­ment staff agreed with the Ten­nis Chan­nel, but it lost its bat­tle in the courts.

One could ar­gue that the FCC fi­nally found a way to pun­ish Com­cast for its mis­be­hav­ior when it ef­fec­tively killed the com­pany’s pro­posed merger with Time Warner Ca­ble last year. (Time Warner Ca­ble isn’t af­fil­i­ated any longer with AT&T’s quarry, Time Warner.) But that hap­pened only af­ter years of com­plaints about Com­cast’s be­hav­ior. Nor is the same ap­proach likely to work with AT&T.

On the sur­face, Trump’s ob­jec­tion to the AT&TTime Warner merger might ap­pear to have the same roots as con­sumer ad­vo­cates’ con­cerns. But the con­text of his po­si­tion state­ments gen­er­ally has been un­dif­fer­en­ti­ated anti-me­dia di­a­tribes. A few weeks be­fore the 2016 elec­tion, for ex­am­ple, he lumped the AT&T deal to­gether with the own­er­ship of the Washington Post by Ama­zon founder Jeff Be­zos and the own­er­ship of NBC by Com­cast. “They’re try­ing des­per­ately to sup­press my vote and the voice of the Amer­i­can peo­ple,” he said. (An NBC pro­duc­tion, “Ac­cess Hol­ly­wood,” gen­er­ated the no­to­ri­ous tape that fea­tured Trump brag­ging about sex­u­ally as­sault­ing women.)

Trump’s es­tab­lished an­i­mos­ity to­ward CNN could give AT&T grounds to fight ad­min­is­tra­tion ef­forts to block its merger in court, as re­flect­ing po­lit­i­cal in­flu­ence. Iron­i­cally, AT&T was ru­mored months ago to be shop­ping CNN to other buy­ers in a post-merger slim­ming. The lat­est re­ports forced AT&T Chief Ex­ec­u­tive Ran­dall Stephen­son to dis­avow any such ef­forts.

“It’s im­por­tant to set the record straight,” Stephen­son said in a writ­ten state­ment is­sued in re­sponse to re­ports of the Jus­tice De­part­ment’s po­si­tion on CNN. “Through­out this process, I have never of­fered to sell CNN and have no in­ten­tion of do­ing so.” Stephen­son’s state­ment may be taken as a sig­nal that AT&T won’t ca­pit­u­late to po­lit­i­cal pres­sure, but its re­fusal to sell CNN could end up be­ing the wrong thing done for the right rea­son. AT&T shouldn’t own CNN — and it shouldn’t own any of Time Warner’s other con­tent ei­ther.

Dar­ren Hauck Getty Images

PRES­I­DENT TRUMP’S al­leged de­mand that CNN be sold as a con­di­tion of the AT&T-Time Warner deal has been taken as an ar­ti­fact of Trump’s war with CNN over its re­port­ing on his ad­min­is­tra­tion.

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