How the Department of Justice, Federal Trade Commission and Federal Communications Commission Regulate Media Company Acquisitions
How the Department of Justice, Federal Trade Commission and
Federal Communications Commission Regulate Media Company Acquisitions
Regulating concentration of control in the mass media and related technology companies is a never-ending chore for the Department of Justice (DOJ), the Federal Trade Commission (FTC) and the Federal Communications Commission (FCC). This is the first of a two-part discussion of the regulation of media ownership. It will deal with the way in which the three agencies deal with proposed acquisition of media properties. (This blog previously visited this question here.) The second part will address the FCC’s specific rules establishing limits on how many broadcast properties one owner can control and the ongoing (and seemingly endless) litigation surrounding those rules.
Department of Justice and Federal Trade Commission
The DOJ and FTC share antitrust jurisdiction to review all acquisitions or mergers involving companies engaged in interstate commerce. (The term “merger” is loosely used to refer to transactions in which two companies become one. However, true mergers are rare; in most cases, these deals are actually acquisitions in which one company buys another.) While media and technology companies are a relatively small part of the total economy, they are sufficiently important that the DOJ’s Antitrust Division has special sections specifically devoted to these industries.
Although the DOJ and FTC share jurisdiction, they have a “Memorandum of Understanding” which is used to determine which of the two will review any particular transaction. Under this arrangement, the DOJ handles most media and telecommunications transactions, and the FTC considers many deals involving companies that create and distribute media content.
While the scope of coverage of the antitrust laws broadly reaches all sectors of the economy, the review of any particular transaction under them is limited to purely economic considerations. For example, with respect to broadcasting, DOJ (which typically handles such cases) has determined that the only relevant market for purposes of antitrust law is the market for local TV or radio advertising. Thus, while the DOJ does, on occasion, require divestiture of one or two stations in large broadcasting deals, as it did just recently when Gray Television sought to acquire TV stations owned by Schurz Communications, it is because owning more stations in the market would adversely affect advertisers and competing broadcasters.
Under the century-old Clayton Antitrust Act, the FTC and DOJ can seek to block a transaction if the deal might substantially lessen competition. This poses a substantial hurdle, and, given the agencies’ limited resources, they choose to take on only the most egregious cases. Because the antitrust parties do not need permission from the DOJ or FTC to proceed, and it is very difficult to “unscramble the omelet” once a transaction is consummated, for many years merging parties rushed to complete their deals before the agencies could complete their investigation. In 1976, to assure a more orderly process, Congress enacted the Hart-Scott-Rodino Antitrust Improvements Act, which establishes a waiting period before parties can complete major transactions while the DOJ or FTC decide whether to mount a challenge.
In the relatively rare situation where the DOJ or FTC finds a basis to bring an enforcement proceeding, the threat that a court could enjoin a transaction often impels the parties to negotiate a deal. In theory, absent an injunction, the parties are free to proceed, but in practice, if there is no settlement, the parties often throw in the towel.
Federal Communications Commission Regulation of Media Companies’ Acquisition and Sale
The FCC’s consideration of media ownership is quite different. Unlike the DOJ and FTC, the FCC’s jurisdiction is limited to companies which hold FCC licenses, i.e., traditional broadcasters, cable operators and satellite radio and TV broadcasters, traditional “wireline” telephone companies and wireless carriers. Where the FCC does have a role, its mandate is much broader than that of the DOJ and FTC. With respect to mergers and acquisitions, parties seeking to acquire licensed companies, must seek the FCC’s affirmative consent. Significantly, when they do so, the scope of review is extremely broad; they must demonstrate that grant of their applications is in the public interest. While the impact on competition is a major element in the FCC’s application of this public interest standard, the FCC also considers other factors that go far beyond what the antitrust laws would cover, most notably localism and diversity. This allows the FCC to consider the impact of a transaction on important First Amendment values. In particular, the FCC has long held that it can further the goals of the First Amendment by creating a robust debate about issues and ideas in society. Thus, in evaluating media ownership, it looks to factors such as the number of independently-owned voices there may be in a market and the impact of a transaction on the number of minorities and women who may be able to own media properties.
In conducting its review of proposed media transactions, the FCC often finds that where a transaction has potentially adverse implications, it will approve it only if the purchaser agrees to remedial conditions. For example, among the many conditions to the FCC’s approval of Comcast’s acquisition of NBC Universal in 2011, it required Comcast to comply with newly-adopted Network Neutrality requirements for five years whether or not such rules were invalidated in Court. (Indeed, in 2014, a federal appeals court did overturn the FCC’s rules.)
Not surprisingly, when the FCC membership is controlled by Democrats, the FCC is generally more aggressive in policing media ownership. Thus, while the Commission allowed the Comcast/NBCU transaction to go forward with significant conditions, it did (along with DOJ) begin proceedings to block force AT&T’s acquisition of T-Mobile in 2011 and Comcast’s attempt to buy Time Warner Cable last year. (This led the companies to withdraw their applications.) In addition, after FCC Chairman Tom Wheeler made plain that he would oppose a bid from Sprint to buy T-Mobile last year, the parties gave up the effort without even filing an application. While the Wheeler-led FCC did allow AT&T to purchase DirecTV recently, its approval came with stiff conditions.
Industries within the FCC’s jurisdiction and their Congressional supporters frequently object to the fact that they are subject to two different enforcement schemes. They argue that the antitrust laws provide sufficient protection for the public and that the FCC’s review of media transactions is burdensome and duplicative, and thus should be repealed or circumscribed. However, given the important impact of these companies on the diversity of voices in the media, the pace of broadband deployment and the evolution of digital technologies, it seems unlikely that the FCC’s role will be limited in the foreseeable future.