July 2011

Christine Varney ticked off a list of her accomplishments in her last speech as assistant attorney general of the antitrust division at the Justice Department during an event at the Center for American Progress.

Varney presided over reviews of Comcast’s purchase of NBC Universal, Google’s purchase of ITA software and the merger between Live Nation and Ticketmaster. Although she declined to comment on ongoing investigations, when Varney was asked about how her departure might affect the investigation into the proposed AT&T and T-Mobile merger, she said, “I think that we have a terrific team in place that’s very diligent, doing a great job and I don't foresee any change in their ability to conduct the review.” Varney noted that her division often charted a middle ground between blocking mergers outright and not doing anything. Instead, in several instances, Varney’s office allowed companies to merge but only after they agreed to a variety of provisions to ensure fair competition. She pointed to her office’s handling of Comcast’s purchase of NBC Universal as a highlight of her tenure. Varney said that the deal between the two media giants would have allowed Comcast “to limit competition by either withholding or raising the price of NBC [Universal] content and effectively stifling new competition in the online video market.” After making it clear to the companies that her office was prepared to take the issue to court, Varney said that Comcast and NBC agreed to a consent decree that preserved competition.

She called for Congress to re-examine the nation's merger review process, in which two agencies share overlapping authority for policing corporate deals. In her most outspoken comments on the issue to date, Christine Varney expressed concern that antitrust regulators at the Justice Department and the Federal Trade Commission may have "substantively different legal standards" when blocking mergers as anticompetitive. "I don't think we want to foster a system where ... the legal review, the result of your merger, depends on which agency it's in front of," said Varney. "I would recommend to the Congress that they start to think about how to rationalize that."

Netflix announced changes to its service plans with a move that effectively unbundles its unlimited streaming plan from its DVD-by-mail service. The new service plans are designed to give users the choice between streaming or DVDs at $7.99 each. As a result, the company is doing away with the “discount” that had come with subscribing to both services. While previously its streaming-plus-DVD plan cost $9.99, it will now cost $15.98, or the price of both services combined.

Why did Netflix make the change? Ultimately it comes down to money, as Netflix VP of Marketing Jessie Becker acknowledged in the company’s blog post. “Given the long life we think DVDs by mail will have, treating DVDs as a $2 add on to our unlimited streaming plan neither makes great financial sense nor satisfies people who just want DVDs,” she wrote. But there’s another reason why Netflix is making this change: By forcing subscribers to choose, it’s likely betting that most will go streaming-only, thereby lowering the infrastructure costs of supporting them. The real cost of its streaming service isn’t defined by video storage, delivery or other infrastructure, but in the acquisition costs that come with it. That gives Netflix the ability to better manage its costs as it decides which content to invest in. From an investor standpoint, splitting up Netflix’s operations more clearly into streaming and DVD-by-mail services could also give further transparency into its business. Doing so would enable it to break out operational costs from its DVD and streaming units, something that it has been unable (or at least unwilling) to do so thus far. And finally, while Netflix weens subscribers off the combined plan and onto either a DVD- or streaming-only plan, there’s a side benefit to breaking up its plans and effectively raising rates for those who subscribe to both: In the short term, at least, we’re likely to see those who subscribe to both plans effectively subsidizing content acquisition costs for its streaming-only plan — except they’ll be doing so at a higher rate ($7.99 versus $2 a month) and with more transparency.

[Commentary] Big news from Russia : RBK Daily, a respected Russian news agency, reports (in Russian) that the Russian government might soon be launching a "national search engine".

According to RBK's anonymous sources inside Kremlin, it would aim at satisfying "state-oriented" needs such as "facilitating access to safe information" and "filtering web-sites that feature banned content." It's going to be an ambitious project: the government is prepared to invest $100 million in this new venture, does not want to allow any foreign funding, and intends to build it in cooperation with the private sector.

In the web industry, imitation is much more than a sincere form of flattery. It's an admission of another's success, and an effort to catch up to the industry leader in hopes of surpassing them.

In social media, Facebook has been the leader everyone imitates for several years. Google tried a few times and came up short. But this month, that changed: Google+ is a formidable social media platform that matches Facebook in many ways and surpasses it in others, like realtime group video chat. Facebook quickly responded with its own video chat service, but couldn't match Google's. This back and forth is likely to continue for some time. A decade ago, Google and Yahoo entered into a similarly intense competition over search. Google eventually won, of course, but anyone using search engines since then has also benefited because that competition advanced search technology very quickly. Web users may benefit from a Facebook-Google rivalry, but for a different reason: The best way for these companies to differentiate their social media offerings is by preserving personal privacy.