April 19, 2013 9:54 AM
In my earlier post
on Susan Crawford's Captive Audience, I concluded by noting that some of the most interesting questions raised by the book are not actually discussed, or even articulated. The questions raised all relate to how Professor Crawford explains that Comcast, as the dominant incumbent provider of subscription television service, has used (and, she predicts, will continue to use) sports programming to maintain its current market dominance in subscription TV, and possibly transfer some of this market power into Internet content. The Comcast/NBCU Merger
Crawford weaves together a compelling story about Comcast's past anticompetitive behavior toward competitive subscription video providers, like RCN and Verizon. Comcast's pre-NBCU exclusionary behavior was also predicated on vertical integration with regional sports networks (RSNs). The acquisition of the NBC broadcast network, she adds, will enable Comcast to purchase even more sports content in the future and extend its pattern of anticompetitive behavior. Therefore, she speculates that, with the addition of the NBCU cable channels Comcast will have other, non-sports tools with which to weaken, or exclude, video competitors.
This is where Professor Crawford leaves us, but is this it? Crawford expresses regret at the failures of the FCC and the Antitrust Division to protect consumers in the context of this merger. Her disappointment is understandable, but it is also crying over spilt milk.
For Professor Crawford, the only hope would be a regulatory re-write in order to separate content ownership from cable/broadband distribution. But, if RSNs are the source of Comcast's power over competition, then Comcast obtains this power as a result of an agreement
with the sports team or a league. Agreements that "unreasonably" restrain trade are always a violation of Section 1 of the Sherman Act
. Antitrust, Sports and Broadcast Television
All professional sports leagues get some limited antitrust exemptions to allow their teams to cooperate for reasons that are integral to producing their product. For example, Congress passed the Sports Broadcasting Act of 1961
to allow professional sports leagues to have antitrust immunity in negotiating television contracts with broadcast networks (not cable, satellite, or RS networks).
The motivation for this exemption was to allow the leagues to set what were considered commercially reasonable blackout policies in order to protect the live gate revenues of home teams. In order to protect the home teams' ability to continue to maximize ticket sales, the league believed that it had to prevent other individual teams from striking their own bargains with broadcasters that would allow other games to be broadcast in competition with the home teams' game.
What is interesting about the Sports Broadcasting Act is that, with respect to broadcasters, negotiating a "television contract" was not fraught with much competitive peril. No matter who won the broadcast rights, every television owner could still watch every broadcaster's channel. Would Congress have still passed this law if the exemption gave the league and the network owner the power to harm consumers or other networks?
This is the situation Crawford describes with Comcast and the RSNs. They make deals with teams or leagues for the "exclusive" rights to games--but not just the exclusive right to televise games to their customers on their systems. No, the RSN is buying an "exclusive" for an entire market area, and can therefore decide on what, if any, terms competitors and other incumbent cable operators will be able to distribute these games to their customers. Are the leagues using contracts with RSNs to restrain trade?
A Second Chance for the Government?
Yes, of course they are. This was the recent conclusion of a federal district court judge in Manhattan in ruling that allows class action plaintiffs to move forward to discovery on their antitrust complaints against the NHL, MLB, Comcast, DirecTV, and several RSNs. In a 53 page opinion
the court explains that plaintiffs' complaints make a "plausible" showing that the defendants have violated the antitrust laws through distribution agreements that amount to territorial market allocations that unreasonably restrain competition.
Restrain trade? moi
Note, however, that the counts in these complaints do not allege harm to competition and competitors, the harm on which Professor Crawford is focused. But this does not mean that these antitrust complaints cannot succeed, they just haven't been brought. In these two cases (joined as Laumann v. NHL, et al.
) the class action plaintiffs are consumers (viewers) of the NHL, MLB, and of Comcast. See plaintiff's complaint against MLB here
The plaintiffs contend that they have been harmed as the result of an elaborate territorial allocation scheme devised by MLB and the NHL, and enforced through agreements with the RSNs, who understand that none will attempt to compete outside of its specific service territory. These agreements prevent consumers from buying out-of-market games on anything less than an "all or nothing" basis, and the leagues have agreed to protect the RSNs from competition so that "in market" games are not available, either online or on any other cable/satellite channel, at any price.
Contrast these professional sports RSN agreements with the NCAA agreements, which--as a result of the NCAA's prior antitrust violations
--do not mandate exclusivity. Thus, if a local channel (like UHF channel 20 here in the DC area) buys the rights to broadcast Maryland Terrapins basketball games, their broadcast will still air even though the same game might also be purchased by a national network like ESPN.
While the plaintiffs in the Laumann
case have won the ability to move to discovery and a trial, they probably won't, because Comcast, the other RSNs, and the leagues have every incentive to write big checks to the plaintiffs in order to avoid the "NCAA" precedent. But, the success of these class action suits may well embolden other antitrust enforcers, like state attorneys general, or even the Department of Justice, to bring their own actions. So perhaps consumers can avoid much of the long-term "captivity" Professor Crawford predicts.
April 2, 2013 11:54 AM
A lot of people have written "reviews" of Susan Crawford's Captive Audience
, or, at least, pretended to on Amazon. But did they really read the whole book? I kind of doubt it. Just check the Amazon reviews
for this book--nothing but 4 and 5 stars and 1 and 2 stars (i.e
., just "homers" and "haters").
If I had to offer an explanation for the polarity of reviews, I would say it's because this book is really two books. One, the first 232 pages, is a well-done history of competition law/regulatory policy and a generally well-done attempt to give this history a modern context, using the 2010 merger of Comcast and NBC Universal. You may not agree with Ms. Crawford, but she does offer plenty to think about.
The "other" Captive Audience
, couldn't be more different, and shows especially poorly when contrasted with the scholarship that went into the bulk of the book. The last 2 chapters are only 37-38 pages total. Thirty pages were supposed to explain and analyze the wireless industry (technology, structure, and competition), the proposed AT&T/T-Mobile transaction, and municipal/government funded retail broadband, plus muni-funded "middle mile" wholesale transmission.
The remaining 7-8 pages are a spaghetti-style approach to a conclusion. The author offers up several unexplained policy prescriptions based on her casual observations about the "non-cable" parts of the Internet and hopes something will stick. In the interests of being a charitable critic, I'm going to ignore these last 2 chapters--if they weren't worth the author's time, they aren't worth ours. Overall: 3 stars (out of 5)
This book, or at least the first 86% of it, does a very thorough--and, at times, entertaining--job of explaining potential causes for concern resulting from a dominant provider of broadband distribution also owning at least some "must have" content. The exercise is not merely theoretical, as Ms. Crawford contends that Comcast is the dominant provider of residential broadband service throughout its service territory. A position that, she argues, will only be exacerbated and extended as the likely consequence of the combination of Comcast and NBC Universal, which was approved by the FCC in 2010 with paper weight conditions.
The two major concerns for consumers--and for society--Ms. Crawford explains, are that 1) ownership of content may raise the already-formidable barriers to entry in the broadband Internet access market--further cementing the incumbent's market power over the broadband "pipe" to the Internet, and 2) content ownership--particularly of "must have" programming, such as live local and national sporting events--will allow the integrated firm to frustrate rival content owners (by withholding access to the broadband firm's content, and (at least constructively) raising the cost to consumers of subscribing to a rival content owner.
The easiest way to avoid these potential problems, Ms. Crawford argues, is to separate broadband distribution (provision of Internet access service) from content ownership. If Captive Audience
has a consistent theme, this is it--structural separation of distribution and content. All in all, Ms. Crawford does a good job in providing the historical context of the antitrust laws, generally, as well as the regulatory history of this particular policy prescription as it would apply to the cable/broadband industry. Conflicted About Regulation?
It is notable that, while Ms. Crawford is frequently portrayed as a champion of regulation, her narrative of government behavior virtually throughout the existence of the cable industry, reflects frequent--if not consistent--disappointment with every level of government oversight. Specialized regulatory agencies, like the ICC and the FCC, are subject to even greater criticism. At times, it seems like the author is frustrated to the point of questioning whether effective regulation is even possible; hence, her "structural separation" solution.
Other times, Ms. Crawford simply makes excuses for her disappointment with the actions of the government. For example, when discussing the Antitrust Division's decision not to challenge the Comcast/NBCU merger, Ms. Crawford blames the Division's reticence on "conservative federal judges" who are regarded as unsympathetic to vertical merger theories.
Is it really acceptable for the Department of Justice to surrender its role as the enforcer of the antitrust laws just because the judiciary is skeptical of vertical theories of harm? If someone in the Division made this excuse--for not challenging a merger the Division honestly thought would harm the public--that person does not deserve to hold the public trust. Why doesn't the author express anything other than resigned disappointment? If, the public needs protection from Comcast--which Ms. Crawford seems to believe--then doesn't the public need faithful, courageous law enforcement as well?
* * *
I don't agree 100% with Ms. Crawford's analysis and conclusions, but you don't need to in order to get something out of this book, because the careful, and thorough, "prosecution" of the "Comcast case" will give you plenty to think about. While Captive Audience
generally succeeds in making the author's points, it also suffers from the fact that the reader knows--from the beginning--that the author is in pursuit of a specific conclusion. This awareness leaves the reader with the sense that a more complete discussion has been sacrificed for the sake of this conclusion. Thus, this reader was left with the feeling that the most interesting questions are those that go unasked. We'll look at some of these in an upcoming blog.
February 3, 2011 2:56 PM
[At first glance, this post may
seem untimely, but because the post is all about how decisions
appear, it really is more relevant than it may seem. Kind of zen, I know, but bear with me.]
I tried an interesting exercise recently. Rather than reacting to the FCC's order approving the Comcast-NBC Universal Joint Venture, I decided to watch how others reacted, and to consider the agency's perceived role as a regulator in the license transfer (merger) review process. With respect to this merger, many observers used the word "shakedown" to describe the FCC's "merger conditions" that were, ostensibly, designed to turn what the Commission itself found to be an anticompetitive merger into one that serves the "public interest."
One outraged blogger described the Commission's order approving the joint venture as "an unprecedented regulatory shakedown of a company that obviously would have done anything to gain [FCC] approval.
" Another observer compared the FCC's recent "net neutrality" order and the Comcast-NBCU order to someone who was "breaking bad"
(to use the title of an AMC series
about a high school chemistry teacher cum
meth wizard). Even a few Members of Congress called the conditions attached to the FCC approval a "shakedown.
These reactions really made me think . . . about whether any of these people had any sense of perspective. Is the Comcast-NBC Universal Order really an "unprecedented" example of a "regulatory shakedown?" It didn't sound right, so I decided to do some Internet searches to see if there was any way to tell if the FCC's order conditionally approving the Comcast-NBC Universal merger was indeed "unprecedented" or just business-as-usual.
So, I searched the words "FCC" and "shakedown" on both Bing and Google. (maybe I should have saved some time and just Binged those keywords, since, in the highest form of flattery, Bing apparently is pilfering Google search results.
The results? Well, interestingly enough, the Comcast-NBC Universal merger order was only one of many topics that had been classified as "FCC shakedowns" over the years. In other words, the FCC has a long history of being accused of engaging in regulatory "shakedowns." Here are a few examples, but the list could go on and on.
In 2006, Commissioner McDowell denounced the XM-Sirius merger conditions as a shakedown
. Over 10 years ago, then-House Telecommunications Subcommittee Chairman Billy Tauzin
decried the FCC's "shakedown, blackmailing, and greenmailing" of companies it regulates
. Another commenter
, also 10 years ago, posited that anytime Jesse Jackson
is involved in an FCC merger proceeding, the parties shake themselves down--apparently, in anticipation of a Commission shakedown. Over 15 years ago, Howard Stern
decried that a settlement/"fine" paid by the owner of the radio stations that broadcast his show was "the biggest shakedown in history
", because the broadcasting corporation could do no other business with the FCC without first paying the fine.
Interestingly, the same description--"shakedown"--had been used to describe the result
of the FCC's cooperation
when it approved Comcast's acquisition of the old "AT&T Broadband" (from when AT&T actually owned an incumbent cable company) in 2002. However, on that occasion, Comcast was considered the one doing the shaking-down
. Technically, the practice of regulated entities using the FCC to extract benefits from the public is referred to as "regulatory capture"--a practice of which the Commission also has a rich history
So now that we know that allegations of FCC "shakedowns" are not "unprecedented", but rather "typical", what's the lesson? Should we just dismiss these concerns with a quick glance in the rear-view mirror, and a snarky "gambling? at Rick's?"
No! I mean ideally
, no. In an ideal world, the agency is truly independent, and mergers are either "in the public interest"--as presented to the regulator--or not. But, let's face it--we aren't in ideal world. Therefore, we probably should
be a lot more cynical and a lot less shocked to learn there is gambling at Rick's.
Unfortunately, the fact is that the FCC asks for criticism when it resists a transparent process. However, unless, or until, the Commission wants to exercise some independence, it will be a political people-pleasing agency, and the political process is never transparent.
Agency independence is a prerequisite to transparent decision-making, which leads to confidence in the fairness of FCC decisions, which could lead to Congress feeling ignored, which leads Congress to seek out less independent Commissioners, which leads Commissioners to be more politically responsive, which puts a cover on transparency. In other words, the much-coveted "transparency" is not the equilibrium state for the Commission. Thus, the Commission cannot escape the accusations that its highest profile decisions are either the result of "shakedowns", "capture", or capture disguised as a shakedown. For most decisions, who's really to know?
As a practical matter, the only thing we can know is that, even if "voluntary conditions" to merger approvals are a shakedown, you can't always assume you know who's doing the shaking and who's doing the taking. "Shakedown Street" goes two ways. One party's "shakedown" victory may just be the "cost of capture" for another. Through all this, though, we have to remember that after all is said and done we shouldn't cry for the post-merger firm that agrees to the conditions. If the shakedown has a cost, then the cost will ultimately be paid by the consumer . . . or the shareholders of the firm that agreed to the conditions . . . or the public trust.
August 5, 2010 5:41 PM
No reason to even apologize about the fact that I haven't been blogging much recently (relative to my normal furious pace of about 1 every 10 days)--and I'm not apologizing. I could make a lot of excuses (and, believe me, I do!). But, hey, there just hasn't been a whole lot of FCC Policy to be blogging about. Don't take my word for it--even Harold Feld
says so--and he's a prodigious blogger. Blame Chairman Genachowski. My personal laziness is purely coincident.
However, I do have one slightly timely follow-up point on my last post on video competition. Earlier this week, Mr. "PIB" (Party in Back, in the mulletary sense of the term) made his appearance on the Comcast-NBC merger. How so?
Well, Congressman Rick Boucher, Chairman of the House Energy and Commerce Committee's Subcommittee on Communications, Technology, and the Internet concluded his investigation into the Comcast-NBC Universal merger and deemed it to be not a threat to competition. In fact, he sent letters to the Department of Justice's Antitrust Division and to the FCC, urging expeditious approval of the merger to "ensure continued consumer access to content."
Who could argue? After all, the antitrust and consumer protection laws were founded on the principle that the best way to ensure that consumers receive maximum access to a good or service was to let one company control as much of that market as possible. Or maybe that was the principle on which the Hudson's Bay Company, and the British East India Company were founded. Hmmm? One or the other . . .
Competition or mercantilism, toe-may-toe, toe-mah-toe . . . . No matter; the top dog on this subject matter at the House of Representatives told the reviewing agencies to fold up tent, conclude that the industry is competing like heck out there, approve the merger, and crack open a cold Bud Light! This is some serious political cover: the political version of "The Eagle Has Landed."
Of course, I could always be wrong, and the reviewing agencies could continue their own investigations, and make an independent assessment of how the merger will affect competition in the markets for video programming and video distribution. But . . . why would they bother? It's summertime and the livin' is easy.
Now, we just sit back and watch, listen and learn, as the story unfolds about the competitive irrelevance--nay, benefits--of vertical concentration in the subscription video market. But be careful out there, partner, with trying to make a general assumption about vertical integration in communications markets. Woe to anyone who makes that same mistake about vertical contracts between service providers and handset manufacturers in the mobile wireless market! The Party in Back is strictly for incumbent video providers and programmers . . .