1. Class 17 Antitrust, Winter, 2018 Vertical Mergers
11/11/2018
Class 17 Antitrust, Winter, Vertical Mergers
Randal C. Picker
James Parker Hall Distinguished Service Professor of Law
The Law School
The University of Chicago
Copyright © Randal C. Picker. All Rights Reserved.

2. The Great Vertical Merger of 2000: AOL/ Time Warner
11/11/2018
The Great Vertical Merger of 2000: AOL/ Time Warner
November 11, 2018

3. AOL/Time Warner Merger
“America Online, Inc. [NYSE:AOL] and Time Warner Inc. [NYSE:TWX] today announced a strategic merger of equals to create the world’s first fully integrated media and communications company for the Internet Century in an all-stock combination valued at $350 billion.”
Time Warner Press Release, Jan 10, 2000

4. November 11, 2018
AOL/TW Magazine Market

5. November 11, 2018
AOL/TW Movies Market

6. November 11, 2018
AOL/TW Music Market

7. November 11, 2018
AOL/TW Cable Channels

8. 11/11/2018
November 11, 2018
AOL/TW Internet

9. November 11, 2018
AOL/TW Cable Systems

10. November 11, 2018
FTC PR, Dec 14, 2000

11. FTC Approval: “Yes, but …”
“Under the terms of the order, AOL Time Warner would be: required to open its cable system to competitor ISPs; prohibited from interfering with content passed along the bandwidth contracted for by non-affiliated ISPs and from interfering with the ability of non-affiliated providers of interactive TV”
Federal Trade Commission Press Release, Dec 14, 2000

12. FTC Approval: “Yes, but …”
“services to interact with interactive signals, triggers or content that AOL Time Warner has agreed to carry; prevented from discriminating on the basis of affiliation in the transmission of content or from entering into exclusive arrangements with other cable companies with respect to ISP services or interactive TV services;”
Federal Trade Commission Press Release, Dec 14, 2000

13. FTC Approval: “Yes, but …”
“and required to market and offer AOL’s digital subscriber line (“DSL”) services to subscribers in Time Warner cable areas where affiliated cable broadband service is available in the same manner and at the same retail pricing as they do in those areas where affiliated cable broadband ISP service is not available.”
Federal Trade Commission Press Release, Dec 14, 2000

14. 11/11/2018
November 11, 2018
TW PR, Dec 10, 2009

15. 11/11/2018
Comcast - NBCU
November 11, 2018

16. Why Do This Deal
Press Release
Here
Deal Discussion
November 11, 2018

17. November 11, 2018
FCC PR, Jan 18, 2011

18. 11/11/2018
Access to JV Content
November 11, 2018
FCC PR, Jan 18, 2011

19. 11/11/2018
Access to JV Content
November 11, 2018
FCC PR, Jan 18, 2011

20. 11/11/2018
Digital Divide
November 11, 2018
FCC PR, Jan 18, 2011

21. 11/11/2018
Localism
November 11, 2018
FCC PR, Jan 18, 2011

22. 11/11/2018
Protecting Kids
November 11, 2018
FCC PR, Jan 18, 2011

23. Diversity and PEG Channels
November 11, 2018
FCC PR, Jan 18, 2011

24. Content Producers Content Aggregators
Networks, Independent Companies, Larry David, Tina Fey, Dick Wolf
Content Aggregators
Broadcast Networks
Cable Networks
Online Video Distributors (OVDs) (Amazon, Apple, Hulu, Netflix)
November 11, 2018

25. Content Aggregators Content Distribution
Broadcast Networks
Cable Networks
Online Video Distributors (OVDs) (Amazon, Apple, Hulu, Netflix)
Content Distribution
OTA Broadcast
MVPDs: Cable, DBS, Telcos
OVDs
November 11, 2018

26. GE
Vivendi
88%
12%
NBCU
Broadcast Licenses & such for NBC and Telemundo
Cable Channels (Bravo, MSNBC, etc.)
Universal Studios
November 11, 2018

27. Comcast Cable Distribution & Broadband Cable Channels (RSNs, E!, etc.)
Fancast (online distribution)
November 11, 2018

28. NBCU News Disney Private Hulu
32%
XX%
XX%
XX%
Hulu
November 11, 2018

29. GE New Joint Venture Comcast 49% 51% Cable Distribution & Broadband
Fancast (online distribution) GE
51%
49%
New Joint Venture
Cable Channels (RSNs, E!, etc.)
Broadcast Licenses & such for NBC and Telemundo
Cable Channels (Bravo, MSNBC, etc.)
Universal Studios
Hulu Shares
November 11, 2018

30. Deal Structure Now Deal GE buys out Vivendi
Joint venture between Comcast and GE with ownership interests and asset contributions mapped out above
Future buy/sell rights as well
November 11, 2018

31. Deal Structure Starting Questions
What do we think explains the joint venture? Why not an outright purchase by Comcast?
What are the horizontal antitrust issues raised by this structure?
November 11, 2018

32. Deal Structure Future Buy/Sell Rights
GE can’t sell position for 3.5 years, Comcast can’t sell for four years
Comcast has right to buy at fair market value any interest that GE wants to sell
November 11, 2018

33. Deal Structure Future Buy/Sell Rights
GE can put (force Comcast to buy) 50% of its interest after 3.5 years and the rest of its interest after 7 years
If GE puts after 3.5, Comcast can call (force GE to sell) the rest of GE’s interest at that time
November 11, 2018

34. Deal Structure Future Buy/Sell Rights
If GE doesn’t put after 3.5 years, Comcast can call 50% of GE’s interest 5 years out from original deal date and all of GE’s remaining interest after 8 years
What does this structure accomplish? Does it change the antitrust analysis?
November 11, 2018

35. Access to Content and Discrimination
Core Issue
Comcast will now control more content than it currently does (critically, NBC, but other networks as well, plus Universal)
How will the change in ownership of the content alter incentives to distribute it?
How would that alter competition?
November 11, 2018

36. Access to Content and Discrimination
Benefits to New Ownership?
Eliminate double marginalization?
November 11, 2018

37. Tunney Act Standard 15 U.S.C. 16(e)(1)
Before entering any consent judgment proposed by the United States under this section, the court shall determine that the entry of such judgment is in the public interest. For the purpose of such determination, the court shall consider—
November 11, 2018

38. Tunney Act Standard
(A) the competitive impact of such judgment, including termination of alleged violations, provisions for enforcement and modification, duration of relief sought, anticipated effects of alternative remedies actually considered, whether its terms are ambiguous, and
November 11, 2018

39. Tunney Act Standard
any other competitive considerations bearing upon the adequacy of such judgment that the court deems necessary to a determination of whether the consent judgment is in the public interest; and
November 11, 2018

40. Tunney Act Standard
(B) the impact of entry of such judgment upon competition in the relevant market or markets, upon the public generally and individuals alleging specific injury from the violations set forth in the complaint including consideration of the public benefit, if any, to be derived from a determination of the issues at trial.
November 11, 2018

41. Remedy Structure in Final Judgment
Key remedy is non-discrimination duties to deal
Option 1: Duty to license to OVDs at terms offered to MVPDs
Option 2: Look at terms for comparable content that OVDs are able to get from JV peers
Commercial arbitration backstop (FCC then DOJ)
November 11, 2018

42. Remedy Structure in Final Judgment
Conceptually
Think of the nondiscrimination obligations as a version of the most favored nations clauses that we saw at stake in the Apple ebook case
These are imposed as a remedy and not by the parties privately
November 11, 2018

43. Remedy Structure in Final Judgment
Hulu Separation
Not obligated to divest Hulu interest
But give up governance rights and blocked from internal Hulu information
Limits on content exclusives
Reasonable and customary exclusives allowed, others barred
November 11, 2018

44. Remedy Structure in Final Judgment
Internet Broadband Access and DOJ Version of Network Neutrality
Bars unreasonable discrimination in traffic but allows reasonable network management
Tries to control terms of usage-based plans
Implements transmission quality floor
November 11, 2018

45. Remedy Structure in Final Judgment
Seven Year Deal
Comparisons?
Aspen Skiing? Associated Press? Others?
November 11, 2018

46. 11/11/2018
November 11, 2018
DOJ Docket for Comcast

47. 11/11/2018
November 11, 2018
USA Today, Feb. 12, 2013