DOJ’s rather outdated approach to defining and subdividing advertising markets was an issue in several recent high-profile investigations by the DOJ. Recent examples, which were discussed by AAG Delrahim in his speech, include the Nexstar acquisition of Media General and its broadcast television stations, Sinclair Broadcast Group's proposed acquisition of Tribune Media (which was abandoned by the parties after an investigation dragged on), and the DOJ's challenge to the AT&T/Time Warner merger. Although AAG Delrahim stood by the market definitions that the DOJ applied in those instances, he explained: "[W]e recognize that industries change. In order to ensure that we continue to update our analysis of media markets, we need to take into account the latest industry trends, the latest technological evidence and the latest economics." As AAG Delrahim pointed out, revisiting market definition is a normal part of antitrust enforcement as conducted by both Republican and Democratic administrations.
At the Public Workshop on Competition in Television and Digital Advertising, the AAG and DOJ staff heard from a series of industry witnesses that radio, broadcast television, cable, and online advertising markets are converging with extensive substitution occurring among them. For example, Christopher S. Ripley, CEO of the Sinclair Broadcasting Group, provided data on the 40-year trend of broadcast television losing audience share to cable or other alternatives. Meanwhile, most popular content on cable, including HBO, Showtime, Starz, and ESPN, are now available on Internet streaming services, while other popular content offerings, including the Time Warner channels, Disney, and Discovery channels, will be available by next year.
Most significantly, Mr. Ripley showed that digital advertising revenue has more than quadrupled since 2007 and now exceeds the combined revenues for broadcasting and cable channels. This reversal is especially pronounced for local ad revenue, where digital dominates, while cable and broadcasting are more competitive for national advertising. And according to an eMarketer report, digital ad spending is the fastest growing form of advertising: "Digital made up 36.7% of total media ad spending in 2016 and will account for around half by 2021." At the DOJ's workshop, other industry witnesses representing TV and radio broadcasting, cable, and social media services also described how their respective services were in competition with each other's platforms for advertising audiences and revenues.
Additional evidence regarding convergence and competition in radio, broadcast television, cable, and online advertising markets is contained in the Federal Communications Commission's
Communications Marketplace Report
(2018). The FCC's report recognized that "[b]roadcast stations compete with one another, as well as with cable networks and OVDs, for viewing audiences primarily on the basis of program popularity." It cited data from 2016 and 2017 indicating that local and national advertising revenues for Internet or online video services are growing while advertising revenues for broadcasting remain flat and have declined for cable and other multichannel video programming distributors (MVPDs). For instance, the Internet/online generated $33.9 billion or 41.7% of local advertising gross revenues in 2017, up from $28.3 or 35.4% in 2016. By contrast, broadcast TV and radio sectors grossed $12.2 billion or 15% and $10.4 billion 12.7%, respectively, in 2017. The cable sector's numbers were even lower, and 2017 gross revenues for all traditional advertising sectors declined from 2016 levels.
Additionally, the FCC's report points to ways in which radio and TV broadcasters as well as cable providers have responded to competition from rivals, including by adopting Internet website social media strategies for earning advertising revenues, by enhancing original content offerings to counterbalance advertising revenue declines, and by offering their own content via Internet streaming.
How to define the modern media advertising market is not some technical debate that is of interest only to antitrust scholars and economists. Rather, it has important implications for how DOJ carries out its mission of promoting competition and protecting consumers. When DOJ views the communications marketplace as more segmented into discrete product markets than is justified, those segments appear more susceptible to domination by one or a few market providers. In turn, this may trigger DOJ enforcement actions based on false positives when competitive market conditions actually exist. And employing narrow market definitions may distort the ability of antitrust agencies to assess accurately the pro-competitive benefits of mergers like the AT&T/Time Warner merger. In that case, DOJ challenged the merger, but the trial judge found no compelling evidence of anticompetitive harm and actual evidence of efficiency benefits.
Radio, broadcast television, and cable advertising clearly are competing with digital advertising, and, for the most part, online advertising is now winning. But overly narrow market definition makes mergers unnecessarily difficult in non-online industries in which advertising revenues have been falling, and may protect online advertising outlets from competition from non-online channels for advertising revenues. Given the substantial evidence of convergence and competition between radio, broadcast television, cable, and online advertising markets, DOJ should finally recognize that those competing platforms now operate in the same market.
* Theodore R. Bolema is a member of the Free State Foundation’s Board of Academic Advisors and Executive Director of the Institute for the Study of Economic Growth at Wichita State University.
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