A Rerun That Deserves to be Cancelled: DirectTV-DISH Merger Would Still Likely be Anticompetitive After All These Years
In 2002, Constantine Cannon’s founder, Lloyd Constantine, and I helped convince 23 State Attorneys General (both Democrats and Republicans), the Bush 43 Antitrust Division, and the FCC to block the proposed acquisition of DirecTV, Inc. by EchoStar Communications (which owns and operates the DISH network). See https://www.nytimes.com/2002/01/30/business/diverse-group-opposes-echostar-directv-deal.html.
That deal would have resulted in a DBS (direct broadcast satellite) monopoly and was manifestly anticompetitive in markets across the U.S. that lacked cable systems. It was also anticompetitive in areas where there was only a single cable provider, making the deal a 3 to 2 merger in numerous MVPD (multichannel video programming distributor) markets throughout the country. That merger would probably have resulted in price increases to many MVPD consumers areas across the country.
Lately, there have been rumors – denied by DISH and DirecTV’s current parent, AT&T – of another attempted merger between the parties. To the extent that the parties are talking, it may very well be because they are concerned that there is a chance that a more aggressive antitrust enforcer (Elizabeth Warren is rising in the polls) will sit in the Oval Office beginning in January 2021. Under this logic (particularly with borrowing costs relatively low), the parties need to strike now or they will not have a realistic chance of convincing DOJ to clear a deal creating a Direct Broadcast Satellite monopoly until 2025 at the earliest (and maybe later).
Should such a deal be reached, the parties would undoubtedly argue that it should be approved this time around because the video landscape has changed. They would likely point out that more U.S. homes are now passed by cable (even in rural areas), which would provide an alternative to the DBS monopoly. They could argue that over-the-top (“OTT”) video networks, such as Netflix and Amazon Prime (which can be viewed through wireless connections), are now, unlike in 2002, available, offering greater competition in video distribution services. They could also point out that consumers watch content not only on their television sets now, but also on their cell phones, tablets and computers.
These arguments, even if they had significant factual support, should not refute the conclusion that a merger, today, between the only two DBS platforms in the U.S. would likely create substantial anticompetitive consequences, particularly in rural markets where there is far less choice (even when cable passes homes). First, there are still numerous U.S. homes that are not passed by any cable: for these homes, this would be a merger to perfect monopoly. Second, even where a merger is 3 to 2, as opposed to 2 to 1, well-established caselaw holds that, in markets where barriers to entry are high (such as in multichannel video programming distribution), mergers are likely to lessen competition; accordingly, the fact that there may be more homes that are passed by cable would not cure the anticompetitive impact of such a deal. Moreover, OTTs (which need a distribution platform to run on) are not alternatives to MVPDs and, thus, also would not constrain anticompetitive price hikes that the merged entity could deploy. For example, OTTs do not distribute live sports or news programming, which a vast number of consumers view as an essential component of their video services. And, OTTs cost money on top of the distribution services provided, making them out-of-reach for many lower income Americans that cannot afford to pay extra for such video services (and arguably placing them in a separate market): this merger would thus be harmful, in particular, to those that have the least.
Section 7 of the Clayton Act says that any merger that is likely to substantially lessen competition “in any line of commerce. . . in any section of the country” is anticompetitive and can be blocked. A renewed attempt at merging these two DBS platforms should, given the above, be met with substantial skepticism and reviewed thoroughly to ensure that it does not offend Section 7. DOJ and state enforcers should each – as they did 17 years ago – ensure that U.S. citizens are protected from the potential abuses of a DBS monopoly.
Edited by Gary J. Malone