For Deals Like Disney-Fox, It Helps to Be a Trump Friend
(Bloomberg Opinion) -- If I were a cynical man, I would view Wednesday’s approval of the Walt Disney Co.-21st Century Fox Inc. deal by the Justice Department as further evidence of the weaponization of the antitrust division under President Donald Trump. This is not a good turn of events.
First came the division’s opposition to the AT&T-Time Warner merger — opposition that developed soon after Makan Delrahim was named by Trump to be his antitrust head. As an academic, you’ll recall, Delrahim was on record as saying that the proposed merger wasn’t problematic. What’s more, so-called vertical mergers — that is, mergers in which the two companies don’t have overlapping businesses, as was the case with AT&T-Time Warner — hadn’t been challenged in court in over 40 years.
But Trump’s antipathy for CNN, which is owned by Time Warner, was well known. He had made clear his opposition to the merger during his campaign. Sure enough, once Delrahim took office, the division did a sudden about-face, and went to court to block the deal. Thankfully, the courts have not been weaponized — at least not yet — and Judge Richard Leon ruled against the antitrust division, calling the government’s case “gossamer thin.”
Now comes Disney-Fox, a deal that was first proposed a mere six months ago, and wasn’t expected to close until December 2019 — in large part because antitrust reviews take so long. Shortly after the merger was announced, the president’s press secretary, Sarah Huckabee Sanders, was asked about his reaction to it.
“I know the president spoke with Rupert Murdoch earlier today, congratulated him on the deal, and thinks that, to use one of the president’s favorite words, that this could be a great thing for jobs,” she replied.
Murdoch, of course, is the chief executive and major shareholder of 21st Century Fox. Unlike CNN, his Fox News unit (which he plans to hold onto) has been Trump’s biggest cheerleader, and Murdoch himself has become an ad hoc adviser to the president. A multibillion-dollar deal between entertainment conglomerates is far more likely to cost jobs than create them, but never mind that: If you’re a businessman who’s a Trump ally, he’s going to support your deal, no matter what the antitrust implications. That’s the way he’s wired.
Historically, that is not how the antitrust division has been wired. Like many corners of the federal government — the Food and Drug Administration, or the Pentagon’s procurement divisions, or the Securities and Exchange Commission — the antitrust division is supposed to make decisions independent of the White House. The lens through which it is supposed to examine mergers is the Sherman Antitrust Act. Although businesses may disagree with the conclusions of the antitrust division, they always had confidence that decisions were rendered in adherence to the rule of law.
I’m not saying that a serious investigation into the antitrust implications of the Disney-Fox deal wouldn’t ultimately win approval from the Justice Department. What I am saying is that the six-month review that just took place seems awfully cursory for an entity that will be, as Variety put it, “a content giant the likes of which has never been seen.”
At a conference in early June, Delrahim praised Disney for coming to the Justice Department already knowing what assets to dispose of to avoid antitrust problems. For instance, Disney will divest Fox’s highly profitable regional sports networks, and Murdoch will retain the Fox television network (the latter of which Disney is not allowed to own under existing law).
But look at what it is getting. A combined Disney-Fox will mean the company with the No. 1 movie distributor will also now own the No. 3 distributor. Last year, the two studios captured 40 percent of the top 15 grossing movies, and over a third of the total box office. The six major movie studios will shrink to five. Disney will add the FX network and National Geographic network to its already formidable array of cable channels, which includes the most expensive network of them all: ESPN.
I have a hard time believing that the same antitrust division that was so fearful of the market power of a combined AT&T-Time Warner seems so unworried about the potential market power of a Disney-Fox combination. Yes, it doesn’t have a pipe into consumers’ homes the way AT&T does, but if anybody is going to have the ability to raise prices, it is far more likely to be Disney-Fox than AT&T-Time Warner.
Also — and maybe this is just me — but didn’t you find the timing of the approval just a tad suspicious? Comcast Corp. has also been angling for Fox, making an unsolicited offer in mid-June that Disney then topped a week ago. Fox quickly agreed to Disney’s new terms, even as Comcast was rumored to be searching for financing to make an even higher offer.
There is no question that the president’s ally Murdoch wants to sell to Disney, not to Comcast. So how convenient that the Justice Department gave the deal its stamp of approval almost immediately after the two companies signed their new, improved merger deal. The approval, as the New York Times noted, “bolsters” Disney’s bid because it makes it possible for the merger to close before Comcast can make another move.
When he announced the Justice Department’s approval on Wednesday, Delrahim made it sound as if his division had actually stood up for consumers. “Today’s settlement ensures that sports programming competition is preserved in the local markets where Disney and Fox compete for cable and satellite distribution,” he said in a statement.
But that’s just window dressing to disguise the fact that the person Delrahim really stood up for was Trump. When people talk about Trump’s authoritarian impulses, they rarely include antitrust enforcement. But they should. We now know he will use it to aid friends and punish perceived enemies — and the rule of law be damned.
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