Archive for June, 2018
The Comcast-NBCU protections served an important objective when implemented: The protections sought to fill a gap between (a) what was needed for online video distributors (“OVDs”) and independent networks, and (b) existing protections in program access and program carriage protections under the Cable Act. New protections included, but were not limited to, a provision that allowed OVDs to get access to Comcast-affiliated online programming at fair market value, as well as protections for independent news networks such as Bloomberg to be placed in the same neighborhood as NBCU-affiliated news programming. Considering the concept of online video and independent news networks were at best nascent when the Cable Act was written, such provisions are better viewed as plugging an existing statutory hole rather than addressing a need unique to the transaction.
The Comcast-NBCU protections are still important. These incremental protections are needed today because the gap between (a) and (b) still exists. Combining NBCU’s must-have programming with Comcast’s large in-region video distribution shares created fresh opportunities for Comcast to discriminate against rival distributors and independent cable networks. Nothing in the competitive landscape—including Netflix’s successful OVD offering and Facebook’s soon-to-be launched online video service, Watch—has caused this gap to disappear. Comcast still has very large video distribution shares (although shrinking in a mobile first world), and NBCU programming is still must-have, particularly the localized content available through the owned-and-operated broadcast affiliates.
There are two ways to ensure that this gap between (a) and (b) remains covered. First, and most obviously, the Comcast-NBCU protections could be extended. Alternatively, the program access and program carriage protections can be strengthened and extended to cover broadband distribution (e.g., extending the forum to permit OVDs to bring access complaints, and to permit content providers/websites to bring carriage complaints against ISPs); under the second approach, the merger-specific behavioral remedies would no longer be needed. The interesting policy questions are: Which of these two paths makes the most sense? And which is most feasible to achieve in the short run?
Regarding feasibility, I am skeptical that DOJ’s new antitrust chief, Makan Delrahim, would extend behavioral remedies in light of his campaign to end the agency’s reliance on “regulation,” as he refers to it, as well as his belief that behavioral remedies have been ineffective. I respectfully happen to think he is wrong, on both scores.
First, under the NBCU protections, complainants were two and an half out of three: Bloomberg secured a favorable neighborhood decision on Comcast’s channel lineup; an unnamed OVD secured access to Comcast-affiliated content per the DOJ’s annual report; and Project Concord—disclaimer, my client—won a favorable ruling from an arbitrator that its offer price was closer to fair market value than was Comcast’s. That’s somewhere between a .667 and .833 batting average, which would get you to the All Star game. (To be fair, Comcast has appealed the Concord decision, which has delayed the requested relief, and I will return to this correctable defect in the post-adjudicatory process later on.) Outside of the context of the NBCU protections, NFL Network and MASN—disclaimer, my clients—have used the program carriage protections to secure favorable carriage on Comcast’s platform. (Tennis Channel, also my client, secured a favorable ruling on discrimination from the FCC’s ALJ, only to lose on appeal at the DC Circuit.)
Second, Delrahim’s claim that adjudication of these cases imposes large costs on the DOJ or FCC is simply false; a single ALJ or arbitrator (plus her legal assistant) is required. Notwithstanding that he is wrong on both scores, I have little hope of persuading Delrahim of the efficacy of behavioral remedies to address discrimination by a vertically integrated platform provider. This suggests that strengthening and extending the program access and program carriage provisions, despite requiring an intervention by Congress, might be the more feasible path to filling the aforementioned gap in statutory protection remedied by the Comcast-NBCU protections.
In short, if we look at the facts, rather than the popular narrative promoted by Delrahim’s office (a diversionary tactic used by other arms of this Administration and broadly criticized by many in this room), we see that the Comcast-NBCU gap filler prompts few complaints, and those that require adjudication place less demand on agency resources than, say, a weekend trip to Florida causes other arms of the Executive Branch.
Regarding policy considerations, I believe that regulating vertically integrated platforms via generalized rules (flowing from Congress, then promulgated by agencies) is better than merger-specific patches. The reasons are myriad. First, merger-specific patches expire, which is what brings us here today. Second, merger-specific patches do not cover other vertically integrated distribution platforms; if a non-merging vertically integrated cable operator were to withhold affiliated content from an OVD, or were to place Bloomberg in a non-news neighborhood, there is currently no forum in which the target of the discrimination could lodge a complaint. Third, merger-specific regulation encourages rent seeking during the merger-review process; merger opponents can extract a concession that may not be justified on cost-benefit grounds, and (Tunney Act objections aside) may not flow from the merger theory of harm. (A good example was the obligation for Charter to invade a rival’s territory in the Charter-Time Warner merger order.) Fourth, regulations that applied to any distributor that elects to vertically integrate—the logic behind the program access and carriage protections—would serve as a fresh deterrent to vertical integration (a “tax” on vertical integration); after all, vertical integration is what gives rise to the discriminatory impulse. But unlike a bright-line rule against vertical integration, general protections would allow procompetitive integration while policing it.
Finally, strengthening and expanding the scope of the program carriage and program access protections leads to two interesting follow-on topics: (1) nondiscrimination protections for broadband start to look a lot like net neutrality protections, which could be codified into law via a new (broadband-specific) title of the Communications Act; and (2) if the protections are extended to broadband, and if non-cable firms such as Amazon, Google and Facebook move into online video, shouldn’t such dominant tech platforms be subjected to the same regulations?
A final thought: Given that the purpose of the protections would be to preserve edge innovation in a layer-neutral way, it is critical that relief for meritorious cases arrives quickly; online platforms would preserve their rights to appeal an adverse decision, but a finding of discrimination by an ALJ (or arbitrator or the “Net Tribunal”) would (typically, using a balance of the harms test) be met with an immediate remedy—the end of discrimination—which would last throughout the appeal process.
Imagine if this conversation led us down a path of solving the “platform privilege problem” and net neutrality all at once!