Following a public comment period in which 12 comments were received, the Federal Trade Commission announced today it has made final, without modification, a consent agreement with Time Warner Inc. and Turner Broadcasting System, Inc.
The consent agreement, which was given preliminary approval by the FTC in September, requires the restructuring of the acquisition by Time Warner of Turner. The FTC had alleged that the merger would have restricted competition in cable television programming and distribution in violation of federal antitrust law and allowed Time Warner to unilaterally raise consumer prices for cable television and to limit programming choices. The Commission also alleged that Tele-Communications, Inc. (TCI), given its ownership interest in Time Warner and its complementary long-term contractual obligations to carry Turner programming, would also have had an incentive to augment Time Warner’s programming market power.
The agreement (1) requires TCI to divest its interest in Time Warner to a separate company (or accept a maximum of 9.2 percent nonvoting interest in Time Warner); (2) requires TCI, Turner and Time Warner to cancel long-term carriage agreements; (3) reduces Time Warner’s enhanced opportunities for bundling Time Warner and Turner programming; (4) bars Time Warner’s programming interests from discriminating in price against rival cable systems; (5) prohibits Time Warner’s cable interests from discriminating in carriage decisions against rival programmers; and (6) requires Time Warner’s cable interests to carry a rival to CNN.
"None of the comments received takes issue with the Commission’s fundamental conclusions that Time Warner’s acquisition of Turner is likely to be anticompetitive and that some type of remedy is required," said FTC Chairman Robert Pitofsky. "All of the concerns raised were taken into account when the Commission required the restructuring of the merger in September and are dealt with in the final consent order."
In letters to the commenters, the FTC responds to the issues raised in the submissions and explains the analysis undertaken by the agency. One group of commenters (which includes Fox News Network and Bloomberg, L.P.) raised concerns that the Commission’s requirement that Time Warner carry a rival to CNN on its cable systems is not sufficient. In response to those submissions, the Commission’s letters say "that the information . . . supports the appropriateness of the Commission’s approach both in requiring this relief and in crafting it so that the Commission would not dictate the choice of the alternative news channel but rather leave to Time Warner the choice of which otherwise qualified buyer would be placed on its cable systems."
Chairman Pitofsky added, "The goal was to protect the competitive process and not to dictate winners and losers."
Those letters go on to state that "[t]he proposed consent order . . . balanced three objectives: (1) ensuring that Time Warner could not effectuate its incentive to prevent any competition to CNN; (2) leaving to market participants the decision as to which otherwise qualified new competitor would be carried; and (3) avoiding a requirement that forced Time Warner to discontinue an existing or planned channel."
The second group of commenters suggested additional protections to the other parts of the proposed consent order. According to the Commission, these comments either relate to anticompetitive concerns that are not directly related to this merger or propose remedial alternatives that would be overly regulatory and intrusive. The Commission’s remedial authority is limited to imposing a remedy only for those anticompetitive effects that arise as a result of the merger.
The consent agreement also contains various reporting and record keeping provisions designed to assist the FTC in monitoring compliance. (See September 12, 1996 news release for more details regarding the consent order.) The Commission vote to issue the order as final was 3-2, with Commissioners Mary L. Azcuenaga and Roscoe B. Starek, III, dissenting. The Commissioners issued separate dissenting statements.
In dissenting, Commissioner Azcuenaga said, "Alleging that this transaction violates the law is possible only by abandoning the rigor of the Commission’s usual analysis under Section 7 of the Clayton Act. To reach this result, the majority adopts a highly questionable market definition, ignores any consideration of efficiencies and blindly assumes difficulty of entry in the antitrust sense in the face of overwhelming evidence to the contrary. The decision of the majority also departs from more general principles of antitrust law by favoring competitors over competition and contrived theory over facts.
"The usual analysis of competitive effects under the law, unlike the apparent analysis of the majority, would take full account of the swirling forces of innovation and technological advances in this dynamic industry. Unfortunately, the complaint and the underlying theories on which the order is based do not begin to satisfy the rigorous standard for merger analysis that this agency has applied for years. Instead, the majority employs a looser standard for liability and a regulatory order that threatens the likely efficiencies from the transaction. Having found no reason to relax our standards of analysis for this case, I cannot agree that the order is warranted."
In his dissenting statement, Commissioner Starek said, "I am not persuaded that either the horizontal or the vertical aspects of this transaction are likely ?substantially to lessen competition’. . . . Moreover, even if one were to assume the validity of one or more theories of violation underlying this action, the order does not appear to prevent the alleged effects and may instead create inefficiency."
In discussing the horizontal theories of competitive harm, Commissioner Starek stated that "there is little persuasive evidence that TW’s programs constrain those of TBS (or vice- versa). . . . [T]here is no strong theoretical or empirical basis for believing that an increase in bundling of TW and TBS programming would occur postmerger . . . [and] even if such bundling did occur, there is no particular reason to think that it would be competitively harmful. . . . Thus, I am neither convinced that increased program bundling is a likely consequence of this transaction nor persuaded that any such bundling would be anticompetitive. Were I convinced that anticompetitive bundling is a likely consequence of this transaction, I would find the remedy inadequate."
Commissioner Starek’s statement also discussed the vertical theories of competitive harm. "The consent order also contains a number of provisions designed to alleviate competitive harm purportedly arising from the increased degree of vertical integration between program suppliers and program distributors brought about by this transaction. I have previously expressed my skepticism about enforcement actions predicated on theories of harm from vertical relationships." Among other weaknesses of the Commission’s vertical case, Starek noted, "if the reasoning of the complaint is carried to its logical conclusion, it constitutes a basis for challenging any vertical integration by large cable operators or large programmers. . . ." "Moreover," said Starek, "it is far from clear that TCI’s incentives to preclude entry into programming are the same as [Time Warner’s]." These considerations and others illustrate "why foreclosure theories fell into intellectual disrepute: because of their inability to articulate how vertical integration harms competition and not merely competitors . . . . All of the majority’s vertical theories in this case ultimately can be shown to be theories of harm to competitors, not to competition. . . . Even were I to conclude otherwise, however, I could not support the extraordinarily regulatory remedy contained in the order. . . ."
(FTC Docket No. C-3709)
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