Anti-Trust and Media Ownership Issues

Under the US Constitution of 1787, the federal government has exclusive power over interstate commerce. As big industry began consolidating in the mid-1800s, concern about abuse of monopoly power grew. Monopolies were then called "trusts" because stockholders trusted them with their investments.

The power of the monopolies was a major political issue at the turn of the 20th century. President Teddy Roosevelt, known as the "trust buster" is shown here killing a bear representing bad trusts. The cartoon reflects the fact that Roosevelt had spared the life of a bear cub on a 1902 hunting trip.

"Leading corporations own the leading news media and their advertisers subsidize most of the rest. They decide what news and entertainment will be made available to the country; they have direct influence on the country's laws by making the majority of the massive campaign contributions that go to favored politicians; their lobbyists are permanent fixtures in legislatures. This inevitably raises suspicions of overt conspiracy. But there is none. Instead, there is something more insidious: a system of shared values within contemporary American corporate culture and corporations' power to extend that culture to the American people, inappropriate as it may be." -- Ben Bagdikian from Media Monopoly .

Background:

Types of monopolies:

-- Horizontally integrated (One company might own all the oil refineries across the board) or
-- vertically integrated (One company could own everything from raw materials to final markets, for example, from oil wells to refineries to pipelines to gas stations).

In addition, there is modern concern about oligopoly, which is when a small number of firms control a market. Example: Microsoft has a near monopoly over operating systems. Viacom, Time-Warner, Bertlesman and Sony own large portions of the media market.
(See Who Owns What by Columbia Journalism Review) Also see Class Project page

Quick history of Anti-trust law:

1890 -- Sherman Anti-Trust act
Outlawed monopolies and monopolization, said any contracts, combinations or conspiracies in restraint of trade were illegal. Awarded triple damages to claimants, and gave regulatory powers to the Justice Dept. Price fixing and profit pooling prohibited.

Cases brought in the early 1890s against coal, freight and lumber trusts all failed. In the Cleveland administration, cases were only brought against labor, not business. Only in the Roosevelt administration did the anti-trust law begin to be enforced.

The landmark case was U.S. v. Standard Oil, 1911, which broke Standard up into companies now known as Exxon (a.k.a. Esso, Standard of New Jersey), Chevron (aka Standard of California), Sohio (aka Standard of Ohio), Mobil (Standard of New York), Amoco (Standard of Indiana) and others.

1914 -- Clayton Anti-Trust act Clarified and superceded Sherman and expanded enforcement. Business practices as well as market domination may be the subject of anti-trust enforcement. Tying arrangements (having to buy one product to get another) and refusal to deal (not selling to those who buy from competitors) are among the behaviors prohibited. Also -- 1950 -- Celler-Kefauver Act -- Prohibits buyouts and mergers when result is more monopoly and less competition. Examples: EchoStar and DirectTV merger blocked by FCC.

The early landmark media case was Motion Picture Patents Co. v. Universal Film, 1915, which broke up Thomas Edison's monopoly on film equipment. (See MPPC page on Wikipedia).

Media mergers in recent years:

Time and Warner; Viacom and Paramount; MCA/Universal and Polygram; Disney and ABC; Viacom and CBS; Time Warner and Turner; Time Warner and AOL; AT&T and TCI; Vivendi and Universal Studios; Sireus - XM satellite radio

Blocked

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Two basic philosophies of Anti-Trust law: ** Mainstream Liberal: 1930s thru 70s Warren court -- Pro Regulation (per se test)
Anti trust is a ncessary market correction. Naked capitalism will equal concentration of wealth. Market is a good regulator of resources when it works, leave it alone. But some activiteis arent well regulated by the market.

How is the philosophy applied:

Per se -- by itself -- Market dominance is itself evidence of anti competitive behavior. If Microsoft has 90 percent of the market, then it is per se a monopoly. It must divest corporate divisions into new competitive companies. ** Neo Conservative-- the market is superior in all cases. Govt role is weights and measures, enforcing contracts, deceptive trade practices. The market tends to be self correcting. If companies get too big they will divest. Ex: IBM lost to small computer companies like Microsoft when it was essentially a monopoly.

Rule of reason -- Some restraints are pro-competitive, and should be encouraged, while some restraints aren't, and should be discouraged. If newspapers or radio stations are failing financially, their joint operating agreements or mergers could be seen as pro-competitive as they struggle to compete with other media. Another aspect of the rule of reason is the failure of the law to anticipate the dynamism of the marketplace. For instance, IBM had a "per se" monopoly, and faced an anti-trust suit, during the years it was collapsing as the personal computer took over the market.

Is the media different?

Competition has a public benefit when even an ordinary commodity or service is involved. But the media has enormous public influence, and its independence and competitiveness are vital questions in democraty. Less competition means fewer voices, less diversity and more chance for dangerous influences to take hold. But do we now actually have less competition? This is part of the debate.

In media markets, large firms own portions of each sector -- book, cable, film, newspaper, magazine, television and radio - in something of a checkerboard pattern. Local ownership of media is largely a thing of the past, and when local ownership issues come up (such as in the low-power FM radio licensing debates) the oligopolies apply extraordinary pressure to keep the market closed.

These regulatory barriers to entry will probably be challenged in the courts in the coming years.


CASE LAW: Types of anti-trust activity

• Barriers to entry & refusal to deal

Motion Picture Patents Co. v. Universal Film, 1915 -- Thomas Edison's attempt to control the length, format and content of motion pictures was defeated in this case.

Associated Press v. International News Service, 1918 -- William Randolph Hearst's International News Service had been barred during World War I from using British-owned telegraph lines. Hearst was openly sympathetic with the German side on many occasions. INS then began re-writing Associated Press dispatches. The court partly agreed with INS when it said that the copyright section of the Constitution was not intended to confer upon one who might happen to be the first to report a historic event the exclusive right to spread the knowledge of it. But it supported the AP, saying that INS was taking its property.

Associated Press v. National Labor Relations Board, 1937, established that like any other business, the AP could not fire employees for organizing unions. AP had attempted to hide behind the First Amendment. The Newspaper Guild, the union which AP tried to ban, is still active today.

** Associated Press v. U.S. 1945 -- When the Chicago Sun newspaper applied for AP membership, the Chicago Tribune newspaper, already an AP member, objected. According to the AP rules at the time, new members had to pay exhorbitant dues to join. The Justice Dept. challenged the Associated Press, and the Supreme Court said that the fact that AP handles news while other companies handle goods "does not afford the publisher a peculiar Constitutional sanctuary... Freedom to publish means freedom for all and not for some ... Freedom of the press from government interfence doesnt sanction repression of freedom by private interests."

U.S. v. Paramount Pictures, Inc.1948 --- The Supreme Court decision to force movie studies like Warner Bros., United Artists, and Paramount Pictures. to divest vertically integrated holdings in theater chanis is sometimes seen as the end of the Golden Age of Hollywood, but it led to an increase in independent movie producers and more competition in the film industry.

*** Loraine Journal Co. v. US 1951 -- An Ohio newspaper refused to accept advertising from anyone who bought ads on a new radio station. This is a classic "refusal to deal" case, and is illegal. Note that this is one of the primary issues in the US v. Microsoft case of 1998 - present.

US v. Microsoft Corp. (settled 2001) -- U.S. Court of Appeals for the District of Columbia ruled that Microsoft had an illegal monopoly on operating systems and among other things had destroyed Netscape and had refused to deal with other companies when they worked with other systems. Despite the ruling, the US Dept. of Justice (under the Bush administration) opted for a settlement which consumer advocates said was a setback to competition. Meanwhile, the EEC in March, 2004 ordered Microsoft to share technical information with rivals, offer a version of the Windows operating system without its Media Player and pay a fine of $612 million.

• Joint operating agreements in newspaper operations Newspapers are among the most important areas where the shift to a neoconservative "rule of reason" had an impact. Newspaper readerships were declining, and in the1950s and '60s competing newspapers combined into joint operating agreements (JOAs), where the newsrooms were separate but advertising, business and production were combined. Since 1970, 162 daily newspapers have gone out of business. Many people thought this trend was inevitable, given the competition with radio and TV. In most cases, the competing newsrooms have also since combined into one newspaper. The supreme court said that the only justification for mergers or joint operating agreements was where one of the newspapers could be proven to be failing.

In U.S. v. Citizen Publishing Co., 1969, a joint operating agreement between two Tucson, Az. newspapers was held to be in violation of anti-trust law. Justice William O Douglas said the only defense against anti trust was the "failing company doctrine."Many JOAs were begun in cases where neither newspaper was actually failing. After a debate about competition from radio and TV, publishers pushed Congress into passing:

** The Newspaper Perservation Act of 1970 legalized existing joint operations and cleared the way for new ones, in effect overriding the Supreme Courts Constitutional interpretation.The Justice Dept. opposed other kinds of mergers, blocking them in cases where the two papers were in an adjacent market. It is legal for chains to own many newspapers in various places, but not in close proximity. During the Reagan administration mergers in Seattle and Detroit were not blocked, although in 1995, the Justice Dept. blocked the sale of a Fayetteville Ark. paper to the group that owned another major newspaper in the NW Arkansas region. Many of these merged newspapers are (by 2012) out of business.


• FCC regulation of the Broadcasting Industry

Historically, the basic rationale for close regulation of the broadcast industry was that the frequencies over which radio and TV were broadcast were limited.In 1924, no one knew what form radio would take or who would pay for it. Ten to 15 years later, the new FCC faced an interesting challenge: Most cities had radio stations, and 97 percent were affilated with three networks: NBC, CBS and Mutual. All night time programming came from these three under franchise agreements. Note also that all three networks and wire services and newpaper publishers tried at first to keep radio news to 30 seconds per item. CBS broke through this in 1937 with reports from Europe. In 1941, the FCC issued Chain Broadcasting Regulations. NBC went to court, and in NBC v. US, 1943, the Supreme Court said the First Amendment doesn't exempt broadcasters from FCC regulation, even in anti trust cases. This led NBC to sell its "Blue Network" which became ABC. (Note: heres an area where a similar court decision came down for newspaper publishers: AP v. US, 45). From the 1950s through the 1990s, ownership of TV and radio stations was limited in order to attempt to preserve a diversity of voices and viewpoints in the marketplace of ideas. As telecommunications volume and flexibility expanded with new technologies in the late 20th century, neo-conservatives argued for a new approach.

• Broadcast Ownership issues (horizontal integration):

Original ownership limit: The Rule of Sevens -- From 1940s thru 1984, no one owner (note, not affiliate) could have more than seven TV, seven AM and seven FM stations. The law was liberalized in 1984 to 12, and again limit raised to 18 in 1992 and 20 in 1994.Telecommunications Act of 1996 realigned ownerships -- Following this law, there was no limit to the number of radio and TV stations owned, but owners were not supposed to reach more than 35 percent of all audiences. The law had a UHF discount provision saying the UHF stations counted as half the number as VHF stations. Theoretically, one company could own TV stations serving up to 70 percent of the market. Before 1996, duopoly was prohibited: no company could more than one FM and one AM station and one TV station in any single market. After 1996, a major market realignment for radio occurred after the rules changed for radio (Realignment of TV ownership occurred with the FCC 2003 order):

FCC Order June 2, 2003 -- The FCC retained its ban on mergers among any of the top four national broadcast networks.
(On hold as court challenges and new laws are sorted out) Local TV Multiple Ownership Limit:

Cross ownership (two media in one market) Under old rules, one company couldnt own more than one medium in any market. FCC Order June 2, 2003 --

Financial Interest and Syndication (Fin-Syn) Rule (vertical integration) Adopted in 1970, eliminated in stages during 1990s. This rule worked against horizontal integration between broadcast networks and creative programmers. Fin Syn prohibited TV networks from in-house production of entertainment programming, or from owning controlling interest in independent TV programs. In effect it was a prohibition against vertical integration. Rule kept the networks out of the syndication business, provided a bonanza to independent producers and hollywood. By 1990s, CBS NBC ABC share dropped from 95 percent to under 60 percent, and prohibiting in house ownership no longer seemed important from anti trust perspective. Rule was dropped.

Broadcast AntiTrust cases

US v. RCA, 1959 -- complex case involving transfer of stations forced by RCA (parent of NBC) on Westinghouse. Justice Dept. claimed RCA used monopoly power, and Supreme Court agreed, even though FCC had approved the transfer. Bottom line: Justice was free to challenge mergers and transfers even if approved by FCC.

City of Los Angeles v. Preferred Communications, 1986 -- Cities may not abridge First Amendment rights of cable companies and exclude other cable providers from competition.

Broadcast Music Inc. v. CBS, 1979 -- CBS sued ASCAP and BMI saying blanket licenses for fees they negotiated was anti trust price fixing. ASCAP and BMI handle copyrights for millions of pieces of music. Flat fees are paid to them by broadcasters for rights to use music on the air. They in turn pay to copyright holders. The court upheld the voluntary arrangement, saying ASCAP and BMI licenses were nonexclusive and that CBS was free to negotiate on its own with copyright holders if it wanted to. (Of course, it couldnt, because the task would be overwhelming, but theoretically it would be possible to go it alone).

NCAA v. University of Oklahoma, 1984 -- Television plan limiting athletic team appearances (2 per season) was found to be anticompetitive. University sports team appearances can't be limited by the NCAA.

Links to interesting sites:

The Policy Limits of Markets: Antitrust Law as Mass-Media Regulation?y Howard A. Shelanski University of California, Berkeley, June 2003
(MS Word document)

As the FCC considers repealing or modifying its media ownership rules, a debate has developed between those who see the rules as inefficient economic regulations no longer necessary in light of current market conditions and those who see the rules as the last protections against a homogenized, corporate media industry. At the heart of this debate are two distinct views of the ?public interest? objectives of American communications policy, both of which have substantial precedent in FCC regulation and both of which are purported to underlie the media ownership rules currently under review. The pro-deregulatory view is of a market-oriented model in which the policy objective is to maximize satisfaction of consumer preferences. The opposing view is of a ?public-discourse? model in which the policy objective is to preserve opportunity for diverse voices and to promote informed public discussion of important issues. These competing formulations of the public interest purposes of the ownership rules lead to divergent opinions about the need for the rules and about the consequences should the FCC leave media concentration to be governed by general antitrust law.

"Anti-Trust Bust" -- Center for Digital Democracy -- In 2002 the CDD argued that citizen action is needed to prevent a planned "streamlining" ploy which would allow media companies to merge unimpeded. Consumers Union -- Who Owns the News ? Columbia Journalism Review -- Who owns What -- CJR's online guide to what major media companies own. Watching Justice -- Justice Dept. watchdog group / Antitrust pages.