After Time Warner Declines Deal With 21st Century Fox, Burden of Review Not at FCC

The lack of stations involved would make it tough for the FCC to step in, attorneys said. There likely wouldn’t be much for FCC to get involved in, said Scott Flick, a broadcast attorney at Pillsbury Winthrop. Because Time Warner sold off cable systems, creating Time Warner Cable, “you don’t have the theoretical cable broadcast combinations,” he said. While 21st Century Fox has some stations, they would be combined with more sources of content, he said. It’s for the antitrust regulators to determine whether an entity owns too much content and has too much leverage over companies wanting to distribute their content or advertisers looking to place ads in that content, he said.

If 21st Century Fox and Time Warner both owned stations, then the FCC could decide whether the combination would result in one entity owning two broadcast entities, said James Stenger, a mergers and acquisitions attorney at Chadbourne & Parke. Because only 21st Century Fox has some stations, “it doesn’t appear that the FCC would be able to interfere in the transaction based on those broadcast multiple ownership rules,” he said. “There would be a lot of ink spilled and controversy over a big deal, but the FCC wouldn’t have much of a hook to get involved.” The Department of Justice would have to define the markets and look at the concentration there, Stenger said.

In its offer, 21st Century Fox proposed to sell Time Warner’s CNN, reported The Wall Street Journal. That wouldn’t be enough to ease regulators’ concerns, attorneys said. Determining the divestitures or conditions that will satisfy competition and public interest goals of DOJ would be difficult with a content-related takeover compared to a pay-TV deal, Flick said. Divestiture is more difficult with content companies because content is mostly national, he said. Agreeing to divest CNN was likely an attempt by 21st Century Fox to remove some low-hanging fruit for regulators, he said. “That would have been an obvious point of contention with regard to antitrust regulators.” It’s important to find out what all the overlapping interests are between the two companies to figure out the best concessions, he added.

The government would definitely be concerned with Fox News and CNN being owned by the same entity, Stenger said. 21st Century Fox is thinking ahead; however, offering to sell CNN was more of a political offer, he said. He said 21st Century Fox probably wouldn’t be required to do that. It would be difficult for the government to argue that it would give 21st Century Fox too much control of the news market, and that owning both news outlets would cause antitrust issues, he said. Stenger agreed antitrust agencies -- the FTC or the Justice Department -- will need to figure out what additional assets need to be divested to maintain competition, which would require analysis of the competitive overlaps, antitrust theories of concern, and market structure.

Comcast-TWC Influence

A possible 21st Century Fox-Time Warner deal would be affected by the review of Comcast/Time Warner Cable, the attorneys said. As a matter of law, each transaction creates its own set of facts and legal issues and is to be reviewed independently, Flick said. But “to the extent that it would consolidate a particular product market, you have to take that consolidation into account when you're looking at the next merger that also would affect the same market,” he said. There are similarities between Comcast’s position and that of 21st Century Fox, Stenger said. NBCUniversal had content when it was bought by Comcast, and Fox has some distribution, he said: In some sense, “they're not that different from a regulatory standpoint.”

The deals can’t truly be considered separately, said Maurice Stucke, a competition and antitrust attorney at GeyerGorey. DOJ’s handling of Comcast/Time Warner Cable will set the tone for other mergers, including AT&T/DirecTV, he said: “The way an earlier case is handled will have implications on how one looks at a later case."

Time Warner confirmed in a news release that its board declined the offer. The board decided it wasn’t in the best interests of the company or its stockholders “to accept the proposal or to pursue any discussions with Twenty-First Century Fox,” it said. Discussions could reconvene, Stenger said. “By putting this out there, [21st Century Fox CEO] Rupert Murdoch is letting the Time Warner shareholders know that they can make a lot of money if they can push the company to sell to him."

The motivation of 21st Century Fox could be driven by concern that content owners are in danger of losing negotiating power to Netflix “and want to ensure that rights issues are structured to protect the pay TV ecosystem,” MoffettNathanson Research analysts said in a blog post. The companies have been aligned in this thinking and the combination “would help drive a more unified industry standard on stacking rights, SVOD and TV Everywhere issues,” it said. Also, combining Warner Bros. TV with Fox Broadcasting would likely move more Warner content to the Fox network, it said.