It is rather amazing that two huge US companies looking to cut an $85bn merger are looking like underdogs. But as AT&T and Time Warner go head to head with the US government over the legality of their proposed tie-up, that is precisely what they appear to be.
Makan Delrahim, the Department of Justice’s antitrust head, plans to argue that telecoms powerhouse AT&T should be prevented from buying media company Time Warner because the two companies together will have monopoly powers that would result in higher cable prices for American consumers.
The corporations themselves, of course, argue the opposite. They claim the merger is necessary to stave off competitive pressure from bigger fish — Google, Facebook, Amazon and Netflix.
I find myself agreeing with them. These tech platforms are among the largest and richest companies in the world and dominate their respective markets. Economic research shows that this kind of monopoly power typically stifles innovation, competition, job creation and growth.
Whichever way the AT&T-Time Warner case goes, it will do little to solve these problems, because it will not address the main issue: US competition policy today is fundamentally unsuited to the digital economy.
It is time to rethink antitrust policy and the definition not only of consumer welfare, but of welfare itself
For decades now, American antitrust policy has centred around notions of “consumer welfare”. The key question about any given merger is whether it will make things better or worse for consumers. The definition of “better” has traditionally been defined by pricing. If consumer costs look likely to go down, a merger will go through.
And yet the digital world is one in which data, not dollars, are the currency. Consumers receive services such as search, e-commerce and video streaming cheaply, or even for free.
Free is not really free. We pay for these services by handing over our personal data in exchange for access. In this barter economy, using price as a measure of welfare is all but pointless. Consumers have no clear idea how valuable their data are to the companies that mine them. My guess is that the information is worth a lot more than the $65 a month in subscription fees that Time Warner receives for a cable and broadband bundle.
The imbalance between Time Warner and the platform companies is highlighted by the AT&T-Time Warner pre-trial brief. As BTIG media analyst Richard Greenfield recently wrote to clients, this “reads like an instruction manual for investors explaining why they should no longer invest in legacy media companies”.
Google offers up to 50 channels of premium content on YouTube for $40 a month. Amazon and Netflix have become content producers that compete for talent with cable network HBO. Apple and Facebook will each spend $1bn this year on video content.
US digital advertising surpassed TV advertising in 2016, making it even tougher for companies like Time Warner to keep subscription fees low. Google and Facebook took 84 per cent of that digital advertising market last year. No wonder more than 22m US cable customers have cut the cord as of 2017 — up 33 per cent from 2016. If someone has monopoly power in this world, it is not the legacy media players.
The tech platform companies argue that none of this is a problem, because the result is great for customers: they receive seamlessly delivered, cheap, high-quality programming.
Applying this definition of consumer welfare to our digital economy will ensure more, not less, concentration of corporate power. That is a problem for people like me who believe that monopoly power is an obstacle to shared economic growth.
It is time to rethink antitrust policy and the definition not only of consumer welfare, but of welfare itself.
The conversation is already brewing, thanks to people like Barry Lynn, a former policy wonk at the New America Foundation, a think-tank. He argues for a return to an earlier approach to competition policy. Before the 1980s, US antitrust law held that too much economic power created too much political power — and that was inherently bad for consumers and society. It allowed big companies to create an uneven political playing field. (Fact: the tech sector, led by Google, is now the single largest corporate lobbying block in Washington.)
This view implies a much broader notion of economic welfare, shifting the lens from the individual to the entire ecosystem. Walmart or Amazon, for example, might lower prices for consumers, but their size also allows them to squeeze their supply chains. That in turn could result in fewer start-ups and thus less job creation.
That definition of welfare is harder to quantify, but it is already used by the US Federal Reserve, which under the Community Reinvestment Act of 1977 is obliged to look after the overall economic development of communities. Since 2008, the Boston, Chicago and San Francisco Feds have all vigorously supported this goal, seeking to connect borrowers and lenders and support entrepreneurs.
While the justice department is right to focus on corporate power, the Trump administration is picking the wrong target. Mergers between old media giants are beside the point in a digital world.
Letter in response to this column:
Copyright The Financial Times Limited . All rights reserved. Please don't copy articles from FT.com and redistribute by email or post to the web.