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The Walt Disney Co. may be willing to wager $2.5 billion that its 11-figure deal with 21st Century Fox will pass regulatory muster, but antitrust lawyers aren’t so sure.
The companies expect the regulatory review and closing process to take up to 18 months, which will likely include a thorough analysis of whether the combined entity could substantially lessen competition in the marketplace.
“This isn’t your traditional situation where two companies make the same products and we want to see if they’re going to be too big,” says Christopher Leslie, an antitrust expert and professor at University of California, Irvine School of Law. “This a merger of such a magnitude in a multifaceted industry that in itself is going through an evolution. How you define the market is going to be complicated.”
That the Department of Justice is formally contesting AT&T’s proposed $85 billion acquisition of Time Warner could signal an uphill battle for Disney and Fox.
“The government went after a vertical merger involving AT&T,” says Loyola Law School professor emeritus Daniel Lazaroff. “They generally are viewed with more tolerance. Horizontal mergers are viewed as the most threatening types of mergers for competition.”
While some could argue the Time Warner deal is irrelevant because it presents different issues, experts say it’s not reaching too far to compare the two regulatory paths.
“It’s apples to oranges, but they’re both fruit,” says Leslie. “It shows a willingness by the government to get its hands dirty and to do some heavy lifting in a complicated area where the answers aren’t obvious.”
The entertainment content acquisition portion of the deal will likely be the primary focus of antitrust scrutiny. Disney is buying Fox’s film and TV studio, which includes 20th Century Fox, Fox Searchlight Pictures and FX Productions, among other entities.
Leslie anticipates that the government will assess whether the combined Disney-Fox entity would have unfair market power with regard to theatrical distribution. Would it be able to negotiate higher licensing fees or longer runs for its films? “If you let the biggest player eliminate one of its bigger competitors, that’s going to eliminate the leverage of the theaters to say no,” he says.
Sports programming is another area of potential concern. Not all of Fox’s sports holdings will be changing hands, as 21CF will keep the Fox Broadcasting networks including FS1, FS2 and Big Ten Network. Disney is buying its 22 regional sports networks, which could be problematic because it already owns ESPN.
“It was clear that a merger of ESPN and Fox Sports would have been a huge problem,” says Leslie. “Whether or not you’ve got that same problem with regional sports is unclear.”
Mark Ostrau, chair of the antitrust and trade regulation group at Fenwick & West, agrees that it’s a tough call to make at this stage. “The question is would the combined entity control too much sports programming to the detriment of advertisers who are looking for that particular demographic or to subscribers or service providers who are delivering the content,” he says.
Disney also looks to double its stake in Hulu by acquiring Fox’s 30 percent share in the company and experts say the streaming acquisition could hold up the deal.
“That can cut both ways,” says Ostrau. “It may mean there would be more investment in Hulu as a strong competitor to some of the more established online sources, but it also raises the question of whether some content will be withheld from other online sources as a way to gain an unfair advantage.”
The Writers Guild of America West put it bluntly in a Thursday statement: “The antitrust concerns raised by this deal are obvious and significant.”
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