The 2019 Winnik International TMT Forum hosted by Hogan Lovells featured a panel discussion on technology and media convergence. Logan Breed, antitrust partner at Hogan Lovells, moderated the discussion as six thought leaders in media, technology, and competition law grappled with business and legal issues related to industry convergence. Panelists included Jeffrey Eisenach from NERA Economic Consulting, Richard Greenfield from BTIG, Gabrielle Kohlmeier from Verizon, Joshua Wexler from Pure Imagination Studios, and Hogan Lovells partners Falk Schoening (Brussels) and Sheri Jeffrey (Los Angeles).
Recent Industry Trends and Developments
Technology, media, and telecommunications (“TMT”) industries have undergone seismic shifts in recent years as they respond to evolving market realities. Netflix, Amazon, and others have capitalized on the democratization of media distribution, bypassing traditional pathways and upending consumer expectations. Major mergers like AT&T-Time Warner and Disney-Fox highlight the consolidation underway for legacy media incumbents. Technology companies and media incumbents are increasingly at odds as the lines continue to blur between the two industries.
Meanwhile, the pace of technological development continues to create new markets for media consumption. Compared with radical new experiences that marry media and tech, over-the-top video services like Netflix and Amazon are beginning to look as staid and commonplace as their cable counterparts. Immersive virtual reality or augmented reality experiences promise to change the way we interact with our entertainment. The development of 5G networks will also unleash new potential as innovators leverage the speed, capacity, and latency of this next-generation network. As Joshua Wexler observed, we are witnessing the rise of a new form of entertainment as innovators leverage technological advances to blur the line between the physical and digital world. One thing is clear—the landscape for content creation, delivery, and consumption is vastly different today than even a few years ago.
Convergence and Competition
Panelists identified two major trends driving the evolution of media and technology industries in both the U.S. and across the globe. As Rich Greenfield highlighted, tech companies (e.g., Netflix, Amazon) are investing large sums in order to disrupt traditional media companies. Meanwhile, telecommunications and media companies are consolidating as part of what Mr. Greenfield described as a survival strategy (e.g., AT&T’s acquisition of Time Warner). Sheri Jeffrey also noted that when consolidation or convergence fail, traditional media and new technology companies can still find common ground through strategic relationships and investments.
How Should Regulators Respond
The panel agreed that U.S. regulatory regimes have been slow to adjust to changing market realities. Logan Breed noted that in some cases regulatory divergence adds another layer of complication. Traditionally regulated media companies are now competing with unregulated new tech entrants and certain regulatory agencies’ powers are too narrow to address these cross-industry concerns (e.g., the FCC). Breed queried how regulators should approach this imbalance and whether we should regulate companies in this space at all.
Jeffrey Eisenach believed that addressing this imbalance may require “regulating up” (i.e., imposing traditional regulations on new entrants) or “regulating down” (i.e., removing traditional regulations on incumbents). In his view, the United States has traditionally engaged in the latter, but the law (and especially antitrust policy) “need[s] to keep adjusting” to address the fact that all of these companies now compete against one another. Greenfield agreed, specifically referencing the FCC broadcast ownership rules as an example where traditional regulation has prevented media companies from consolidating in order to compete with companies like Netflix. In Gabrielle Kohlmeier’s view, rather than focusing narrowly on whether to regulate up or down, it may make more sense for regulators to take a step back to determine what the appropriate regulations are for the current landscape – which could mean replacing current regulations with entirely new ones.
Recent Regulatory Developments
Some panelists suggested that slow action, however, should not be confused with a lack of action. As Kohlmeier noted, the Federal Trade Commission recently created a Technology Task Force, which could signal an increased willingness on the part of federal regulators to pursue antitrust enforcement in the tech space. At the state level, various Attorneys General have expressed concern about Silicon Valley’s consolidation of market power. The Department of Justice (“DOJ”) also unsuccessfully sued AT&T in order to stop AT&T’s merger with Time Warner. (Assistant Attorney General Makan Delrahim offered his perspective on DOJ antitrust activity during the Winnik Forum Fireside Chat.) As these actions suggest, in the U.S., antitrust law may be the legal tool best-suited to address issues created by convergence.
Rethinking Market Definition?
Nevertheless, the panel also agreed that antitrust law is struggling to address the complex issues raised by convergence. The problem is foundational: How does one define the relevant product market? Kohlmeier explained that, from an antitrust perspective, it is not enough to simply say that a company is engaging in anticompetitive conduct generally. Rather, the complaint must specifically identify the harm caused and in which market it is occurring. Breed added that this has become increasingly difficult as convergence has prompted a “totally different way of thinking about traditional markets in the sense that we’ve always talked about them in the media and tech space.” Citing the DOJ’s successful lawsuit against Microsoft for packaging its operating system and Internet browser, Breed mentioned that the problem of defining the relevant product market in these industries is not entirely new. Eisenach agreed, noting that antitrust policy has “a long way to go” to liberalize the way it defines TMT markets. Kohlmeier noted that antitrust issues related to TMT convergence and changing business models are not just showing up in the merger context. To better understand how market power is being exercised, she suggested that regulators also consider how convergence is affecting business incentives and how such incentives manifest (e.g., contract provisions).
Convergence and Globalization
Companies operating in the TMT space must also consider the international regulatory landscape. TMT markets are increasingly global, and antitrust regulators outside the U.S. are, in some cases, more active and have stricter enforcement regimes. Kohlmeier identified two issues for international regulators: (1) how will these regulations affect businesses in the U.S. that are outside the law’s extraterritorial reach, and (2) how will international regulations affect U.S. policy, such as how the EU’s General Data Protection Regulation (“GDPR”) prompted the California Consumer Privacy Act?
Falk Schoening suggested that there may be political dynamics at play for international regulation. He noted that although the TMT sector is increasingly global, some worry that convergence activity is dominated by the U.S. and China. EU politicians may thus have political incentives to support increased regulation in the TMT sector. He added that because other forms of regulation have thus far not been successful at constraining TMT companies in the way EU regulators would hope, the European Commission and many European member states are actively looking to deploy antitrust tools that are perceived to be better suited to confine the Silicon Valley tech giants. In this environment, Schoening cautioned that we should expect to see more antitrust enforcement in the EU and in other international jurisdictions as well.
Due to antitrust law’s case-by-case analysis, international regulations may also lead to conflicting decisions by different antitrust regulators in jurisdictions all over the world. Such inconsistency makes it difficult for businesses to define a global strategy. Schoening provided some practical advice to address this concern. Because European regulators are viewed as having the strictest enforcement approach, global firms should use European laws as a compliance marker. If a business’s activities pass muster in Europe, then there should be less risk of violating antitrust laws in more lax jurisdictions. In fact, in a multijurisdictional investigation, other jurisdictions may be likely to follow the European Commission’s lead.
Media and technology convergence issues are coming to a head as government authorities across the globe adapt regulatory frameworks to respond to this evolving landscape. Formerly distinct products now compete and act as substitutes in many cases, throwing a wrench into traditional antitrust analysis. Consumer wariness also continues to grow as a small group of companies holds outsized control over media content. Regulators across the globe are actively exploring how to address this new reality using both existing regulatory tools and new regimes. Whatever the ultimate framework, the lessons drawn from the adaption of competition law will be crucial as convergence continues to transform global markets.