Department of Justice antitrust chief Makan Delrahim provided a number of breadcrumbs that broadcasters and advertisers can follow on the trail to what changes DOJ may or may not make to its view of the competitive advertising market when it comes to merger reviews.
Justice and the Federal Trade Commission divvy up such antitrust reviews, with Justice almost always getting the broadcasting and cable and telco merger review.
Delrahim was speaking Thursday (May 1) at the outset of a two-day forum on the impact of digital platforms on traditional broadcast and cable ad markets.
He sounded like a combination of the American Association of Advertising Agencies and broadcast and cable ad groups in extolling the virtues of the ad-supported content model and acknowledged the rise of digital ad competitors. But he said that it was not clear how much of a substitute online ads were for broadcast spot ad buys, for example.
He also signaled that some online competition to broadcasters that was here today might be gone tomorrow, pointing out that "of the top 10 companies that contributed to digital advertising’s revenue growth 10 years ago, only three remain on the top 10 list today."
He has made the same argument about invocations of the power of the current edge giants in calls for breaking up Big Tech.
Delrahim said that while DOJ was confident in how the department had defined the competitive broadcast ad market in the past, which includes last year's Sinclair-Tribune merger deal, when DOJ concluded the ad market was confined to broadcast spot. "We recognize that industries change. In order to ensure that we continue to update our analysis of media markets, we need to take into account the latest industry trends, the latest technological evidence and the latest economic," he said.
To check out Delrahim's tour of the rise of digital media and how the department will likely tackle the challenge of looking anew at the ad market, an edited version of his prepared text highlights follows:
"Ad-supported business models bring goods and services to customers who would otherwise be priced out. Thanks to revenue from advertising, consumers often pay lower prices, and sometimes even enjoy goods or services free of charge. Studies demonstrate that many consumers prefer ads to paying for certain services. For example, nearly 80 percent of respondents in one study reported in Recode represented that they would choose an ad-supported Facebook over paying $1/month. Some consumers may even prefer receiving targeted advertisements that are more likely to be relevant to their needs than ads that reach broad audiences, but whose products and services may be inapplicable to many viewers.
"Ad-supported business models are a form of a multi-sided platform. They serve consumers who wish to digest content and advertisers who hope to influence those consumers with the ads that accompany the content. In a speech I gave earlier this year, I noted that industries with zero-price strategies and multi-sided platforms have market complexities that antitrust enforcement must grapple with. That is why our job as an antitrust enforcer in this industry requires rigorous dynamic analysis.
"A mere twenty years ago, Mark Zuckerberg was in middle school, we were snapping pictures on rolls of film in cameras, and we were renting our movies in VHS format from Blockbuster. “Google” and “friend” were not verbs. Progress and innovation have changed our lives dramatically in the digital age, and digital advertising has evolved, and continues to evolve, just as quickly as it has grown. Yahoo! first introduced search ads in 1995. Several years later, Google developed AdWords and it wasn’t long before digital advertising was ubiquitous. What began with basic search and display advertising, grew to include online video advertising, dynamic advertising and localized digital advertising. Mobile devices such as smart phones and tablets have provided additional channels to influence consumers through advertising. Bill Gates famously predicted in 2005 that “[t]he future of advertising is the Internet” and that more than half of all ads would be personalized.
"It is no surprise that connected TVs, which are at the intersection of linear television and digital advertising, exist in nearly 40% of homes across America. Looking at a visual of the players operating in this segment of the industry alone is enough to make your head spin, and it keeps changing.
"The digital advertising that emerged in the late 1990s was primarily contextual, delivering advertising messages without personal data about their audiences. Today, because of the wealth of data that ad networks and publishers are able to collect about a website’s audience, behavioral targeting now accounts for a large percentage of digital advertising. Moreover, because ad networks represent multiple publishers at once, they are often able to offer publishers access to much greater quantities of such data they would not be able to access individually. At the same time, this data increasingly enables ad networks to adopt a new model that circumvents content providers and targets individuals directly for advertisements.
"Fortunately, the Division has significant experience with varied advertising markets, including newspapers, radio, billboards, movie theaters, television and Internet. Our investigations into Google’s 2011 acquisition of Admeld focused on the potential effect of the merger on competition in the display advertising industry. Through our investigation, we came to appreciate the role of intermediaries, including ad networks, ad exchanges and ad servers in facilitating transactions between advertisers and web publishers.
"Our in-depth reviews of Google’s proposed advertising agreement with Yahoo! in 2008 and then Microsoft’s search agreement with Yahoo! the following year gave us opportunities to learn about the importance of scale and the nature of competition for advertisers between search engines. The parties abandoned the Yahoo!/Google advertising agreement after the Antitrust Division informed them it would file a lawsuit to block implementation of the agreement on the grounds that it would harm competition in search advertising and search syndication, in which the companies accounted for at least 90 percent of the combined market share. By contrast, the Division closed its investigation of the Microsoft/Yahoo! Agreement on the grounds that it was not likely to reduce competition and could enable the companies to compete more effectively with Google in the market.
"We recently looked at several broadcast mergers. In late 2016, the Antitrust Division required Nexstar to divest seven broadcast television stations in order to complete its proposed acquisition of Media General. More recently, we reviewed Sinclair Broadcast Group’s proposed acquisition of Tribune Media, which the parties abandoned last summer after lengthy investigations by both the Antitrust Division and the FCC. Based on the parties’ documents and the other evidence available at the time we alleged that the relevant market was limited to broadcast spot advertising within a given Designated Market Area (DMA).
"Advertising was also an important issue in the recent AT&T/Time Warner merger investigation. Dr. Susan Athey, a highly respected professor of technology economics at Stanford, testified for the government regarding AT&T’s claimed advertising efficiencies. We will hear from Professor Athey again today when she gives the opening lecture at our workshop this afternoon, and from AT&T’s advertising unit tomorrow regarding the status of its new platform initiative.
"In addition to our merger work, our investigations into anticompetitive conduct have provided a wealth of information about media advertising markets. Since last November, we have reached settlements with seven broadcast television companies, who we alleged had colluded with their competitors to reduce competition in the market for broadcast advertising.
"From our earliest enforcement action against newspapers that colluded to pressure their advertisers into exclusive contracts – the 1940 case U.S. v. Chattanooga News-Free Press Co., in which each defendant was required to pay a fine of 1 cent – to our decision in late 2017 requiring Entercom Communications Corp. to divest 13 broadcast radio stations in select DMAs to complete its acquisition of broadcast radio stations from CBS Corporation, we understand that advertisers often purchase advertising on a mix of media platforms, with each medium tending to serve a different function in meeting the advertiser’s needs.
"Advertising legend David Ogilvy once commented that “[w]hat really decides consumers to buy or not to buy is the content of your advertising, not its form.” Yet for antitrust enforcers, defining the relevant market requires consideration of forms of advertising, which continue to evolve.
"Our experience with advertising markets has taught us that there are varying levels of substitution for ad placement across media. For example, through our investigations, we have found that even if it means absorbing a price increase, some of the evidence we have seen suggests that advertisers are unlikely to look beyond broadcast spots within a given DMA. Price is not the only factor: we have heard advertisers express concerns about brand safety and ad fraud on digital platforms. In addition, our investigations involving Google have shown that search advertising is used by advertisers very differently than other forms of online or offline advertising.
"Digital advertising offers an opportunity to target customers in a way that was unimaginable in traditional media advertising. Understanding the extent to which that distinction is significant from an advertiser’s perspective is important to our analysis of these markets, as is the increasing ability of other media to target consumers. Although they may have embraced digital advertising, we must understand if advertisers view advertising on digital media as a substitute to television advertising or as a useful complement.
"Evidence uncovered during our investigations has shown that many advertisers indeed have embraced digital advertising. We also recognize that the media industry and the advertising landscape continues to evolve. That is why, as part of our antitrust analysis, we spend so much effort investigating the product market.
"For more than a half century, television was the biggest advertising medium in the United States. Today, as I understand it, more than half of advertising occurs online. Digital ad spending is expected to reach nearly $130 billion this year and exceed television ad spending by $20 billion.
"Disruption to traditional advertising markets by new media is far from unprecedented. The newspaper industry was subject to disruption when radio developed into a national medium in the 1920s and 1930s. Newspapers were required to differentiate themselves from radio’s news product. When television broadcast networks entered the American market in the 1950s, both newspapers and radio stations were forced to adapt in response to industry disruption.
"Different media channels may serve different roles in the eyes of advertisers, from brand awareness to sale. This is not to say the different channels do not compete. They certainly do on some level. The question for us is, how do they compete?"