Antitrust Lawyer Blog Commentary on Current Developments

DOJ Approves Broadcast Merger With Conditions

On October 30, 2014, the Antitrust Division filed a complaint along with a proposed settlement agreement that allows Media General Inc.’s acquisition of LIN Media, LLC for $1.5 billion to be consummated, as long as the parties divest certain broadcast stations.

Background

Media General’s local broadcast stations and LIN’s stations in various designated marketing areas (“DMA”) around the country compete head-to-head in the sale of broadcast television spot advertising.  The Antitrust Division determined that Media General and LIN’s broadcast stations located in the Birmingham, Alabama, DMA; Savannah, Georgia, DMA; Mobile, Alabama/Pensacola, Florida DMA; Providence, Rhode Island/New Bedford, Massachusetts, DMA; and Green Bay/Appleton, Wisconsin, DMA competed head to head in the sale of broadcast television spot advertising to local and national advertisers.

The Antitrust Division explains that broadcast television stations attract viewers through their programming, which is delivered for free over the air or retransmitted to viewers, mainly through wired cable or satellite television systems.  Broadcast television stations then sell advertising time to businesses that want to advertise their products to television viewers.  Broadcast television “spot” advertising is sold directly by the station itself or through its national representative on a localized basis and is purchased by advertisers who want to target potential customers in specific geographic areas. Spot advertising differs from network and syndicated television advertising, which are sold by television networks and producers of syndicated programs on a nationwide basis and broadcast in every market where the network or syndicated program is aired.

The Antitrust Division has been consistent over the years on how it defines advertising markets by media.  Indeed, it alleges that broadcast television spot advertising possesses a unique combination of attributes that set it apart from advertising using other types of media.  Other media, such as radio, newspapers, internet (banner ads or video offerings such as Netflix and Hulu), or outdoor billboards, are not substitutes for broadcast television advertising.  None of these media can provide the important combination of sight, sound, and motion that makes television unique and impactful as a medium for advertising.

The Antitrust Division further alleges that subscription television channels, such as those carried over cable or satellite television, are not a desirable substitute for broadcast television spot advertising for two important reasons. First, satellite, cable, and other subscription content delivery systems do not have the “reach” of broadcast television because typically, broadcast television can reach well-over 90% of homes in a DMA, while cable television often reaches many fewer homes. Thus, cable spot advertising does not match the reach of broadcast television spot advertising.  As a result, an advertiser can achieve greater audience penetration through broadcast television spot advertising. Second, because subscription services may offer more than 100 channels, they fragment the audience into small demographic segments so it is more efficient to advertise on local broadcast stations.  The Antitrust Division further claims that advertisers buy advertising on other forms of media as a complement not a substitute for local broadcast stations. Broadcast television stations negotiate prices individually with advertisers and charge different advertisers different prices.

The Antitrust Division alleges that DMAs are relevant geographic markets.  Broadcast station ownership in each of the DMA markets is already significantly concentrated.  In each of these markets, four stations, each affiliated with a major network, had more than 90 percent of gross advertising revenues in 2013.  Because there would be a reduction of competition in each of the identified DMA, it was likely that the merging parties would have had the ability to profitably raise prices to those advertisers who view broadcast television as a necessary advertising medium, either as their sole means of advertising or as a necessary part of a total advertising plan.

Settlement

To resolve antitrust concerns raised by the acquisition, the Antitrust Division is requiring Media General to divest WVTM-TV(NBC), located in the Birmingham, Alabama DMA; WJCL-TV (ABC) and WTGS (FOX), both located in the Savannah, Georgia, DMA; WALA-TV (FOX), located in the Mobile, Alabama/Pensacola, Florida, DMA; WJAR-TV (NBC), located in the Providence, Rhode Island/New Bedford, Massachusetts, DMA; and WLUK-TV(FOX) and WCWF-TV (CW), both located in the Green Bay/Appleton, Wisconsin, DMA.  Without the required divestitures, prices for broadcast television spot advertising would likely increase to advertisers in the identified DMAs.

Under the terms of the proposed settlement, Media General and LIN must divest assets used in the operation of WVTM-TV and WJCL-TV to Hearst Television Inc.; WALA-TV to Meredith Corporation; and WJAR-TV, WLUK-TV, WCWF-TV, and WTGS to Sinclair Broadcast Group Inc., or to other acquirers approved by the United States.

Lessons Learned

The Antitrust Division’s complaint against this merger of local broadcast stations demonstrates the government’s resolve to prevent anticompetitive mergers that would otherwise lead to higher prices for spot advertising sold to local and national advertisers.  The complaint demonstrates that the Antitrust Division examines how advertisers buy advertising when it defines relevant advertising markets.  Because advertisers buy advertising in various media to supplement the overall advertising or marketing plan and not as substitutes for each other, the Antitrust Division defines advertising markets by media.

Andre Barlow
(202) 589-1838
abarlow@dbmlawgroup.com