{"id":2040,"date":"2019-12-08T05:18:49","date_gmt":"2019-12-08T05:18:49","guid":{"rendered":"https:\/\/delaneysilva.com\/blog\/?p=2040"},"modified":"2019-12-10T19:10:05","modified_gmt":"2019-12-10T19:10:05","slug":"is-disney-turning-to-the-dark-side-a-commentary-on-competition-law","status":"publish","type":"post","link":"https:\/\/delaneysilva.com\/blog\/is-disney-turning-to-the-dark-side-a-commentary-on-competition-law\/","title":{"rendered":"Is Disney Turning to the Dark Side?: A commentary on Competition Law"},"content":{"rendered":"\n

On November 20,\n2017 the U.S. Justice Department filed a suit against the announced merger\nbetween AT&T and Time-Warner, arguing that the resulting company would end\nup with an unmatched dominant position in the media market that would lead to\nabuses and unfair practices against its competitors and consumers in general.\nAT&T was one of the biggest telephone and internet providers in the U.S.\nand in 2015 it acquired DirecTV, which was the largest satellite company in the\ncountry. On the other hand, Time-Warner owned important media and content\nproduction companies such as cable channels HBO, TNT and CNN, as well as the\nWarner Bros. movie studio.<\/p>\n\n\n\n

Both companies\nstated that the merger \u2014 in which AT&T would acquire Time-Warner for $108.7\nbillion \u2014 had the purpose of combining the universe of media content,\nprogramming and original productions of Time-Warner with the digital and\nsatellite platforms of AT&T and DirecTV. They claimed that the merger would\nbenefit consumers because distribution rights and licensing costs would be\nreduced since the service provider would now own the content, which would translate\nto lower monthly bills to its clients. Both AT&T and Time-Warner asserted\nthat they operated in different relevant markets and that each division would\ncontinue to compete separately with their own competitors, so the marketplace\nwould not be affected.<\/p>\n\n\n\n

“Some experts compare [the abuse of dominant position] to school-yard bullying, where a bigger kid picks on a smaller one just because he’s small.”<\/strong><\/p><\/blockquote>\n\n\n\n

The Justice\nDepartment argued that the merger would result in serious detriment to\nconsumers since AT&T competitors would receive unfavorable fees and\nconditions for distribution rights and licensing of Time-Warner channels and\nmedia content. Some smaller providers, without the capacity to take on these\nunfavorable fees and conditions, may either opt out of distributing Time-Warner\nchannels and media content all together, or accept them by raising prices to\ntheir customers in order to cushion this increase in costs. In both cases,\nAT&T would be left as the only viable option for consumers, either by price\nor by content.<\/p>\n\n\n\n

Ultimately, AT&T and Time-Warner came out victorious in the courts, and the merger was confirmed in June 2018. The resulting company is now known as Warner Media. However, the controversy certainly put the spotlight on the topic of free competition and the risks that a company with dominant position in the market may represent. Abuse of this dominant position happens when companies take advantage of their financial strength or sizeable market share to unfairly exploit the vulnerability of its weaker competitors with the only purpose of limiting competition or pushing them out of the marketplace altogether. Some experts compare it to school-yard bullying<\/em>, where a bigger kid picks on a smaller one just because he\u2019s small.<\/p>\n\n\n\n

For instance, Star Wars<\/em> fans anxiously awaited the\npremier of Episode VIII: The Last Jedi<\/em>,\nin 2017. It was expected that this would be one of the biggest blockbusters of\nthe year and would rake in hundreds of millions of dollars in worldwide box-office\nrevenue for Disney \u2014 the parent company of Lucasfilm Studios, which owns the\nfranchise\u2014as well as for movie-theater chains and cinemas that screened it.\nUnfortunately, not every movie theater was able to do so.<\/p>\n\n\n\n

The Wall Street Journal<\/em> reported that Disney imposed a\nseries of conditions to movie-theater chains and cinemas that wished to screen\nthe film. It said that Disney was demanding up to 65% of revenue from ticket\nsales and that the movie be screened in the biggest theater for up to 4\nstraight weeks. Some cinema operators called these conditions \u201cthe most\nonerous\u201d they had ever seen.<\/p>\n\n\n\n

Disney is relying\non the fact that it is the most successful movie studio in the world, being the\nparent company not only of Lucasfilm Studios (Star Wars<\/em>, Indiana Jones<\/em>),\nbut also of Marvel Studios (Avengers<\/em>, Spider Man<\/em>), Pixar Animation Studios (Toy Story<\/em>, Frozen<\/em>), Disney Animation Studios (The Lion King<\/em>, The Little\nMermaid<\/em>), and Walt Disney Studios (Mary\nPoppins<\/em>, Pirates of the Caribbean<\/em>),\namong others. This gives Disney tremendous advantage when negotiating with\nmovie-theater chains and cinemas, because if they refuse or oppose Disney\u2019s\nimpositions they risk losing the right to screen the movies from any, or all,\nof its other studios \u2014which have produced some of the biggest box-office successes\nin history and are highly profitable for cinema operators.<\/p>\n\n\n\n

The problem lies in the fact that bigger movie-theater chains with many screens may be able to accommodate Disney\u2019s demands, but a small local cinema with only 1 or 2 screens cannot. On the one hand, total revenue and profit margins are lower for smaller cinemas, so the financial impact of paying 65% of ticket sales is greater. And on the other hand, compromising their largest theater to screen the same movie for 4 straight weeks limits their ability to screen other films from other studios, which may promise to be as successful in the box-office. As a result, smaller cinemas would be left to compete unfairly with bigger movie-theater chains, and other movie studios to compete unfairly with Disney. Executives at Disney know this — but at the end of the day, they<\/em> are the biggest kid in the school-yard.<\/p>\n\n\n\n

In Disney\u2019s own Star Wars<\/em> saga Anakin Skywalker was blinded by his pretenses of greatness and eventually succumbed to the Dark Side to become iconic bad-guy, Darth Vader. It seems here that Disney\u2019s pretenses of success may also be guiding it to eventually turn a dark path in an already obscure and highly-concentrated media market.<\/p>\n\n\n\n

\"\"<\/figure><\/div>\n","protected":false},"excerpt":{"rendered":"

Some experts compare [the abuse of dominant position] to school-yard bullying, where a bigger kid picks on a smaller one just because he’s 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