M&A in the media industry is about to pick up. Recently, the U.S. Supreme Court upheld the U.S. Federal Communications Commission’s (FCC) 2017 rollback of media ownership limits. Media companies that once avoided specific acquisitions due to regulatory ownership limits may now take a second look. But passing through FCC review is only part of the equation, with the U.S. Department of Justice Antitrust Division (DOJ) and many State Attorneys General frequently taking a hard look at deals in this sector. The Supreme Court’s decision affirming the FCC’s relaxation of its ownership limits means that antitrust scrutiny may now play a larger role in the clearance of media mergers as media companies look to make acquisitions past the FCC’s prior limits.
Background on FCC Media Ownership Limits
Congress authorized the FCC to distribute broadcast licenses consistent with the public interest. Under this charge, the FCC has historically imposed strict rules limiting a single entity’s ownership of television, radio, and newspaper properties within a single local market (as defined by the agency). As the media landscape has evolved over the years, the FCC’s ownership rules have engendered vigorous debate. Proponents insist ownership caps are needed to ensure diversity in content and perspectives available to the American public. Opponents respond that these limits are increasingly out of touch with the proliferation of digital technologies that provide Americans access to a wide variety of information through non-broadcast channels.
In 2017, as part of its quadrennial review of its media ownership rules, the FCC eliminated most of its local ownership limits based on its conclusion that continuation of these rules “no longer serves the public interest” and that “rapidly evolving technology and the rise of new media outlets—particularly cable and Internet—had transformed how Americans obtain news and entertainment, rendering some of the ownership rules obsolete.”
Challenging the FCC’s Rollback
Prometheus Radio Project and several other public interest and consumer advocacy groups petitioned for review of the FCC’s 2017 media ownership rules, arguing that the FCC’s decision to repeal or modify the Newspaper/Broadcast Cross-Ownership Rule, the Radio-Television Cross-Ownership Rule, and the Local Television Ownership Rule was arbitrary and capricious under the Administrative Procedure Act (APA).
The Third Circuit vacated the FCC’s reconsideration order, but the U.S. Supreme Court unanimously reversed, holding instead that the FCC’s decision to repeal or modify these three ownership rules was not arbitrary and capricious for purposes of the APA.
Impact on Media M&A
Media companies are likely to test the new regulatory waters with a wave of mergers and acquisitions. The FCC’s decision to eliminate most of its prior ownership limits, and the certainty now provided by the Supreme Court’s decision to uphold the FCC action, will facilitate transactions between TV and radio stations, as prospective new owners will no longer have to “shed stations” to gain FCC approval, unlike the potential 2017 Sinclair-Tribune merger that fell through. Broadcasters will now have reason to consider, and the opportunity to consummate deals that could give them “greater scale to compete with cable and internet companies for local ad revenue.”
While the FCC’s new media ownership regulations should allow for greater deal flexibility, obtaining regulatory approval will continue to require review, sometimes by multiple agencies. First, the FCC will still review the transaction to ensure it is in the public interest as it does with all applications to transfer spectrum. Although the relaxed media ownership regulations pave the way for an easier review, it is uncertain how the current FCC, which lacks the Republican majority it had in 2017, will apply the 2017 regulations. Also, third parties and political opposition can use the FCC’s process to slow or even halt a transaction and prompt the FCC to impose conditions on a transaction or block it all together. Second, U.S. antitrust enforcers—the DOJ and State AGs—will likely play a key role in media merger review because deals that would not have made it past the boardroom because of the FCC rules may now be attempted and draw heightened antitrust scrutiny and agency advocacy by stakeholders. Furthermore, the DOJ may be particularly active in the telecommunications space given that the reported list of likely nominees for Assistant Attorney General of the Antitrust Division includes at least one prominent telecommunications lawyer and former general counsel of the FCC.
How the Antirust Regime is Different
Parties considering a media deal in this new landscape should take into account some practical factors that might influence antitrust agency deal reviews:
- Antitrust laws protect competition, not competitors. While the FCC may seek to ensure a diversity of voices in the media landscape as part of the agency’s public interest analysis, such considerations typically have not been the central focus of federal antitrust agency reviews. Most antitrust analysis has assessed the potential impact of a deal on advertisers and consumers, with an emphasis on preserving competition incentives and consumer welfare after the transaction. However, the agencies will assess unique sources of demand for a product or service in analyzing a transaction. If consumers and advertisers differentiate between media with a specific perspective or voice (e.g., conservative news sources, minority-specific programming, foreign language news), the antitrust authorities may analyze competition in narrower markets associated with those voices. For example, in its market allocation lawsuit against Village Voice Media, the DOJ focused on the narrow market of “alternative newsweeklies in metropolitan Cleveland, Ohio and Los Angeles, California.” Also, in analyzing the proposed merger between Hispanic Broadcasting Corporation and Univision Communications, Inc., the DOJ examined only “Spanish-language radio” because “advertisers would not turn to other media.”
- Antitrust markets may differ from the FCC’s boundaries.Antitrust reviews require enforcers to determine a relevant product and geographic market in which to assess the proposed merger’s impact on competition. What is seen as a relevant antitrust market could be meaningfully different from the broadcast and local ad markets the FCC typically considered.
- Antitrust product markets may not distinguish between types of media. Whereas the prior FCC media ownership rules placed great importance on the type of communication channel (e.g., TV, radio, etc.), and antitrust agencies have typically viewed competition the same way, an antitrust assessment focused closely on consumer and advertiser media usage and purchasing behavior could in the future determine that one medium competes with another, particularly to the extent that content distribution includes online channels. For example, in the ATT/Time Warner matter, the parties agreed that “a market of All Video Distribution services that includes subscription video on-demand services in addition to multiple video programming distribution (MVPD) services and virtual MVPDs likewise meets the hypothetical monopolist test.”
- Antitrust geographic markets may not be limited to broadcast markets. If consumers in a certain location could meaningfully turn to competing media that originates in a different location, such media could be included in the relevant antitrust market. The relevant geographic market could even be broadened to a national scope if antitrust enforcers (or courts) are persuaded that internet sources should be included in the relevant product market. However, if arguments prevail that consumers principally look to local substitutes, the antitrust geographic market could remain at the broadcast market level or possibly even narrower.
- Antitrust analyses may give greater weight to efficiency justifications. Media companies that objected to the FCC’s prior media ownership rules often argued that it was inefficient to operate on such a small scale and that a larger organization that could reach more people with the same content could invest in better programming. While the FCC analysis under the prior media ownership rules strictly applied quantitative limits based on market structure, these procompetitive efficiency justifications can play a meaningful role in antitrust analyses. In fact, the Horizontal Merger Guidelines explicitly recognize efficiencies, noting that “a primary benefit of mergers to the economy is their potential to generate significant efficiencies.”
- Antitrust analysis may also consider spectrum scarcity. Part of the justification for the FCC’s mandate to set media ownership rules is that broadcast spectrum is scarce, although technological developments have made it less so. Antitrust analysis would consider the ability of companies to enter as a competitor and whether scarcity of essential resources imposes some limit on possible entry (as it could if a product market is limited to broadcast media). For example, in reviewing a proposed sale of wireless spectrum between Verizon and Comcast, the DOJ analyzed the competitive effects against the backdrop that the transaction would “facilitate active use of an important national resource.” Similarly, when several states unsuccessfully attempted to block the Sprint/T-Mobile merger, State Attorneys General argued spectrum scarcity limited mobile wireless entry, which Judge Marrero referenced in his opinion.
- Antitrust enforcers have stepped up challenges of vertical combinations. U.S. antitrust enforcers are paying more attention to vertical mergers. The FTC is pushing aggressively on vertical merger enforcement, the DOJ challenged its first vertical merger in decades (AT&T/Time Warner), and the FTC and DOJ together revised the Vertical Merger Guidelines. Although it is not clear how the DOJ will proceed in the wake of its unsuccessful challenge of AT&T/Time Warner, the DOJ could look to reset through enforcement in the telecommunications space.
Implications for Future Media Ownership Regulation
It is unclear how long this window of reduced regulation could last. The FCC is due to reevaluate its media ownership rules soon. While the FCC’s currently even split between Democrats and Republicans could delay meaningful change, once a fifth Commissioner is seated, the dynamic may shift in favor of renewed regulation or structural limits on consolidation in media and communications industries.
 In re 2014 Quadrennial Regulatory Review—Order on Reconsideration and Notice of Proposed Rulemaking, 32 FCC Rcd. 9802 (2017).
 FCC v. Prometheus Radio Project, 592 U.S. ___ (2021); In re 2014 Quadrennial Regulatory Review—Order on Reconsideration and Notice of Proposed Rulemaking, 32 FCC Rcd. 9802 (2017).
 The Newspaper Broadcast Cross-Ownership Rule prohibited “common ownership of a full-power broadcast station (AM, FM, or TV) and a daily newspaper if the station’s contour (defined separately by type of station) completely encompasses the newspaper’s city of publication and the station and newspapers are in the same relevant Nielsen market, when defined.” FCC Fact Sheet: Review of the Commission’s Broadcast Ownership Rules, Joint Sales Agreements, and Shared Services Agreements, and Comment Sought on an Incubator Program, https://docs.fcc.gov/public/attachments/DOC-347796A2.pdf.
 The Radio/Television Cross-Ownership Rule prohibited an entity from “owning more than two television stations and one radio station in the same market, unless the market meets certain size criteria.”
 In amending the Local Television Ownership Rule, the FCC eliminated the “Eight Voices Test,” which is the “requirement that at least eight independently owned television stations must remain in the market following the combination of two television stations in a market.” The FCC also modified the prohibition against common ownership of two top-four rated stations in a local market, allowing applicants to instead “seek case-by-case review of a transaction in order to account for circumstances in which strict application of the Top-Four Prohibition may be unwarranted.” FCC Fact Sheet: Review of the Commission’s Broadcast Ownership Rules, Joint Sales Agreements, and Shared Services Agreements, and Comment Sought on an Incubator Program, https://docs.fcc.gov/public/attachments/DOC-347796A2.pdf.
 Prometheus Radio Project v. Federal Communications Commission, 939 F.3d 567, 584 (2019).
 FCC v. Prometheus Radio Project, 592 U.S. ___ (2021).
 Greg Stohr and Todd Shields, Supreme Court Backs FCC, Allows Relaxed Media-Ownership Limits, Bloomberg Politics (April 1, 2021), https://www.bloomberg.com/news/articles/2021-04-01/supreme-court-rules-fcc-can-relax-media-ownership-rules.
 Ted Johnson, The FCC Just Passed the Most Significant Changes to Media Ownership Regulations in a Generation, Business Insider (Nov. 16, 2017), https://www.businessinsider.com/fcc-passes-media-ownership-regulations-rules-2017-11.
 For more information about the FCC’s review process, visit https://www.fcc.gov/reports-research/guides/mergers-frequently-asked-questions or https://www.fcc.gov/news-events/blog/2014/08/12/fcc-transaction-review-competition-and-public-interest.
 For information on DOJ antitrust enforcement, visit https://www.justice.gov/atr/division-manual.
 Brunswick Corp. v. Pueblo Bowl-O-Mar, Inc., 429 U.S. 477, 488 (1977).
 Complaint at 1, U.S. v. Village Voice Media, LLC, 2003 WL 21659092 (N.D.Ohio 2003) (No. 1:03CV0164) (available at https://www.justice.gov/atr/case-document/complaint-244).
 Competitive Impact Statement at 5, U.S. v. Univision Commc’ns Inc., 2003 WL 23192527 (D.D.C. 2003) (No. 1:03CV00758) (available at https://www.justice.gov/atr/case-document/file/514321/download).
 See, e.g., Babette E. Boliek, FCC Regulation Versus Antitrust: How Net Neutrality is Defining the Boundaries, 52 B.C.L. Rev. 1627 (2011), http://lawdigitalcommons.bc.edu/bclr/vol52/iss5/2.
 Proposed Findings of Fact of the United States at 12-13, U.S. v. AT&T Inc., DirecTV Group Holdings, LLC, and Time Warner Inc. (D.D.C. 2018) (No. 1:17-cv-02511 (RJL)), https://www.justice.gov/atr/case-document/file/1061071/download. See also U.S. and Plaintiff States v. Comcast Corp., et al, where the DOJ concluded that the “market for video programming distribution includes both MVPDs and OVDs,” even though the DOJ did recognize distinctions between the two. Competitive Impact Statement, U.S. and Plaintiff States v. Comcast Corp., et al. (D.D.C. 2011) (1:11-cv-00106), available at https://www.justice.gov/atr/case-document/competitive-impact-statement-72. The final judgment required the joint venture to license its broadcast, cable, and film content to online video distributors (OVDs) on terms comparable to those contained in similar licensing arrangements with traditional multichannel video programming distributors (MVPDs) or OVDs. Final Judgment, U.S. and Plaintiff States v. Comcast Corp., et al. (D.D.C. 2011) (1:11-cv-00106), available at https://www.justice.gov/atr/case-document/file/492196/download.
 “In defining the geographic market or markets affected by a merger, the Agency will begin with the location of each merging firm (or each plant of a multiplant firm) and ask what would happen if a hypothetical monopolist of the relevant product at that point imposed at least a “small but significant and nontransitory” increase in price, but the terms of sale at all other locations remained constant. If, in response to the price increase, the reduction in sales of the product at that location would be large enough that a hypothetical monopolist producing or selling the relevant product at the merging firm's location would not find it profitable to impose such an increase in price, then the Agency will add the location from which production is the next-best substitute for production at the merging firm's location.” DOJ Horizontal Merger Guidelines, available at https://www.justice.gov/atr/horizontal-merger-guidelines-0#1.
 DOJ Horizontal Merger Guidelines, available at https://www.justice.gov/atr/horizontal-merger-guidelines-0#1; see also William J. Jokasky and Andrew R. Dick, The Merger Guidelines and the Integration of Efficiencies into Antitrust Review of Horizontal Mergers, Department of Justice Archives, Antitrust Division (Jul. 11, 2007), https://www.justice.gov/sites/default/files/atr/legacy/2007/07/11/11254.pdf. (“In 1990, efficiency arguments played a key role in securing FTC clearance, over serious staff objections, for a merger of the two leading worldwide producers of turbo expanders, which are used to liquify gases. The merger created a firm with market shares, both in the U.S. and globally, well in excess of 60%.”)
 For example, the DOJ noted that “bands of spectrum have different characteristics that may affect the competitive landscape.” In the Matter of Policies Regarding Mobile Spectrum Holdings, WT Docket No. 12-269, Ex Parte Submission of the United States Department of Justice Executive Summary (Apr. 11, 2013), https://ecfsapi.fcc.gov/file/7022269624.pdf.
 See, e.g., Ex Parte Submission of the United States Department of Justice in the Matter of Policies Regarding Mobile Spectrum Holdings (May 14, 2014), https://www.justice.gov/sites/default/files/atr/legacy/2014/05/15/305961.pdf (“In particular, low-frequency spectrum remains a competitively critical input. Low-frequency spectrum also remains especially scarce. As many commenters have noted, and as the Department’s own comments acknowledged, for some purposes, such as expanding capacity in dense urban areas, high-frequency spectrum can be just as suitable as low-frequency spectrum. However, some aspects of wireless coverage and quality, such as strong rural or in-building coverage, simply cannot be provided as cost-effectively without low-frequency spectrum. If the largest providers are able to use a foreclosure strategy, they will be able to exercise a degree of market power, at least in certain areas, due to their networks’ superior coverage characteristics.”).
 Press Release, Dep’t of Just. Off. of Pub. Affs., Justice Department Requires Changes to Verizon-Cable Company Transactions to Protect Consumers, Allows Procompetitive Spectrum Acquisitions to Go Forward (Aug. 16, 2012) (available at https://www.justice.gov/opa/pr/justice-department-requires-changes-verizon-cable-company-transactions-protect-consumers).
 New York v. Deutsche Telekom AG, 439 F.Supp.3d 179, 192 (S.D.N.Y. 2020) (“spectrum is a scarce resource and consequently costly to acquire”).
 U.S. Fed. Trade Comm’n. Commentary on Vertical Merger Enforcement (Dec. 2020). See also Press Release, Fed. Trade Comm’n, FTC Challenges Illumina’s Proposed Acquisition of Cancer Detection Test Maker Grail (Mar. 30, 2021 (available at https://www.ftc.gov/news-events/press-releases/2021/03/ftc-challenges-illuminas-proposed-acquisition-cancer-detection).
 U.S. v. AT&T., Inc., 916 F.3d 1029 (D.C. Cir. 2019).
 U.S. Dep’t of Justice & Fed. Trade Comm’n, Vertical Merger Guidelines (June 30, 2020). However, not all FTC Commissioners supported the revised Vertical Merger Guidelines. Fed. Trade Comm’n, Dissenting Statement of Commissioner Rebecca Kelly Slaughter, In re FTC-DOJ Vertical Merger Guidelines, Commission File No. P810034 (June 30, 2020) (available at https://www.ftc.gov/system/files/documents/public_statements/1577499/vmgslaughterdissent.pdf).