The DOJ’s Anti-JSA Arguments Are So 1997

Twenty bureaucrats put their names on the Department of Justice’s 18-page filing last week backing FCC Chairman Tom Wheeler’s plan to force broadcasters to dismantle duopolies that rely on joint sales agreements.

The signatories were topped by no less than William Baer, the head of DOJ’s antitrust division, and also included four deputy assistant attorneys general, a couple of directors, seven chiefs and assistant chiefs, four plain old attorneys and two run-of-the-mill economists.

The filing is a wonder. It’s a wonder why anybody would want to be associated with it.

For all its fancy lawyer and economist talk, the filing has a slap-dash quality and is notably short on substance. What they say in 18 pages could have been said in three.

The filing is anything but clear and straightforward. But the thrust of it seems to be that JSA-based duopolies are anticompetitive in that they give the duopoly broadcasters too much market power — that is, the ability to gouge advertisers on spot TV rates.

The assertion is based largely on DOJ’s insistence that broadcast spot inventory is a rare and precious resource. “Advertising on local broadcast stations has no close substitutes,” the filing says.

The premise is demonstrably false. There may be no perfect substitutes, but there are plenty of close ones — other media that auto dealers, personal injury lawyers and furniture stores can turn to if they don’t like the deal they are getting from the broadcasters.

Randy Bongarten, CEO of Bonten Media Group, made the point last week when he visited FCC officials in an attempt to stave off the JSA crackdown.

“[I]n the highly competitive local advertising market, television stations compete not only against other television stations and radio stations, but also against websites such as Google, Groupon, Yahoo and Microsoft as well as cable and newspapers,” Bongarten says.

Mark Fratrik of BIA/Kelsey says local broadcasters go up against 11 other local media for ad dollars, everything from radio to newspapers to mobile.

Fratrik estimates that TV stations accounted for just 14.8% of the $132.7 billion in local ad spend in 2013 and that the percentage will remain essentially flat for the next four years.

With 5.2% of the market in 2013 (to grow to 5.7% by 2017), cable is the most direct competitor, he says. “It has the same type of access to local audiences as TV stations. The best example is Monday Night Football on ESPN. How is that any different than Sunday Night Football on the local NBC affiliate?”

The medium to watch is mobile, Fratrik says. Its share of the local ad spend will go from 2.1% to 7.1% between now and 2017 and much of the advertising will be video.

In his visit to the commission this week, Jay Howell, the new head of television of LIN Media, told officials that the competition from cable is “intensifying.”

According to a public record of his discussions, Howell argued that with the use of interconnects and their own joint sales arrangements, MVPDs are “taking larger shares of the local television advertising pie each year.

“They cannot simply be ignored when considering an agency rule to regulate identical business practices by local broadcast stations with which they compete.”

Schurz Communications and Entravision poked another hole in the DOJ filing this week during its trip to the FCC.

Given the DOJ’s professed interest in case-by-case review of TV deals, the two stations groups say in an account of their meetings, it was surprised that it backed Wheeler’s plan for what amounts to a blanket ban on JSA-based duopolies.

“Such a bright line test, ignoring the identity of the stations involved in any agreement and failing to account for increases in competition or of service to the public, is at odds with how Department of Justice itself handles agreements among television stations.

“Its recommendation, therefore, should carry little weight.”

I can see why the DOJ’s job of assessing the antitrust aspects of a merger is tough. In most cases, the lawyers and economists have to guess at what the competitive impact will be based on what they can reasonably deduce from an examination of the companies and their markets.

But in the case of JSAs, all the DOJ has to do is ask to find out exactly what is happening. JSAs and duopolies of all varieties now have a long history in television. There is no mystery about who is running them and where they are.

The DOJ could go to Augusta, Ga., or Montgomery, Ala., or Dayton, Ohio, and talk to advertisers and their agencies about the competitiveness of the media markets.

What impact did the advent of duopolies have on spot rates? Did they go up or down? If up, by how much? Did you actually lose business as a result of the higher rates and your inability to advertise on broadcast TV as much? Is cable TV a credible alternative to broadcast TV?

I don’t think the DOJ investigators would turn up much to support its anti-JSA stance.

I have never heard any complaints about JSAs from advertisers and, as far as I can determine, there are none in the FCC record. You would think that if advertisers felt they were getting screwed, they would be screaming and clamoring for action.

Cable and satellite operators who feel that duopolies give broadcasters undue leverage in retrans negotiations have made their feelings clear. They have been all over the FCC demanding restrictions on duopolies and may be a big reason Wheeler is acting.

In its filing, the DOJ references comments it made in a similar FCC proceedings in 1997, saying they continue to make a lot of sense.

1997?! That’s 17 years ago. I would say that anything written about media markets in 1997 is totally irrelevant today. In 1997, you could barely pass an audio signal across the Interest, let alone TV. Newspapers were fat with classified ads, satellite TV was just getting off the ground, Google was on the drawing board and Mark Zuckerberg was prepping for his bar mitzvah.

If the broadcasters lose at the FCC and they have to unwind their JSA-based duopolies, you can bet that they will mount ferocious legal challenges. The financial damage will be extensive.

The DOJ filing might encourage Wheeler today, but it will do him little good if this all ends up in court. All those names do not a compelling argument make.

Harry A. Jessell is editor of TVNewsCheck. He can be contacted at 973-701-1067 or [email protected]. You can read earlier columns here.