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Rethinking antitrust's role in digital advertising competition


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Rethinking antitrust's role in digital advertising competition

With Alphabet Inc. and Facebook Inc. dominating the digital advertising market, some economists and antitrust experts suggest that mergers of traditional providers Time Warner Inc. and AT&T Inc. should be approved, while others believe regulators should limit the size of the new media giants.

In defending AT&T's proposed deal against charges that it is anticompetitive, CEO Randall Stephenson noted players in the communications and media are increasingly competing against "massive, large-scale internet companies with market caps in the hundreds of billions of dollars," all of whom are distributing content and advertising directly to consumers. This is in line with comments from Time Warner executives, including Turner CEO John Martin who said earlier this year that "competing against Facebook and Google for ad share [and] using data and mobile to win that battle" is something Turner could not do by itself.

Ryan Hagemann — director of technology policy at the Niskanen Center, a libertarian think tank — said in an interview that he sees the companies' argument as "a pretty solid one." "Telecommunications companies, and ISPs in particular, have been lagging when it comes to competing with Google and Facebook on both advertising and, perhaps more importantly, content distribution," Hagemann said. The U.S. Justice Department filed a lawsuit to block the AT&T/Time Warner transaction.

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According to estimates from Kagan, a media research group within S&P Global Market Intelligence, Google is set to claim a 47.2% share of the U.S. digital ad market in 2017, and Facebook is set to garner a 22.8% share. By comparison, Microsoft Corp. and Verizon Communications Inc.'s Oath business — the No. 3 and 4 companies in the digital advertising market, respectively — are each set to claim less than a 5% share. Inc. and Twitter Inc. are each set to capture less than a 2% share.

Within the pay TV industry, Liz Janneman, executive vice president of network programming at the independent channel Ovation (US), said the growing concentration of power between Google and Facebook is a major concern for content creators. She would like to see a combined AT&T/Time Warner come into the market as a competitor, as it could potentially offer advanced advertising solutions for players in the pay TV space.

"If there is a way for us to distribute more content in a meaningful way to consumers with insights and data that will help us — and AT&T and DIRECTV could provide that to us — that's a benefit," she said. "So from an Ovation perspective, this [deal] is incredibly beneficial and we're supportive. From the industry perspective, this is exactly what the industry needs to compete with Google and Facebook," she said.

But Luigi Zingales, director of the Stigler Center for the Study of the Economy and the State at the University of Chicago, has an alternative solution. At the same time the Justice Department is seeking to block the AT&T/Time Warner deal, Zingales said regulators should take a more active role in preventing the further growth of online giants. He pointed to the antitrust enforcement actions taken against Microsoft in the late 1990s, when the U.S. Justice Department and myriad states sued Microsoft for allegedly monopolizing the PC operating system market and attempting to monopolize the internet browser market. Although one federal judge initially sided with the government and called for Microsoft to be split up, the company ultimately avoided that fate by signing a 2002 consent decree barring Microsoft from various behaviors.

"Google and Facebook today are not part of Microsoft because Microsoft was under intense scrutiny from antitrust authority," Zingales said at a Nov. 27 event sponsored by the conservative think tank the American Enterprise Institute. "So if you want to create a space for the new startup, I think some intervention is needed."

James Pethokoukis, a columnist and blogger at American Enterprise Institute, agreed, saying he shared Zingales' concerns about the tech companies' growing power.

Janneman, though, said a breakup or similar enforcement action against Google and Facebook "would be certainly overreaching," adding that she does not see it as "a viable option."

Hagemann agreed, saying bigger is not always bad when it comes to antitrust matters. "Large firms tend to be better in delivering higher levels of consumer welfare because they tend to be more efficient," he said, adding, "Ultimately, it's not the size or structure of a firm that matters, but the attendant effects on consumer welfare."