The U.S. Federal Trade Commission — not the Department of Justice — is expected to lead the investigation into Amazon’s proposed $8.5 billion purchase of MGM Studios, according to a source familiar with the situation.
The FTC taking the lead on a media and entertainment acquisition is unusual, sources say. The move likely is creating some consternation in the upper reaches of Amazon for one reason: Lina Khan was confirmed last week as the FTC’s new chair.
It was Khan who in 2018 published “Amazon’s Antitrust Paradox” in the Yale Law Journal, a seminal paper that received enormous attention and today is the underpinning of current proposed federal legislation to curb the reach of the tech giants, including Amazon.
In it, she argued against the theory that consumer prices and happiness are the bedrock of antitrust law. Instead, she argued, that Amazon’s size, reach and structural power also creates harm to consumers and competition in the same way the railroads during the 1890s offered cheap prices but no choices.
A spokesperson for the FTC said the agency declined to comment on the pending deal. The DOJ did not return calls seeking comment. An Amazon spokesperson said the company would not comment on the investigation.
University of Washington law professor Jeff Feldman said Khan’s paper pushes at something antitrust law doesn’t deal with very well: How big is too big?
“To state the obvious, Amazon is huge,” he said. “And every time it acquires something it is perceived as getting larger. (But) the one thing antitrust laws don’t restrict is size. Size alone is not against the law. Although we have people in Congress who think it should be.”
Still, Feldman does not think Amazon’s $8.5 billion attempt to purchase MGM violates antitrust standards at all. The reason? Size alone is not a crime. Not yet.
While Amazon has many businesses — a movie and television studio, a cloud computing service, an online retail platform — MGM is, at its most basic, a content provider, with more than 4,000 films and 17,000 TV shows including the James Bond library and shows such as “The Handmaid’s Tale.” It does not have a dominant place in the market.
Amazon’s own streaming service, meanwhile, isn’t the largest provider. So the pairing, while it does make the online giant larger, still won’t dominate the streaming market, given the presence of Netflix, Hulu, HBO, and others.
According to Amazon’s internal analysis, the potential MGM deal is small in comparison to recent acquisitions in the entertainment industry.
MGM is one of the smallest of Hollywood’s established studios with approximately 1% of the total 2020 box office gross in North America, compared to approximately 80% for the top five distributors: Sony Pictures, Universal, Warner Brothers, Walt Disney/20th Century Fox/20th Century Studios, and Paramount Pictures.
“As large as Amazon is, it’s not apparent that the MGM acquisition will be viewed as anti-competitive,” Feldman said.
That might depend, in part, on Khan’s view. And it also will depend on where Congress will go with a battery of antitrust bills currently on the docket.
Congress is considering five bills that would create a framework to dismantle large tech companies into smaller ones; to make mergers more expensive and difficult; to break up businesses that use their dominance in one area to get a stronghold in another; and to stop companies that create purportedly open marketplaces and only to game it to favor their own products.
The sweeping package, with backing from both House Democrats and Republicans, comes after months of congressional inquiries about the enormous power and financial reach of Big Tech and the lack of existing regulation to curtail it.
As the New York Times noted, “Amazon, Apple, Facebook, and Google have a combined market capitalization of $6.3 trillion, four times more than the value of the country’s 10 largest banks.”
Even so, if Amazon has antitrust worries, the MGM purchase isn’t where it should worry, Feldman said. That should instead come from the existential notion of Amazon’s all-consuming reputation and reach. Amazon’s size and appetite are what’s attracting political and social attention.
“There’s a core question that has to be answered and no one yet has an answer to: Is there some size beyond which we don’t want to see businesses operate?” Feldman asked. “We’ve never come to grips with this issue.”
Still, it’s generally been held — at least since the anti-monopoly Sherman Act — that the U.S. government does have a stake in scrutinizing the largest mergers and acquisitions. The scrutiny comes from two primary agencies, the DOJ and the FTC.
Both examine potentially anti-competitive deals but with different emphases. Broadly speaking, the FTC looks at deals through a business- and consumer-protection lens and the DOJ from a legal standpoint, with a focus on antitrust law. At some point, one agency will take a back seat if the issues at hand more directly fall under the other’s expertise.
Feldman said this might have been what happened with the Amazon-MGM deal, which would be a major boon to Amazon’s growing media arm that includes its own film and TV studio.
“It makes sense,” Feldman said. “The FTC tends to be an active voice when businesses at issue have a direct link to consumers. The FTC is particularly sensitive to transactions that have an impact at the retail or consumer level.”
“It doesn’t surprise me at all that they might be taking the lead,” he added.
Still, Feldman doesn’t think Bezos is nervous about the scrutiny, Khan or no. “I don’t think Jeff Bezos gets nervous about anything at this point,” Feldman said laughing. “If you were him, would you be?