Chen Yongwei
Ever since Biden appointed Lina Khan, author of "Amazon's Antitrust Paradum," as chair of the Federal Trade Commission (FTC), there has been speculation about when the young "ministerial cadre, known for his opposition to tech giants like Amazon," will go to war against Amazon, an "old enemy." Fast forward a year, however, and the FTC doesn't seem to have launched any meaningful offense, except for some routine investigations of Amazon and some war of words.
However, this calm may soon be broken. Recently, Amazon revealed to the outside world that it has provided the FTC's antitrust investigators with all the information it asked for about its acquisition of MGM Film and Television Productions. This means that the FTC may be in the middle of this long-planned merger and acquisition by Amazon. If so, then Lena Khan and Bezos, opponents who have been fighting each other for several years, will be really in court for the first time.
According to U.S. practice, companies need to file a declaration with anti-monopoly law enforcement agencies such as the FTC before executing large-scale mergers and acquisitions. If law enforcement agencies believe that the merger will have a clear negative impact on U.S. business, they can sue the court and ask the court to issue an injunction to terminate the merger. According to the regulations, the time limit for the FTC to file a lawsuit against Amazon expires in mid-March, so if the FTC is really interested in spoiling the deal, then the time to do so should be in the next few days.
As a potential anti-monopoly case, this case has a lot to watch. As an e-commerce company, Amazon decided to spend a huge amount of $8.45 billion to acquire a film company like MGM. If the merger is completed, what kind of return will it bring to Amazon, and what impact will it have on the market? If the FTC were to stop Amazon, what might be the basis for that? If Amazon's merger is blocked, how will it affect the future business environment and antitrust?
The journey of Amazon streaming video
Amazon tried to buy MGM, of course, not because Bezos was obsessed with "007" or "Terminator", nor because it wanted to support the arts and develop the film industry. It did this to take advantage of MGM's rich content resources to make up for its shortcomings in streamingmedia video.
Although in the public perception, Amazon is an e-commerce company, in fact, its scope of operations is very diverse. For example, it is actually the world's largest cloud service provider, as well as the largest smart speaker provider, and has a deep layout in the field of logistics. Although the streaming video business Amazon PrimeVideo is not as well-known as the previous businesses, it is also a link that cannot be ignored in Amazon's ecosystem.
Amazon PrimeVideo's predecessor dates back to the Launch of the AmazonUnbox service in 2006. The service is somewhat similar to Apple's iTunes, where users can purchase videos they are interested in to watch. Unlike today's streaming media, which can be viewed directly without downloading, AmazonUnbox provides playback services in a "ProgressiveDownload" manner. The so-called "progressive download", also known as "pseudo-streaming", users can play directly without downloading first, but after the playback is complete, the file will still be downloaded locally. Although this technology is still relatively backward compared with the streaming media mode that is now played entirely in the cloud, it is still very advanced compared with the popular way of downloading first and then playing, or buying DVDs to play. However, the drawbacks of this technology are also obvious. For example, viewing and downloading generated a large number of local files, as well as the restriction that must be downloaded within 24 hours after purchase, all made users at the time complain.
In response to this situation, Amazon then upgraded the "progressive download" technology to a more advanced streaming technology, so that users can watch the movie at any time after purchasing the movie, without downloading. Correspondingly, the name Unbox was changed to Amazon PrimeInstantVideo, which was subsequently renamed Amazon PrimeVideo. By 2011, Amazon PrimeVideo was integrated into Amazon Prime, Amazon's membership service.
At the time, amazon PrimeVideo, part of Amazon Prime, was no longer available for on-demand purchases like Unbox. If users want to get the service, the only way to do that is to buy Amazon Prime membership for an annual subscription fee of $119. AmazonPrime's original discounts, free shipping and other services, their own subscription fees are tens of dollars, so overall, the new AmazonPrime service package price has certain advantages. However, this single bundled pricing strategy is not popular with all users. After all, not all users need services such as video-on-demand, shopping discounts, and free shipping at the same time, and the extra price is an additional burden for users who only need one of these services. In response to this problem, Amazon later spun Amazon PrimeVideo out of the Amazon Prime service package and became a separate service. Users can choose to purchase the full Amazon Prime service package or only the Amazon PrimeVideo service according to their own needs.
For a video service, the price strategy is important, but the quality of the content provided is more critical to the success or failure of the business. To solve this problem, Amazon's initial strategy was to make purchases from third parties, such as TV stations or Hollywood. But it's clear that this strategy is problematic. In addition to some high-priced exclusive content, a lot of purchased video content is not unique, and it is difficult to bring enough attraction to users. Not only that, but at some point, the copyright of non-homemade content may also lead to various disputes.
Amazon also noticed the problem early on, so since 2013, It has asked Roy Price to lead its own studio to start producing TV shows and movies. From the artistic level, the program led by Price is indeed of a high level. His tv series "Transparent Family" won the 2015 Golden Globe Award for Best Musical Comedy, and the film "Manchester by the Sea" won the 2017 Academy Award for Best Original Screenplay. However, compared to Netflix's "House of Cards" launched at the same time, the ratings of these programs are much lower.
In response to this problem, after Price left in 2017 due to the sexual harassment scandal, Amazon replaced Jen-nifer Salke, the former president of NBC Entertainment, to take over his position and take full responsibility for the development of Amazon's film and television content. As soon as Sark took over, he made changes to Amazon's streaming development strategy. Since then, Amazon has no longer focused on niche word-of-mouth building, but has increased its investment in finding film and television content with a wider audience, trying to seize users from the mass market. To that end, Amazon has done a lot of work. In 2017, for example, it spent $250 million to buy the rights to The Lord of the Rings and subsequently invested heavily in a television adaptation of it.
However, if you want to compete with opponents such as Netflix and Youtube, it is not enough to rely on these alone. Although Amazon is rich and powerful, its ability to produce film and television works is limited. In contrast, it may be a better choice to directly acquire a professional film and television company that has rich copyright in film and television works and has strong film and television production capabilities.
Looking around, Amazon finally targeted MGM. As a long-established film and television company, MGM not only has a large number of ready-made works, but also has strong production capabilities, which is fully in line with Amazon's demands for rapid expansion of its streaming content. Not only that, MGM also holds a large number of famous IPs such as James Bond and the Terminator. If Amazon buys MGM, it can not only shoot various film and television works based on these classic IPs, but also use them to make various peripheral products. It is for this reason that Amazon is offering a high premium to MGM. According to estimates, MGM's valuation is only $6 billion at most, and Amazon has thrown out a $8.45 billion offer as soon as it makes a move. To paraphrase a line from the movie "The Godfather", this is really an irresistible price!
Why Amazon loves streaming video
Amazon's main business is e-commerce, why spend a lot of effort to expand the business of streaming media video? The reasons for this can be divided into two aspects: direct and indirect.
From the most direct point of view, streaming media itself is a huge market, and there is a lot of room for imagination in which there is a lot of room for profitability. We know that streaming video appears to a large extent as an alternative to television, so when it comes to statistics, they are often included in the corresponding market for analysis. According to Nielsen's research, in 2019, streaming media accounted for 19% of the total market share of total TV ratings in the United States; in 2020, this share rose further to 28%, surpassing TVB's viewership (about 24%), but still lower than cable TV's viewership (about 38%). According to the current trend, in the next few years, the streaming media viewership rate is likely to rise further, especially the market share of cable TV that also needs to pay. Eventually, its viewership share may reach half or more of the total viewership.
Even in the current relatively small market size, the streaming media video market has given birth to many high-yield, high-profit enterprises. For example, Netflix, which now ranks first in the streaming video market, has reached $24.996 billion in revenue and $2.761 billion in net profit in 2020. At that time, the total viewership of Netflix streaming media accounted for only 7% of the total ratings in the United States. Obviously, even for a wealthy business like Amazon, such a huge opportunity is quite attractive.
From a relatively indirect point of view, another reason for Amazon to lay out streaming media is to use streaming media to attract the attention of users and thus support its existing business.
First, the growth of the streaming video business has helped Amazon gain valuable traffic resources. Among Amazon's existing businesses, e-commerce is undoubtedly the most critical. Of Amazon's total revenue, revenue from e-commerce accounts for 60%. For e-commerce, traffic is very critical. In order to obtain traffic, major e-commerce companies spend huge sums of money and spare no effort to compete for attention. With the development of the Internet, people's attention has increasingly shifted to computers and mobile phones, and a considerable part of this part of the attention has been diverted to streaming video. If it can get a certain share of streaming video, then Amazon may harvest a large amount of traffic from the source — at least, it can also save Amazon a lot of advertising costs that would otherwise be on other streaming media.
Second, the development of the streaming video business has helped to increase the attractiveness of Amazon Prime members. In recent years, Amazon has been nurturing Prime membership as a new growth point. In order to attract more users to buy Prime memberships, Amazon must make members have more benefits. From this perspective, bundling the streaming service PrimeVideo into the privileges of Prime members obviously helps to increase the attractiveness of members and increase the stickiness of users.
Third, the content of streaming video itself can also drive a large number of peripheral product sales, thus bringing considerable revenue to Amazon. Amazon, for example, bought the rights to The Lord of the Rings and plans to adapt the epic masterpiece into a TV series and broadcast it on its own streaming platform. Although the TV series has not yet been produced, since Amazon purchased the rights, the search volume for the Lord of the Rings novel and related products on its e-commerce platform has risen sharply, and related sales have also risen. It can be seen that the driving force of streaming media video for peripheral products is huge.
Finally, the development of streaming has also helped Amazon boost sales of hardware terminals. At present, Amazon has launched hardware products such as TV sticks and set-top boxes for playing videos, and although the profit margin of these products is not large, in the era of the Internet of Things, they are likely to become the entrance to the home Internet of Things. From this perspective, strengthening the layout in the field of streaming video will help Amazon effectively control these entrances, thereby laying an advantage for competition in the era of the Internet of Things.
Combining the above points, Amazon's emphasis on streaming video is not a whim, but has a very clear strategic intention.
Amazon's acquisition of MGM's antitrust issues
After understanding the purpose of Amazon's acquisition of MGM and focusing on streaming video, we can continue to discuss the antitrust issues that may be involved in this merger.
According to their nature, mergers and acquisitions can be divided into horizontal mergers and acquisitions and non-horizontal mergers and acquisitions. Horizontal mergers and acquisitions are mergers and acquisitions between enterprises in the same industry, while non-horizontal mergers and acquisitions occur between non-peer enterprises. Non-horizontal mergers and acquisitions can be further divided into vertical mergers and acquisitions, mixed mergers and acquisitions, etc., of which vertical mergers and acquisitions occur between the upstream and downstream of the same industrial chain, and mixed mergers and acquisitions refer to mergers and acquisitions that do not occur in the same industrial chain. According to this classification, Amazon's merger and acquisition of MGM can be roughly classified as vertical mergers and acquisitions.
According to traditional anti-monopoly knowledge, the possibility of horizontal mergers and acquisitions causing anti-competitive effects is much higher than that of non-horizontal mergers and acquisitions, because horizontal mergers and acquisitions will cause market concentration, thereby increasing the monopoly power of enterprises; non-horizontal mergers and acquisitions can also promote upstream and downstream synergy and promote efficiency while increasing the monopoly power of enterprises. It is precisely for this reason that in the past merger reviews of various countries, the probability of non-horizontal mergers being required to terminate is much lower than that of horizontal mergers. In fact, in the past decade or so, Amazon has made a large number of non-horizontal mergers and acquisitions, and regulators have almost all of them made decisions to release them.
If this practice continues, then Amazon's acquisition of MGM should most likely be released. Even if we abandon the convention and use a more complete anti-monopoly analysis process to analyze the case, we will basically get this result.
In reviewing mergers and acquisitions, regulators focus on so-called "unilateraleffect" and "coordinatedef-fect." Among them, the unilateral effect mainly refers to the increase in product prices that may be triggered by mergers and acquisitions, while the synergy effect refers to the fact that mergers and acquisitions may increase collusion between market players, so as to jointly control the market. We can look at whether this merger will have an anti-competitive effect.
Let's start with the unilateral effect. Generally speaking, if mergers and acquisitions want to trigger a significant increase in prices, one condition is to make a huge change in the structure of the market, so that the original competitive market structure becomes a monopoly. At present, the competition in the US streaming video market is very fierce, including Netflix, Hulu, Youtube and other companies are competing in this market. From the perspective of the share of the streaming media market, Amazon PrimeVideo is very small, only less than 1/3 of Netflix, even if the acquisition of MGM, so that its market share has produced a more significant increase, it is impossible to reach the level of monopoly. This is still assuming that the relevant market of the case is the streaming media video market, and if the entire TV market is used as the relevant market, then the market share change brought about by this merger is even more negligible.
Look at synergies. Intuitively, mergers and acquisitions of MGM do not lead to collusion between competing companies. On the contrary, when Amazon PrimeVideo expands its strength through the acquisition of MGM, it will be more likely to become a catfish in the streaming market, promoting competition in this market to become more intense.
Therefore, even if it is not conventional and is examined in full accordance with the strict antitrust analysis process, Amazon's merger with MGM should be regarded as a merger that can promote competition and efficiency.
So, what is the difference between this merger and acquisition? The most critical point is that the guiding ideology of the US anti-monopoly law enforcement agency has changed a lot in recent years.
Traditionally, U.S. antitrust enforcement agencies have been guided by efficiency, and the most important measure of efficiency is consumer welfare. According to this standard, if M&A is helping to lower prices and improve consumer welfare, then it should be recognized. The analysis we have carried out earlier is based on this guiding ideology.
In recent years, however, this traditional notion has been challenged and replaced by the rise of neo-Brandeisian thought. In the neo-Brandeisian view, efficiency or consumer welfare should not be the sole goal of antitrust, and if an act suppresses competition, then it should be prohibited even if it promotes the advancement of consumer welfare.
On an operational level, the Neo-Brandeisians introduced a number of theories that differed from the traditional ones. For example, for large Internet platform companies, they introduced the concept of "gatekeeper". In the view of the neo-Brandeisians, if a platform enterprise is large enough and influential enough to be identified as a "gatekeeper", its various behaviors should be correspondingly restricted out of the need to protect competition. New Brandeisians are particularly wary of "gatekeepers" running both platform and vertical businesses, arguing that this leads to so-called "self-preferencing" problems. Therefore, for non-horizontal mergers and acquisitions carried out by the "gatekeeper" platform, neo-Brandeisians also tend to prohibit it out of the consideration of preventing "self-favoritism".
With Lena Khan, Wu Xiuming and other representatives of neo-Brandeisianism successively serving as senior anti-monopoly officials in the Biden administration, neo-Brandeisianism began to gradually become the mainstream anti-monopoly ideology in the United States. After gaining power, the Neo-Brandeisians began to work on a radical change in antitrust in the United States at the legislative level. They actively promoted the formulation of new anti-monopoly regulations, and threw out a number of anti-monopoly bills in one go. At present, these bills have been passed in the House of Representatives, and if they can continue to be recognized by the Senate, then the idea of neo-Brandeisianism will become a new basis for antitrust in the United States. At a more operational level, they repealed the one-year-old Vertical M&A Guidelines in September 2021 and announced that they would redraft a new one.
After much progress at the legislative level, what the Neo-Brandeisians are most looking forward to is probably a major victory against the monopoly giants to establish their prestige at the judicial level. And of all the possible victories, what could be more proud of than a victory over Amazon, long seen as an imaginary enemy of the school? In this sense, disrupting Amazon's acquisition of MGM has another layer of special significance. In fact, the neo-Brandeisians never hid their ideas. For example, Senator Amy Klobuchar, a prominent representative of the school, has publicly pointed out that Amazon's acquisition will strengthen the platform's existing advantages and is a manifestation of self-favoritism, which not only blatantly undermines the order of competition, but also openly provokes the public interest.
However, the situation should not have reached such a one-sided level. As mentioned earlier, under the U.S. system, the FTC cannot directly prohibit mergers and acquisitions, but needs to file a lawsuit with the court for a court injunction. Therefore, the ultimate fate of this merger depends on who can convince the judge more. And what is the judge's main basis when deciding a case? First, in accordance with existing laws, and second, in accordance with corresponding precedents. Although the Neo-Brandeisians have now pushed for a series of bills that have not yet been finally passed, it should be difficult for the FTC to directly invoke the restrictions on the "gatekeeper" platform in these bills to persuade the court to ban mergers and acquisitions. If there is no such basis, then the judge can only rely on the existing laws and precedents in the process of adjudicating the case. As we pointed out earlier, in previous jurisprudence, judges have used efficiency criteria as the most important criterion for whether to approve mergers and acquisitions, and have given permission to most vertical mergers. From this perspective, if Amazon organizes sufficient evidence to convince the judge that the merger will increase rather than harm efficiency, and conforms to convention, it is still possible to win the lawsuit.
It should be pointed out that in the litigation with the FTC, it is not uncommon for monopoly giants to win lawsuits. A prime example is last year's FTC lawsuit against Facebook. Despite the FTC's menacing, its claims were dismissed by the court. So, if the FTC ultimately decides to sue Amazon, will it reverse the trend in one fell swoop and set a new benchmark for future mergers and acquisitions, or will it still be invincible to the traditional forces and eventually fail? It's still full of suspense.
epilogue
Perhaps except for American drama enthusiasts and business observers, chinese people will rarely be interested in caring about whether Amazon's merger with MGM will be successful. However, for antitrust practitioners and researchers, this is a case that must be paid attention to. Will the FTC file a lawsuit? What was the outcome of the lawsuit? These questions are not only about the outcome of a case, but about the struggle between two ideas over who will win.
Now, the regulation and development of Internet platforms has become a common problem facing the whole world. For platform mergers and acquisitions, should we continue to adopt traditional ideas, or adopt newer and more radical ideas such as new Brandeisianism? Although there has been a lot of theoretical controversy surrounding this issue, so far, there has not been a good case for people to analyze the merits and demerits of these two views more intuitively and concretely. From this perspective, if the FTC does intervene in Amazon's acquisition of MGM, it will create an excellent observation for us. From this case, we will be able to learn a lot.