Friday, 10 November 2017

Regulatory Independence #2: CNN Put into US Regulatory Crosshairs

In yesterday’s post we looked at the issue of regulatory independence, and how the mandate of regulators can be manipulated and warped to serve the so-called ‘greater good’. In that post we focused on the FCA with regards to its bending for Saudi Aramco and the impending record-breaking IPO, but today we shall look at something far more political. This is not to say that the FCA bending for Saudi Aramco, in light of the impending uncertainty that is Brexit, is not a political issue, which of course it is, but the case we are focusing on today is particularly political and, potentially, has incredibly wide-reaching consequences. The case in point for this post is the news that the potential merger between AT&T and Time Warner is being held up by the Justice Department, with the alleged sticking point being that Time Warner (and AT&T once they merge) must sell the company that owns CNN. Whilst this may seem inconsequential, the connection between CNN and US President Donald Trump suggests otherwise.

The merger between the two giant companies has been ongoing since last year, with the merger itself being valued at $85 billion. Initially, the Boards of both companies were particularly bullish about the potential benefits of the merger, with AT&T CFO John Stephens stating that ‘there are all kinds of benefits’ and that this type of merger has not been blocked for over 40 years. Time Warner Chief Jeff Bewkes agreed, stating that the merger ‘accelerates our ability to deliver great brands and premium content’ and that value for consumers will be significantly increased on the back of the merger. However, not all are convinced. Some of the initial concerns that were raised are common concerns with a merger between two competitors of this size: risk of self-dealing; the reduction in choice for consumers; and the risk of higher prices. Additionally, there were also concerns raised regarding the concentration of power across different sectors, like the power imbalances that may occur within the TV, Mobile Phone, and Internet sectors; another related issue is the increased likelihood of data breaches with the merged entity holding a vast amount of consumer details on their databases. These concerns are both common for ‘mega-mergers’ and are entirely valid. Yet, like the proposed merger between Sky and 21st Century Fox in the UK, concerns have been raised over the concentration of journalistic power, which is where the story turns to CNN.

The widespread reports in the media over the past few days has focused on the claim that the US Department of Justice (DoJ) is mandating that, for the merger to go ahead, the merged company must agree to the sale of Turner Broadcasting, the company that controls CNN and a number of other cable channels. Another stated instruction/option would be, apparently, to agree to the sale of DirecTV, with concentration of power being the identified reason for these orders. However, whilst onlookers have noted that there are very few legal reasons why this merger cannot proceed, and the DoJ themselves are adamant that these reported orders are not representative of negotiations, the whole affair is quickly developing into something that looks like a farce but which may be much more sinister. The DoJ are suggesting that rather than mandating the sale of CNN, Stephens actually offered up CNN for sale, which is something he is strenuously denying. On the back of anti-trust lawyers being forthright in their confusion as to why there would be these types of hurdles in the first place, with some suggesting that it would ‘at least [be] a break in recent precedent’, the unfolding story has only been enhanced with the introduction of the twitter account which has a permanent place in the pages of newspapers everywhere – Donald Trump.

Since Donald Trump’s unexpected and era-defining climb to power, he has been a constant battle with the media (or most of it, anyway). Yet, the one he singles out most commonly is CNN, with the two entities locked in an almost constant battle that, in reality, has very few winners. CNN’s coverage focuses on Trump a lot, which is understandable given a. his record in office, and b. the fact he is the President of the US, and this has caused Trump to zero in on what he believes to be the central component of ‘fake news’ and the ‘dishonest media’. In his battle with CNN, he has supported videos of himself ‘wrestling’ with CNN, sharing cartoons of himself as a train running over CNN, and essentially taking every opportunity to ‘troll’ CNN in a concerted campaign. CNN, for their part, have been heavily criticised for their response, which included, allegedly, attempting to silence the creator of the wrestling meme; once again, nobody comes out of this with any dignity at all. Yet, this latest turn of events in the connection between Trump and CNN suggests that the laughing matter of memes and cartoons has now been escalated, and in that escalation stands one of the bastions of US Justice – these are developments which should cause great concern.

It is almost useless trying to provide sources for criticism of Donald Trump, because it is so widespread. Yet, the lowering of standards to the lowest common denominator is facilitating the potential for potentially irreversible actions being taken. On the same day that Trump decried globalisation whilst Xi Jinping, fresh from consolidating his grip on China, followed Trump’s speech directly with his unwavering support and commitment to globalisation, the potential complicity of the DoJ in Trump’s business has the potential to be just one of many sparks which may initiate a lasting global power shift; it may sound exaggerated, but the question the DoJ will have to answer, if it continues down this path, is how can it be trusted to be fighting for justice if it does the personal bidding of the President? Some may say that these discussions of justice and representativeness are nothing more than ideological and fanciful endeavours, and they may be right, but Trump has unerring capability of making things unavoidably obvious – and the DoJ is embroiled in something that it really should not be; to be seen as the shill for a President with incredibly low approval ratings, and who has systematically lowered the standards in the Superpower, is incredibly short-sighted and there must be a consequence for that… that consequence will likely be felt in years to come when the Country tries to repair itself from this current era, only to find that its authority was lost. Monitoring the actions of the DoJ will be important in the continuous examination of the potential trajectory of world power in the coming decades.

Keywords – AT&T, Time Warner, Business, Politics, Trump, Department of Justice, Mergers and Acquisitions, CNN, China, @finregmatters

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