Quality collusion: news, if it ain't broke, why fix it?

• Author: McMillan, Mark

Introduction I. Background of Antitrust Law and the Media A. Antitrust Law and the Legal Treatment of Collusion B. The Economic Effects of Collusion C. Quality and the Local Television Broadcast Stations II. The Divergence Between Antitrust Law and Practice A. Why the Antitrust Community Should Ignore Quality Collusion B. Why the Antitrust Community Should Not Ignore Quality Collusion III. Suggestions for Closing the Gap Between the Law and the Practice of Antitrust Enforcement A. Increase Enforcement Actions Against Quality Collusion B. Develop Strategies for Quantifying Quality C. Utilize a Three-Factor Framework 1. The Three Factors, Generally 2. The Three-Factor Test as Applied to the LTN Market D. Conduct Retrospective Analyses of the Aforementioned Strategies Conclusion INTRODUCTION

It would be an Orwellian nightmare if one day we were to wake up and a single person decided which news stories were covered or how they were covered--in essence, if news stations colluded on their content. Every day in Honolulu, Hawaii, two stations simulcast their morning and evening news broadcasts. (1) In San Angelo, Texas; (2) Denver, Colorado; and Charleston, South Carolina, different on-air personalities read the same script across competing stations. (3) In Chicago, an editor coordinates the sharing of journalists, crews, and editorial staff of CBS, NBC, FOX, and CW to limit duplicative costs. (4) These are among the many examples of collusion in broadcast television news. (5) The nightmare is here.

Broadcast television firms have created various agreements of questionable antitrust legality to increase efficiency and profitability. (6) One example, known as a shared service agreement (SSA), coordinates the sharing of services and facilities between firms and inhibits quality-based competition between stations. (7)

Although antitrust laws cover almost all anticompetive activities, the agencies charged with enforcing the laws rarely pursue agreements on quality. (8) This lax enforcement probably stems from the difficulties of measuring quality and the procompetitive effects of standardization. (9) For some industries, such as local broadcast television news (LBTN), the justifications for ignoring quality collusion appear nonexistent. (10) Moreover, the quality reductions in broadcast television offend one of our society's cherished tenets: the freedom of the press. (11) Accordingly, the collusive agreements are worthy of closer scrutiny.

This Note discusses quality-based collusion in three parts. Part I provides a background of the legal treatment and economic theory regarding quality collusion and how economic principles apply to broadcast television. Part II discusses the divergence between the antitrust laws as written and antitrust laws as enforced against quality collusion. Part III provides strategies the antitrust community (the Community) (12) could adopt to enforce the laws more effectively, with local broadcast television as a backdrop for applying the strategies.

1. BACKGROUND OF ANTITRUST LAW AND THE MEDIA

   Antitrust law has a long history extending back to 50 B.C. when the Lex Julia de Annona prevented the people from rigging Rome's corn market. (13) In the United States, the statutory history began with the passage of the Sherman Antitrust Act of 1890 (Sherman Act) . (14) While the debate over the purpose of antitrust law persists, (15) courts and enforcement agencies lean heavily on economic theory in interpreting the statutes. (16)

   1. Antitrust Law and the Legal Treatment of Collusion

      While a complete discussion of U.S. antitrust law and policy exceeds the scope of this Note, this Section provides a general background on antitrust law, the parties involved, and how antitrust laws relate to quality collusion. The bulk of antitrust law flows from two broadly written statutes: the Sherman Act (17) and Section 5 of the Federal Trade Commission Act of 1914. (18) The laws are enforced by the Federal Trade Commission (Commission) and the Department of Justice Antitrust Division (Division) (collectively, the Agencies), although private parties can also bring antitrust claims. (19) The Agencies and courts will flesh out the statutes with economic frameworks, key definitions, and procedural rules, (20) though occasionally they make mistakes. (21)

      The Sherman Act established the initial framework for antitrust regulation in the United States. (22) The key sections are: [section] 1 ("Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce ... is declared to be illegal ....)" (23); and [section] 2 ("Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony....") (24) The statute does not specify a particular type of restraint. (25) The core restriction came shortly after the passage of the Sherman Act: the Supreme Court, in Hopkins v. United States, narrowed "[e]very restraint" to mean only unreasonable restraints. (26) To determine whether firms are unreasonably restricting trade, courts categorize the behavior. (27) Multi-firm behavior, which is the focus of this Note, has several categories, including horizontal agreements, (28) vertical agreements, (29) and mergers. Each of those categories has subcategories. For example, horizontal agreements include group boycotts, price fixing, market allocations, information exchanges, and joint ventures. (30)

      The cost of antitrust litigation (31) makes prosecutorial discretion an important consideration for firms. To help the Community understand, the Agencies jointly promulgate guidelines articulating the framework the Agencies use to determine whether to bring suit. (32) Written by antitrust professionals, the guidelines take into account economic theory as it develops and data gleaned from the Agencies' experiences in enforcement. (33) The Agencies update the guidelines regularly to remain current with economic theory and antitrust practice. (34) Adding to the guidelines' weight, courts also rely on the publications to understand and apply economic principles. (35)

      To limit the cost of antitrust litigation, (36) courts match the depth of their query, based on these categories and subcategories, to the likelihood that a particular restraint on trade is unreasonable. (37) The more likely it is that an activity is anticompetitive, the less time a court spends considering the reasonableness of the particular restraint. (38) The scheme uses a rough tripartite categorization: rule of reason (ROR), (39) perse, (40) and quick look. (41)

      The "rule of reason" is the deepest, most common, and costly antitrust analysis. (42) Under the ROR, the court considers a variety of factors, including information about the business, the condition of the business before and after the restraint was imposed, the nature of the restraint, and the effect of the restraint on other businesses to determine whether the conduct in question is reasonable or not. (43) While the ROR allows defendants to use many different factors, they may not claim that competition itself is unreasonable, (44) although restraints designed to enhance social welfare can be reasonable. (45) Given the complexity of the case theory, parties on both sides enlist economists and industry experts to develop models and claim that "reasonableness" weighs in their favor. (46) In the end, case ambiguities and complexities overwhelm the party with the burden of proof. (47)

      "Per se" is an unforgiving antitrust analysis reserved for activities that, in the judiciary's experience, have lacked a legitimate business purpose. (48) As the Court explained in Jefferson Parish Hospital District No. 2 v. Hyde, the rationale for per se is to "avoid a burdensome inquiry into actual market conditions in situations where the likelihood of anticompetitive conduct ... render[s] unjustifiable the costs of determining whether the particular case at bar involves anticompetitive conduct." (49) When an activity is per se illegal, the plaintiff need not prove an anticompetitive intent or effect. (50) The primary per se illegal activities are price fixing, division of markets, and group boycotts. (51)

      To wade deeper into the murky waters of antitrust litigation than per se allows, without the full ROR analysis, the Court recently established a "quick look" analysis. (52) The quick look is an intermediate inquiry. It applies when someone with a "rudimentary understanding of economics" could determine that the alleged activity would have anticompetitive effects. (53) Under this type of analysis, defendants can demonstrate procompetitive economic justifications for their facially anticompetitive behavior to establish the restraint's reasonableness. (54) If the defendant fails, the conduct is illegal. (55) Although it has yet to happen, if the defendant meets the burden, the court will probably adjudicate under the ROR. (56)

      To tease apart "quick look" and per se, consider collegiate football (57): a functioning football league requires participating colleges to agree on various aspects of game play, player recruitment, and player compensation to function as an amateur league. Each of these is a horizontal agreement, but they are also legal. (58) In the early 1980s, the NCAA fixed the price and quantity at which they sold television rights to stations among participating schools. (59) Because collegiate sports require certain agreements, the Court utilized the quick look standard, rather than a stricter per se analysis. (60) Because some agreement was necessary, the Court allowed the NCAA to rebut a presumption of illegality with evidence of the restraint's reasonableness. (61) Although the NCAA proposed various justifications for the restraint's reasonableness, such as ensuring stadium attendance by...