Friday, October 10, 2003

Antitrust News: Easterbrook vs. Reason

The New Republic's Gregg Easterbook is a notorious anti-capitalist when it comes to professional sports. For years he's used his popular Tuesday Morning Quarterback column to rail against the NFL's "monopoly" over their own broadcast rights:
And, as Tuesday Morning Quarterback may possibly have mentioned, the solution to the problem of local affiliates airing woofer games -- NFL Sunday Ticket, which allows viewers to pay $209 per season to watch any contest -- continues to be available strictly on a monopoly basis to subscribers of DirecTV, the satellite service. Only about 10 percent of American households subscribe to DirecTV; many millions of American households cannot receive the DirecTV signal for technical reasons, regardless of willingness to pay. (TMQ keeps a running count: Of those people I personally know who have tried to subscribe to DirecTV, three have been able to get the signal and eight found it impossible to sign up, including yours truly.) Bad pairings air on free TV; the best games are often shown only via a monopoly service that 90 percent of Americans can't or don't get.

The Sunday Ticket part seems like total lunacy until you take into account that DirecTV is in the process of being sold to Rupert Murdoch, who thrives on establishing media cartels. Murdoch is paying the league about $400 million a year to maintain this particular monopoly. So the NFL gets many dineros, and Murdoch adds a monopoly to his portfolio. But with all the talk of Congress being opposed to media consolidation, TMQ continues to wonder why Congress doesn't investigate the DirecTV monopoly over Sunday Ticket. The primary effect of the NFL's deal with the DirecTV devil is, after all, to shaft American taxpayers whose tax monies make NFL stadiums and profits possible.
Easterbrook believes the NFL's broadcast rights are not private property, but rather a public good that should be subject to government regulation. His argument lacks moral authority and internal consistency. Currently the NFL licenses its broadcast rights to four entities--DirecTV, Fox television, ABC-ESPN, and CBS. The latter three run games on free television. CBS and Fox each air local games in their particular market, and alternate the Sunday afternoon "national" game. ABC airs the Monday night game nationally and sister network ESPN airs the Sunday night game on basic cable. DirecTV airs all of the Sunday telecasts--essentially a collection of the Fox and CBS local broadcasts. It is this last arrangement Easterbrook has deemed a "monopoly."

Even among antitrust wonks, it's difficult to argue a company can monopolize the sale of its own product. If you sell to one customer, by definition you're not selling that item to another potential customer. That's not monopolization--that's voluntary trade. If the NFL wanted to, it could license all of its over-the-air broadcast rights to one network rather than three. In fact, the NFL spreads its television rights out better than its competitors: Major League Baseball has only two outlets (Fox and ESPN); the NBA has two (ESPN and Turner); and the NHL just one (ESPN). Now, the other leagues allow local teams to sell their own broadcast rights, while the NFL does not, but that only proves the NFL is better at meeting a consumer demand. All NFL games are broadcast on national television. That's what makes the product so attractive to broadcasters and their advertisers.

Easterbrook bases his call for regulation solely on the fact that many NFL teams received the support of local governments in constructing stadiums. This is like adopting John Banzhaf's argument that the courts should impose tort liability on fast food companies because their products contribute higher public health costs; Easterbrook is using a red herring to mask the fact he wants regulation to accommodate his personal agenda. Don't get me wrong. I oppose any government financing of private stadiums. But as a capitalist, I will not argue the answer to some government intervention is total government control. Easterbrook, not being a capitalist, argues it the other way: the presence of government money justifies the abolition of private property rights. Never mind the fact no local government was forced to pony-up millions for stadiums. In some cities, government funding was approved by referendum. Is Easterbrook now saying the public isn't responsible for its own bad judgment?

Alternatively, Easterbrook seems to be arguing for an expansion of the "essential facilities" doctrine. This is an antitrust rule that permits the government to regulate (or outright control) a private-sector operation that has become "essential" to the public. For example, the Supreme Court has held the Associated Press is an essential facility because newspapers rely on its wire service; therefore the AP may not exclude any newspaper that wishes to join. Similarly, if the NFL is deemed "essential" to the public, the government may regulate the sale of the league's broadcast rights in the "public interest." Or in this case, in Gregg Easterbrook's interest. It's all much the same thing really.

Furthermore, Easterbrook's "monopoly" claim regarding DirecTV ignores another important fact, pointed out by my colleague Eric McErlain, that DirecTV itself is not a monopoly, but rather an emerging competitor with local cable systems--which themselves are largely heavily regulated government monopolies. Easterbrook harps on the relatively low coverage of DirecTV's system; but the same could have been said for cable just 20 years ago. Would Easterbrook have opposed the NFL's decision in the late 1980s to put a marquee game each week on ESPN? After all, ESPN was not universally available at the time, thus constituting a "monopoly" in Easterbrook's mind. (McErlain also points out most sports bars have DirecTV, enabling any willing fan to find a game to his liking by patronizing such an establishment; McErlain forgets the first rule of antitrust is "the customer is always right, even if that means stealing from the producer".)

Finally, Easterbrook's hatred of Rupert Murdoch seems to be clouding what little judgment he has left. Exactly where has Murdoch established a "media cartel"? Fox Television remains America's third- or fourth-rated network, depending on how you keep score; Fox News Channel is #1 in a highly competitive cable news market; Murdoch's British network faces an uphill fight against the taxpayer-financed BBC; and Fox Sports controls the national rights to just two of the four major sports (and only one-third of the NFL package at that.) The fact that DirecTV holds exclusive rights to the NFL's satellite broadcast rights doesn't mean that much in the grand scheme of things. In fact, such exclusivity is necessary precisely because the satellite technology is relatively new and lacks the institutional support enjoyed by cable and broadcast television.

Back in the early 1960s, the only television source for NFL games was CBS. Not until the NFL's merger with the AFL did the multi-network system emerge (the AFL's rights were held by NBC; ABC's Monday Night Football started in the 1970s.) Contrary to the belief of antitrust advocates, competition is not a prerequisite for a free-market economy. Competition often comes only after an initial producer can demonstrate profitability.

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