The End of the Paramount Consent Decrees, Quiet Clearance of Google-Looker


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about the Google-Looker merger, as well as the proposed end of the legal structure underpinning Hollywood movie distribution. The movie industry is structured by an antitrust deal cut between the DOJ and studios in 1948 known as the Paramount Consent Decrees, a deal that essentially separated film production and distribution. Trump DOJ chief Makan Delrahim just announced he’s going to ask a court to get rid of this deal. This matters, and I’ll be explaining how.

First, some housekeeping.

  • I was interviewed by On the Media about Bill Gates and how he made his money. I was on the last fifteen minutes, but the whole show was very good.

  • I have a half drafted issue of BIG on what I call ‘little shitty software monopolies’ like bank management software, nonprofit management software, and so forth. If you have examples, send them my way. And I’m going to be getting back to the “Bob’s” and Office Space fairly soon.

  • Thanks for the comments on my book Goliath. Keep sending them so I know what you find useful.

  • I was on the Rising with Krystal Ball and Saagar Enjeti yesterday to talk about antitrust, Obama, and the middle class. You can watch that below.

And now…

Google/Looker, Or Enforcement Versus Bragging

Yesterday, Trump DOJ Antitrust Division chief Makan Delrahim gave a speech lauding aggressive enforcement against big tech. He’s been giving speeches like this for quite some time. Here’s a sample snippet.

Over the past several years, we have overcome the mindset that somehow digital markets could not or should not be policed by antitrust law. Many cautioned against antitrust enforcement by arguing that monopoly rents in high-tech markets are fleeting, because the markets move so quickly and because barriers to entry are almost always low.

In recent years, the conversation among antitrust practitioners has evolved, in line with the growing public perception that digital platforms that enjoy durable network effects may be acting anticompetitively.

Delrahim takes credit for “overcoming a mindset'“ of inaction, which I find odd. “Overcoming a mindset” is not the same thing as a track record of action. Delrahim speaks as if he’s accomplished great things. Has he?

The short answer is no. Under Delrahim, DOJ cleared the obviously illegal Sprint-T-Mobile merger, approved an equally illegal Disney-Fox merger, and has sought to shape the law in ways that are favorable to big tech through his friend of the court brief program.

More significantly, last week, the DOJ quietly cleared the Google $2.6 billion purchase of Looker, which is one of Google’s largest acquisitions ever. There are arguments for why clearing this merger isn’t a big deal, since the merger looks to have more to do with Google beefing up its cloud division than getting more power over advertising or search. But still, this is the acquisition of a big data company by Google, so who knows what or how Google will use the corporation it is buying? Also, why is the DOJ encouraging a Godzilla versus Mothra dynamic in the cloud sector? Shouldn’t we want lots of decentralizing as the sector is forming, rather than a few giants like Amazon vs Microsoft vs Google?

At any rate, the DOJ last month said it was taking a closer look at this acquisition, and then a few weeks later clears it. This whole episode is just classic Delrahim. Speechifying and bragging in public, helping big tech quietly when he thinks no one is paying attention. I’ve written about Delrahim’s emptiness before, but I still find this level of braggadocio about strong enforcement bizarre. Rhetoric without a track record to match is empty and induces cynicism.

The End of the Paramount Consent Decrees?

Delrahim took a more high profile and significant action in that same speech yesterday, when he said he would petition the court to end the 1948 Paramount Consent Decrees settlement. It will take a few years to eliminate these rules, but both eliminating them and signaling that the DOJ wants to eliminate them signals that the DOJ has accepted the massive consolidation in the streaming world, and wants that same kind of consolidation applied to the already concentrated movie exhibition industry.

So what are these decrees and why do they matter? The Paramount Consent Decrees were designed to separate movie production and distribution by barring a variety of practices in the industry and forcing the divestiture of theater chain ownership by studios. They are the result of decades of battles between and among studios, chains, and antitrust enforcers from the 1920s to the 1940s.

Prior to the decrees, five major Hollywood studios and a few more minor ones owned and controlled theater chains. While the major ones directly owned only 17.35% of the theaters in the country, they actually controlled 90% of the significant movie houses nation-wide. After the decrees, the studios sold off their theaters, and there was an open market where independent theaters could choose to exhibit movies without being under the control of the studio who made that movie.

The most important part of the decree was to bar ‘block booking,’ which was a practice that meant forcing theaters to accept a slate of movies from a studio in order to have access to the studio’s most popular films, or ‘must-have’ content. Today that would be requiring a theater to carry a bad Disney movie in return for getting access to the latest Avengers release. Other practices barred included clearances, which means granting geographic exclusives to certain theaters or chains, and circuit dealing, which is a technique theater chains have used to prevent rival theaters from fairly competing.

The premise behind the 1948 case was that vertical integration, or the control of an entire supply chain, is dangerous. This threat still exists today. Small theater businesses or small chains are the ones who are threatened by this decree. Small chains on average charge lower prices than big ones, they tend to serve small towns and small markets that wouldn’t ordinarily get big chains, they host community events like children’s showings, classic movie showings and film festivals, and they serve as a check against giant movie chains.

So what will happen if this decree is repeated? The big studios and theater chains will wipe everyone else out.

Here’s a comment by Bow Tie Theaters, one of the few remaining independent theater chains in existence. To give you a sense of history, Bow Tie started in the Nickelodeon era, went through Vaudeville and today runs modern multiplexes. Walt Disney debuted Mickey Mouse in Steamboat Willy at a Bow Tie theater. In 2009, it opened Richmond Virginia’s first new movie theater in forty years, a “themed adaptive reuse of a 19th Century former locomotive assembly plant.” This is a creative modern theater chain with deep roots in the industry.

Here’s what Bow Tie told the DOJ.

Any imposition of block booking would monopolize the limited number of screens a particular theatre displays. This could effectively force a Bow Tie theatre to become captive to a particular studio’s content. For instance, if Paramount were to require that a Bow Tie location display all of its additional films for the right to display a summer blockbuster, it is plausible that at times a specific location would be running Paramount pictures exclusively. Thus, in addition to the concerns surrounding customer choice and cost, the prohibition on block booking is necessary to uphold other aspects of the Decrees and to prevent theatre chains such as Bow Tie from becoming de facto exclusive exhibitors of a particular studio’s content.

Bow Tie would become an adjunct of a studio, a zombie independent chain. Smaller theaters would have it even worse. As one small theater in Wisconsin put it to the DOJ, “The Paramount Decree is important to us because without it, we would cease to exist.”

Killing small theaters is a problematic move for an antitrust enforcer. So why take down this decree? Delrahim has argued that in an era with streaming and high-technology, these decrees don’t matter anymore. Consumers are better off if studios and chains can concentrate power. Here’s what he said.

Since the decrees were entered, however, the movie industry has undergone significant change. Back in the 1930s and 40s, metropolitan areas generally had a single movie theatre with one screen that showed a single movie at a time. Today, not only do our metropolitan areas have many multiplex cinemas showing films from different distributors, but much of our movie-watching is not in theatres at all. Technological advancements, most recently subscription streaming services, have permitted more American consumers to watch movies anywhere they want at any time. 

Competitive pressures have emerged from unexpected sources. For example, some of you might remember the now-defunct Moviepass, which charged consumers one flat price to see an unlimited number of movies in theaters. This business model was flawed, and this led to effective prices so low that some described it as a “great socialist scheme accidentally implemented by very confused capitalists.” Moviepass ultimately exited the market, but nevertheless has affected how some movie theaters are looking at innovation; AMC launched its own monthly flat-free program last year.

What a weird comment from a Republican antitrust enforcer, and yet quite telling. Concentrating power helps usher in socialism, or central planning, but by “confused capitalists.”

Delrahim is echoing the consumer welfare oriented gibberish that corrupted Obama-era antitrust enforcement. He’s pretending there is a robust competition by expanding a proposed market to include all video content watched anywhere by consumers. But theaters operate in different markets than home viewing, even if the video product is similar. People will pay for movie tickets at theaters, and they will also buy video products at home using different pricing terms and with a different screen and cultural experience. As the Writers Guild put it:

The creators of Crazy Rich Asians chose a theatrical release with Warner Brothers over a significantly higher initial monetary offer to distribute the film via Netflix, recognizing that the cultural and social experience of having the first all-Asian film from a major Hollywood studio since 1993 in theaters would not be replicated by having one available on Netflix.

New technology often doesn’t change old markets, but we hear the argument constantly that antitrust enforcement is outdated. People often say ‘oh well antitrust laws were written for steel and railroads, not the internet.’ It’s a silly point for a number of reasons, one of which is that we actually have monopoly problems in steel and railroads. In the case of the movie industry, there’s still a serious problem with block booking, even before the takedown of the Paramount consent decrees. There’s also massive concentration in the industry.

Disney, for instance, after its slew of acquisitions over the last decade, has reduced output and increased its market share. As the WGA puts it, “the ability to increase market share while reducing output is a function of anticompetitive market power over theater owners.” It can demand 65-70% of ticket sales, monopolize “each theater's largest venue, and crowd out other features.” Many of the major studios are “cutting development budgets for new films, or studio research and development”, and focusing on franchise films like Marvel movies. For screenwriters, artists, and film crews, this reduced output means “fewer jobs, lower compensation and less creativity.”

The end of these decrees doesn’t really make sense even on Delrahim’s own terms. Delrahim brought the first case against vertical integration in decades, the AT&T-Time Warner challenge. This was an attack on concentration in the media industry. And now he’s arguing that vertical integration in the media industry is… good? The only plausible explanation is that Delrahim brought the AT&T challenge because he was trying to please Trump, and now he’s getting rid of this consent decree to please some other powerful player or just get himself some headlines.

At any rate, I’m sort of glad Delrahim has done something so stupid and obvious. The exhibition business is already very concentrated. Imperial Disney is doing what it’s doing, and streaming is basically designed under the current public policy framework to become a fight among monopolists over market power. It’s time to have a real conversation about vertical integration in the big media industry. Much as China’s clumsy censorship of the NBA’s Houston Rockets executive made the stakes of our China policy obvious to policymakers, the proposed end of the Paramount Consent Decrees could spark a more open debate among artists in Hollywood about whether they want to have a creative industry anymore, and how political they are willing to get if they decide they actually do.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

Google, Fitbit, Banking: Big Tech's Bust Out?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today’s issue will be short, and it’s on why we’re seeing merger activity and expansion by big tech in spite of antitrust scrutiny. I also have a short review of Rana Foroohar’s new book on big tech.

A Book in a Paragraph: Don’t Be Evil

One of my favorite journalists is Rana Foroohar of the Financial Times. Her writing on, of all things, Citibank’s financing of ships in the 1950s helped me when I put together Goliath. She’s really in the details of commerce, as well as the big picture. Foroohar has a new book out I’m reading called Don't Be Evil: How Big Tech Betrayed Its Founding Principles -- and All of Us.

Her book is a mix of reporting, analysis, and prescription on the threat that large technology platforms present to democracy and commerce. It’s full of detailed tidbits, like Foroohar confronting the Google co-founders at Davos in 2008 sitting in fancy ice cube shaped chairs. She asked them about their impact on democracy. “If newspapers and magazines are all driven out of business by Google or companies like it,” she asked, “how are people going to find out what’s going on?”

Larry Page responded, “Oh, yes. We’ve got a lot of people thinking about that.” I suppose she should have followed up by asking whether those people were thinking about the pro or con side of democracy.

I posed Foroohar one question about Don’t be Evil. What's the most surprising or weird thing you learned while researching this book? Here’s her answer.

I don’t know if it’s weird but the most surprising thing I leaned while researching the book was that the founders of Google, Sergei and Larry, had basically predicted the key problems with surveillance capitalism and where they would lead us back in their original paper on search, written while they were Stanford grad students. At the very end, in the appendix, there’s a paragraph where they admit that the targeted advertising business model could be misused by companies or other entities in ways that would hurt users. This is kind of a bombshell revelation given that search engines say everything they do is for users. The fact that this paper hasn’t gotten more attention makes me think people aren’t reading....which is itself part of the problem of attention capture I describe in the book.

Foroohar has the skepticism of a financial reporter but the analytical framework to understand tech. If that sounds interesting you can find the book here. I’ll be mentioning the book in future newsletters.

And now…

Big Tech’s Bust Out

There’s a scene in the classic mafia movie Goodfellas, where the mobsters pledge to protect the owner of a restaurant at which they hang out. In return for protection they get a regular payment. Whether business is good or bad, it doesn’t matter, their line to the owner is, “Fuck you, pay me.”

At first they get paid out of profits, but sometimes the restaurant doesn’t do well.

Fuck you, pay me.

Tax problems? Rent problems? Doesn’t matter.

Fuck you, pay me.

And so forth. As the owner begins bleeding cash, the mobsters begin working with the owner to liquidate what they can. They run down the restaurant’s credit by buying liquor and selling it half off. Finally they burn down the restaurant for the insurance money. This is called a ‘Bust Out,’ which is the final attempt to steal everything in sight before the game is up.

I’m reminded of this dynamic as I watch merger activity and expansion by big tech firms under scrutiny. A lot of people wonder why Google is, say, buying Fitbit, or going into banking, or collecting health data. Or why Facebook is launching payments, a new and obvious monopoly leveraging play. The DOJ and FTC are snooping around, Congress’s Antitrust Subcommittee is doing a thorough investigation, state AGs may sue, not to mention that global regulators at the EU level, France, Germany, Japan, and Australia are beginning to take action. In this context, the aggressiveness seems… odd, almost as if they are intentionally provoking a political reaction.

I have a theory that what we are seeing right now is the final attempt by big tech to capture as much territory as they can before political leaders clamp down on them. This is, in other words, their ‘Bust Out’ moment. In September, here’s what David Faber on CNBC said:

“By the way, I hear it too, and it’s another reason why companies are being implored to do things now if you want to get done—M&A or anything—think about doing it soon because come early to mid-2020, if Elizabeth Warren is rolling along, everyone is going to be like ‘that’s it.’”

Faber’s point is more general, but it applies to big tech more than anywhere else, because these are the companies in the crosshairs.

This theory is just that, a theory. Maybe Google would have bought Fitbit anyway, and Zuckerberg’s desire to conquer the world is well known. But perhaps there’s a bit of a deadline looming, which is 2021. If a new President gets in office, the game for them might be over. There’s a paradox here. Scrutiny now makes it more likely that the next President goes after big tech, which makes the period right now before the next President takes office far more important for mergers and strategic expansion. In other words, the scrutiny may not be slowing them down, but speeding them up.

In Disney CEO Bob Iger’s book, Iger mentions a surprising reason George Lucas sold Lucasfilm. Tax law. As Iger and Lucas negotiated the merger, George Bush’s tax cuts were set to expire. Congress and the President arranged a deal to raise capital gains rates, which meant that Lucas would forego a lot of money if he waited to sell the business. So he sold quickly, and pocketed an extra $500 million that would have gone to the taxman. It’s easy to act like corporate behavior is some apolitical phenomenon driven by technology and the leadership of heroic CEOs, but the reality is politics determine business strategy.

I’m not persuaded that the ‘big tech bust out’ is 100% accurate, but I suspect in executive office suites in California, there’s a lot of planning going on to address the rapidly changing political environment. There are likely different factions, some trying to speed up and some trying to slow down the aggressiveness.

Still, until policymakers do actually start to wield power, we’re going to hear one thing and one thing only.

Fuck you, pay me…

Image result for gif goodfellas

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

P.S. If you’ve read my book Goliath, let me know what parts stood out to you as most relevant to today.

Copyright, Antitrust, and Disney's Monopoly


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Last week I wrote about the case for breaking up Disney. Today I’m going to discuss how Disney uses copyright law to monopolize markets, and why the political problem here is not about the length of copyright terms, but the relationship between antitrust and copyright.

Here’s Bob Iger, the emperor of Disney.

The picture is from Josh Hallett.

Backstory on Disney

Disney is a copyright empire. That is, its entire business runs on the clause in the Constitution that gives temporary monopolies to artists and creators to profit from the work they create. This license is called a copyright (and the protection of a branded product, like is called a trademark). The reason you can’t make and sell Mickey Mouse TV shows and movies is because the government has granted Disney the exclusive license to do that. You can use Shakespeare characters, but nothing created by Walt Disney. (Yes, you can do things like satire under what’s called fair use, but we won’t get into that because it’s complex and not important for the purposes of this piece.)

A limited copyright makes sense, because it enables artists to profit from their work, and thus creates a viable path for artists and financiers to come together and make and sell art. The terms of such licensing matters, of course. A seven year license enables one form of market structure, an infinite length enables a different one. And then there are terms, like mandatory licensing to all comers, or exclusive licensing, fee structures, and so forth. Copyright gets very complex, and is a set of negotiated deals among artists, studios, distributors, and the public. Today, copyright licensing is at a bit of an extreme, with copyrights lasting for the life of the author plus an additional 70 years, after which it goes into the public domain.

There’s a vibrant debate over how long copyrights should last. But I am less interested in the problem of the length of copyright, which is well-trod territory, than the use of copyright monopolies to leverage monopolies over distribution. Because that is one area that the Supreme Court took care of when it abolished the studio system in 1948. And it’s something we don’t talk about a lot, even though it is the key fulcrum Disney is using to recreate a much more autocratic creative industry. In many ways, Disney is seeking to return to the original way Hollywood did business, before the government forced open and creative markets for content.

So let’s go back to early Hollywood, and examine how the industry organized itself. Hollywood filmmaking began around 1910. Like many new industries, there was ample competition among producers and theater owners, much as you saw with the initial creation of apps right after Apple opened the app store, or the explosion of websites in the 1990s. After World War One, the industry settled into the concentrated structure, with major studios organizing production and financing of films.

Until 1948, Hollywood studio bosses had extreme amounts of control, managing virtually every aspect of filmmaking, from the careers of directors and actors to the newspapers that reported on gossip. This era was known as the studio system, and the Coen brothers made a delightful film, Hail, Caesar!, which paints a rosy picture of power and culture in it. The studio system was based on tight alliances or outright ownership between theater chains and producers of movies. Five major studios, and a few minor ones, basically had control of all distribution of film.

The studio system was borne of politics; In the 1920s, as the industry grew, the Republicans chose lax antitrust enforcement as a policy. As one business consultant later put it, “practically, under the Harding, Coolidge, and Hoover administrations, industry enjoyed, to all intents and purposes, a moratorium from the Sherman Act.” There were more personal connections as well. Herbert Hoover, for instance, was a friend of MGM’s Louis B. Mayer, the most powerful studio boss of the time, and Mayer helped introduce showbiz glamor to GOP political conventions.

In the 1920s, the industry vertically integrated, which meant that theater owners did what they were told by the studio bosses, and so did everyone else. There was a loose cartel of studios who battled over power, but cooperated to control the industry. Such contests were common in the roaring 1920s, with the disdain public officials showed for democracy and competition. My favorite quote is from W. E. Humphrey, the Republican who ran the Federal Trade Commission in the 1920s. He proudly announced when he was taking it over from Democrats that the FTC that the commission would no longer serve as a “publicity bureau to spread socialist propaganda.”

Starting in the 1930s, the New Dealers took over. In the late 1930s, the antitrust division got more aggressive, until in 1948 the Supreme Court allowed the DOJ to break up the studio system with an important precedent on vertical integration. I wrote about this dynamic in July. The antitrust division created a *market* with decentralized distribution, and the Federal Communications Commission then ported it to television in 1970 with a separate regulatory decision.

[This market structure harkens] back to bitter battles in the 1930s and 1940s between New Deal antitrust attorneys and studio heads, which culminated in the Paramount Consent Decrees of 1948 and the end of the autocratic so-called ‘Studio System.’ These decrees forced studios to sell their theaters, and prevented them from engaging in tying and bundling practices to force theater owners to take their films. New Hollywood, with youthful countercultural stars like Jack Nicholson, emerged in the 1960s to totally revamp the industry, and global culture. In 1985, weird popular movies like Back to the Future were still taking advantage of this relatively open market structure.

A similar decentralized structure existed in the television industry, which was broken apart in 1970 by Richard Nixon’s FCC with financial syndication rules (‘Fin-syn’). These rules blocked TV networks from distributing their own content in prime time, opening the market for TV content to third party producers who would take more creative risks. The Cosby ShowSeinfeldThe Mary Tyler Moore Show, and All in the Family were some of the results of this policy choice to open up the TV market.

Both the Paramount Consent Decrees and the Fin-syn rules were designed to break creative industries into a three-tiered structure: production, distribution, and retailing. Producers were prohibited from vertically integrating into the traditional distribution business. That way, there are fewer conflicts of interest in the content business; producers had to create high quality work, and if they didn’t, distributors could choose to sell someone else’s art. Policy removed power as the mechanism of competition, and emphasized art.

Disney already controls theater chains through agreements it negotiates based on raw muscle and market share. Disney’s strategy, especially with its new streaming service Disney Plus, is to recreate the system the Paramount Consent decrees took apart, but to add into it a combination of TV, movies, and theme parks, and to do it globally. Netflix, Disney, AT&T, Amazon, Comcast and perhaps a few others will try to ‘win’ the streaming wars' with various pricing games to subscribers, which is really a battle not over creating good content but over winning market power, much like the 1920s. In fact Netflix only started making original content because its executives realized the industry would vertically integrate, and it wouldn’t be able to license content from would-be competitors.

All of this brings me back to copyright. The way to win a streaming war is to own ‘must-have’ content, which means owning the exclusive license over copyrighted work which is very popular, and then to bundle that ‘must-have’ content with other content into a vertically integrated streaming service. In other words, the goal is to use a state-sanctioned monopoly of copyright to build market power in a separate market, that of streaming subscriptions. The Supreme Court in 1948 held that doing something very similar was illegal. The court discussed block-booking, which was the practice of forcing theater chains to exhibit less popular movies in return for giving them access 'to ‘must-have’ content like Gone with the Wind.

To simplify, block-booking was the 1940s equivalent of bundling a streaming service with exclusive content. The court noted that using must-have content in this way "adds to the monopoly of a single copyrighted picture that of another copyrighted picture which must be taken and exhibited in order to secure the first." The court went on to argue that using copyright in this way violated antitrust prohibitions on tying.

I’m not an expert on modern copyright law, so I’m not going to pretend to understand whether the massive numbers of exceptions and rights delineated in terms of streaming allow for such bundling today. The FCC has rules on content licensing, which makes the legal framework even more complex. In some ways, it’s an academic question, because we don’t enforce the law against powerful actors. But it’s fairly obvious that a long length of copyright terms, which artists tend to support, is not the same thing as the use of copyright to build power in adjacent markets.

Copyright law is supposed to protect artists and creators, but it is now being subverted to let financiers like Disney control and manipulate them. That’s what it means when copyright protections for artists are used to build power in the streaming services that the new Hollywood studios are using to cage the people who make their content, and prevent them from going directly to their audience in open markets.

The solution is relatively simple, which is an end to vertical integration, plus mandatory licensing of content from those institutions that have substantial amounts of market power. Then the distributors will focus on creating the best services they can create and the producers will focus on creating the best content they can create, and a market will match the two in the middle. The financiers and middlemen will have little power, and audiences and creators can connect, or not, as they choose.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

What Is a Billionaire?


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Lots of billionaire news flow this week. Bill Gates sort of criticized Elizabeth Warren’s wealth tax, and Warren unveiled a simple calculator to mock him. Bernie Sanders said more directly that billionaires shouldn’t exist. And Michael Bloomberg says he may jump into the Presidential race.

Ok. So here’s what most people think of when they think of a billionaire.

Image result for gif scrooge mcduck

But a billionaire is not, as I’ll show, a cartoon duck with hoards of gold. Today I’m going to write about what a billionaire actually is. If you like it, there’s a lot more in Goliath: The Hundred Year War Between Monopoly Power and Democracy.

First, I did a bunch of media this week. My favorite was this morning, on Rising with Krystal Ball and Saagar Enjeti . Both hosts are super sharp. I love their show and we really got a chance to chat about the monopoly crisis, and why Obama’s Presidency failed.

And now…

A Billionaire Is Someone Who Runs a Very Important Tollbooth

Most people think a billionaire is someone with a lot of money, a sort of Scrooge McDuck who goes swimming in a pool of gold coins. And why wouldn’t we? The name billionaire has the word billion contained within it, so clearly it means having a net worth of at least ten figures. And in a sense, that is technically true. But if you look at the top ranks of the Bloomberg billionaire index, you’ll notice that nearly all of the leaders are people who own a corporation with substantial amounts of market power in one or more markets.

Billionaires use market power to extract revenue the way that a tollbooth operator does. If you want to drive on a road, you have to pay for the privilege. It costs the tollbooth operator nothing, he/she just has a strategic chokepoint for extraction. Billionaire Warren Buffett, for instance, has such a ‘tollbooth’ strategy for investing, though he uses the term ‘moat’ because it sounds charming and quirky rather than rapacious.

Put another way, the Bloomberg billionaire index isn’t a list of the most important Scrooge McDuck’s, it’s a list of the biggest tollbooth operators in the world.

So how do billionaires acquire such massive tollbooths? Surely it’s based on building better products and services, right?

Image result for kay being naive gif

Bill Gates Is a Billionaire Because of the Law

Bill Gates made his money the old-fashioned way. He stole it. Or well, most of it. As one person who made deals with Gates said anonymously: “A partnership with Microsoft is like a Nazi non-aggression pact. It just means you’re next.” It is perhaps not theft in the direct sense, in that he didn’t physically break into someone’s house and steal the contents of their safe, but he used anti-competitive tactics to extract property from other business people, tactics that in earlier generations would have brought assertive antitrust suits. The Sherman Antitrust Act, passed in 1890, is not just a civil statute, but a criminal one, and it can and has been used to send people to jail. Monopolization isn’t just a business practice, it is, according to the law, a crime.

Gates’s intellectual and business ancestor is John D. Rockefeller, who also made his money in a high-tech industry based on network economics and legal tricks to standardize on a platform. In fact, Rockefeller called his kerosene producing monopoly Standard Oil. It’s useful to go over Rockefeller’s tactics and philosophy, because it’s pretty much the same as Gates (and as Lina Khan shows, that of Jeff Bezos).

Starting out as an oil refiner in Cleveland, throughout the 1870s and 1880s Rockefeller began working with and buying out other refiners. Cleveland had many railroads connecting the oil fields of Pennsylvania and Ohio to his refineries. Rockefeller shipped so much oil that he could demand special pricing arrangements with those railroads. He asked railroads to give him a rebates on oil he shipped, a sort of bulk discount. He accumulated so much of the market that he also asked railroads to give him rebates on oil his competitors shipped. In other words, he taxed the entire industry, including his competition. He soon underpriced his competitors and was able to force them to sell out to him, bringing the whole industry under his control.

Rockefeller used the structure of networks, both railroads and pipelines, to seize control of the chokepoint in an industry. He wasn’t a wildcat oil driller, he simply forced those oil drillers to use his shipping and refining infrastructure, and could dictate prices. Standard Oil became a private governing force in the oil industry, and Rockefeller became a billionaire by the 1890s.

Standard Oil ran into legal trouble almost from inception. The corporation had been subjected to state lawsuits for decades, and in 1911, the Supreme Court ordered the dissolution into its component parts. The break-up itself was fascinating.

Politically the break-up, though humiliating, was a win in some ways for Rockefeller; Democrats were angry he got to keep his ill-gotten gains, and they put in their 1912 platform a note that Republicans were cowards for being unwilling to use the criminal part of the Sherman Act. The break-up also increased Rockefeller’s wealth tremendously. Standard Oil used good technology, but after several decades of market power, it had become slothful; only after the break-up in 1911 did one of the now-independent divisions of Standard Oil create the gasoline industry through new refining techniques. Rockefeller benefitted, as he still held his wealth in stock.

Like Gates, Rockefeller eventually became a philanthropist, pioneering the method of using large sums of money to engage in political control under the guise of charity. He financed research on prohibition, for instance, as well as a good amount of academia, and the creation of the University of Chicago. But his era ended, as populists and merchants put in place laws to erode such large swollen fortunes and the empires that created them. Antitrust and anti-merger laws, regulations on pipelines and railroads that prohibited discrimination, banking restrictions, unionization rules, the Federal income and corporate tax, the inheritance tax, and so forth, had their impact.

When Rockefeller died in 1937, popular commentator Walter Lippmann penned this famous argument about how political economy thinking had changed. “Before he started his enterprises,” Lippmann wrote, “it was not possible to make so much money; before he died, it had become the settled policy of this country that no man be permitted to make so much money. He lived long enough to see the methods by which such a fortune can be accumulated, outlawed by public opinion, forbidden by statute, and prevented by the tax laws.” This framework lasted until the late 1970s; it was inconceivable America would allow the re-emergence of robber barons like Rockefeller.

And yet we did. In fact, Bill Gates’s emergence as a massively powerful political and commercial actor bears an eery resemblance to that of Rockefeller. Gates too came into a new and fluid industry, not oil drilling, but personal computing, full of independent weird hobbyists experimenting not with new techniques around chemistry and extraction but communications, hardware, art and software. Like Rockefeller’s post-Civil War era, Gates in the early 1980s had a legal framework favorable to concentration.

In 1976 and 1980, Congress allowed the copyrighting of software. IBM had been under aggressive antitrust investigation and litigation since 1967, so when it built a personal computer, it outsourced the operating system - MS-DOS - to Gates’s company and allowed Gates to license it to other equipment makers. (Gates’s upbringing didn’t hurt; the CEO of IBM at the the time knew his mother.) Such a relationship with a vendor was a shocking change for IBM, which had traditionally made everything in-house or tightly controlled its suppliers. But IBM treated Microsoft differently, transferring large amounts of programming knowledge to the small corporation. IBM also did this with the microprocessor company Intel, which IBM protected from Japanese competition.

And yet, in 1982, the Department of Justice dropped the antitrust suit against IBM, signaling a new pro-concentration framework. Bill Baxter, Reagan’s antitrust chief, did not want to bring monopolization suits, and did not. The new fast-growing technology space of personal computers would be a monopolized industry. But it would not be monopolized by IBM, which had kept control of the computing industry since the 1950s, because IBM’s corporate structure was now skittish about the raw use of power. And it would not be monopolized by AT&T, which was kept out of the computing industry by a 1956 consent decree that lasted until 1984. Gates, in many ways, had a greenfield, an environment friendly to monopoly but one in which all the old monopolists had been cleared out by antitrust actions.

Gates didn’t at first think operating systems were that important, and he wanted to use the OS to sell programming languages. But soon he realized that the operating system was a key on-ramp to the personal computer, a tollbooth or chokepoint for all other software. And like Rockefeller with railroads/pipelines, Gates began using rebates to control this new network industry. He built a licensing regime that charged personal computer makers a fee for installing his operating system. More importantly, his licensing regime effectively required computer makers to pay a fee if they installed a rival operating system. Through a coercive partnership with computer makers, Gates imposed a tax on the entire industry, including his competitors, much as Rockefeller had using his relationship with railroads. The key tool for both was not technology, but pricing in the form of the rebate.

What Gates was doing was illegal, but not investigated until the 1990s. Eventually, in 1994, Anne Bingaman, Clinton’s antitrust chief, signed a consent decree demanding Gates stop its licensing regime, but by then it didn’t matter; the market had tipped so Microsoft’s operating systems were the standard. At that point, only public utility regulation would have been able to control Microsoft, but such proposals were considered insane in the libertarian 1990s. As the 1990s continued, Gates then used his control over the operating system to take control of most key applications on personal computers. Microsoft Word defeated Wordperfect and Excel defeated Lotus123. Microsoft also tried to buy Intuit, but was finally blocked by an aggressive judge, Stanley Sporkin, who had tired of the flabby DOJ’s approval of mergers.

By the late 1990s, Microsoft executives were talking about getting a ‘vig,’ which is a mobster term for a piece of the action, out of every transaction that happened on the new space called the internet. Microsoft began putting lots of money into new ventures to take over entire swaths of the real economy, many of which didn’t work or were out of place for a software company (there’s a reason it’s called MSNBC). The last straw was when Microsoft essentially sat down a group of venture capitalists and told them where they could invest, and where Microsoft was investing. When the corporation sought to kill Netscape, which was the on-ramp to the internet, it was obvious that Gates wanted to control the internet. He couldn’t, and didn’t, because of a major antitrust suit launched in 1998 by the Federal government. He had sought to become Facebook, Google, and Amazon, and would have been able to if antitrust enforcers hadn’t stepped in.

Gates is a very good business man and would have been wealthy regardless. But there’s a difference between having $100 million and $100 billion. He has massive amounts of power because he captured control of a very important tollbooth in the economy at a very early stage in its creation. We call him a billionaire because when you measure what this power is worth, it comes to $100 billion or so (plus whatever he’s put in the Gates Foundation). But the dollar figure is just the accounting system. There’s no swimming pool of gold coins, there is a tollbooth called Microsoft Windows.

And that is true for most billionaires. They are not people with a bunch of dollar bills stacked to the moon, they are (largely) men with a strategic position of power protected by public laws and rules. They aren’t better or smarter than anyone else, they are simply politically adept and in the right place at the right time. There’s no reason we have to enable such people to run our culture. At the end of the day, tollbooths are nothing but bottlenecks on a road on which we would otherwise travel faster and more freely.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

It's Time to Break Up Disney: Part One


Welcome to BIG, a newsletter about the politics of monopoly. If you’d like to sign up, you can do so here. Or just read on…

Today I’m going to write about how we should break up Disney, the massive media conglomerate that dominates the film and entertainment business. This is a sort of sequel to my essay a few months ago on Netflix, titled the Slow Death of Hollywood.

First, I apologize for not sending out any issues of BIG last week, I was in Germany giving a keynote for the social democrats on big tech at their conference on #DigitalCapitalism.

What I learned is that as confused as we Americans are about concentrated corporate power, the Germans are just as confused. And the themes I wrote about in Goliath: The Hundred Year War Between Monopoly Power and Democracy are global. At any rate, below is a picture of Karl Marx wearing an Oculus VR headset.

Two more excerpts are out from Goliath. The first is in Fast Company and is on the 1990 suit against Microsoft:How Reagan, Clinton, and Bill Gates paved the way for the rise of Big Tech. The second is in Foreign Policy magazine, and is about how New Dealers broke the American corporate links to the Nazis. It’s titled Beating Wall Street Won World War II.

And now…

Imperial Disney

I love movies and TV shows. As a kid, I bonded with my Dad over Mel Brooks and today I use memes from Step Brothers in presentations. Most people in America love movies. Children dress up as fictional superheroes and princesses, couples fall in love to romantic comedies, and we tell ourselves who we are as a culture based on the stories we absorb.

But I didn’t quite get the political importance of film until I worked in Congress. In 2009, as I was learning how Congress funds government programs, the U.S. Marshals service took me on a field trip showing me how a specific program requiring expensive equipment worked. U.S. Marshals are a bunch of government officials who serve outstanding arrest warrants.

Like many of the policing and military service branches, they try to increase their budget by impressing young male Congressional staffers, often by showing them the cool toys taxpayer money funds. So I got taken on a rather depressing tour showing how the U.S. Marshals work with local law enforcement to arrest people, and essentially got cooperation from local law enforcement by buying them decked out police SUVs and expensive sledgehammers and whatnot. I asked my guide when they got funding for the program they were showing off, and he told me it was in the mid-1990s. To which I said, why then? And he responded, "That was when the movie The Fugitive came out, so that’s when Congress finally understood what we do.”

It’s easy to mock Congress for being ignorant about government, but that’s unfair. Government is massively complex, and stories help all of us - including policymakers - make sense of the world. They help us understand our values, provoke debate, and teach us our history. So I’ve watched with growing trepidation as Hollywood, the center of American entertainment, has come under the thumb of a narrower and narrower group of corporations. While I spend a lot of time thinking about big tech, in particular Facebook and Google, the creation and distribution of great American art - movies and TV shows - is increasingly dominated by Disney.

This isn’t because Disney’s animation studio just got really really good and put out new popular movies about Mickey Mouse. In fact, it doesn’t have much to do with Disney’s ability to make movies or run theme parks at all. Disney is a fundamentally different corporation than it was 15 years ago.

Over the last thirty years Disney has become a financialized corporation, a shell of what it used to be. The old Disney had problems, rapaciously protecting its copyrights with a powerful lobbying operation and sometimes mistreating its workers. But its executives and employees also obsessively focused on delighting generations of children. This began changing, slightly, in the 1980s, when then-CEO Michael Eisner realized he could radically improve profitability simply by raising tickets at theme parks. Eisner also kicked off an acquisition spree, buying the ABC TV network, which included ESPN.

But Disney's recent status as what one journalist calls “Imperial Disney” is really the brainchild of Eisner’s successor, CEO Bob Iger, who in his 15 years at the helm of the company bought Pixar, Lucasfilm, BAMTech, Marvel, and large parts of 21th Century Fox, as well spearheaded the corporation’s massive expansion into China. Disney now makes a good chunk of must-have content these days, running every major franchise from Star Wars to Avengers to Toy Story. Disney is a global powerhouse; Shanghai Disneyland (which Iger oversaw) was one of the largest investments in the corporation’s history, taking $6 billion and eighteen years to build; it is eleven times larger than Disneyland itself. The corporation is heavily engaged in politics, with former United States Trade Representative Michael Froman, the man who built Obama’s Wall Street friendly cabinet, serving on the board.

As I’ll show, the new Disney is more a private equity group than studio, collecting brands and using them to bargain aggressively with partners, suppliers and consumers. Imperial Disney is the result not of animation genius but mergers and acquisitions genius. It is not a corporation that pushes the bounds of artistic and technological possibility but a corporation that pushes the bounds of legal possibility under the radical pro-consolidation framework that has existed since the 1990s, as well as the Clinton-era ‘engagement’ framework that encouraged deep integration of American multi-nationals into China.

And we should all be very, very worried about the consequences of this new Disney.

Bob Iger’s Monopoly of a Lifetime

This weekend, I sat down and read Iger’s book, The Ride of a Lifetime, because Iger more than anyone else transformed Disney into the global player that it is today.

When Iger became CEO of Disney in 2005, he set three goals. First, Disney would acquire and create as much high quality content as possible. As he put it, “Great brands would become even more powerful tools for guiding consumer behavior.” Second, Disney would become a technology company, because “modern distribution would be an essential means of maintaining brand relevance.” And three, Disney would become a truly global company, with its target of penetrating China.

That was fifteen years ago. Iger’s goal was basically to turn Disney into a vertically integrated global monopolist over entertainment, instead of the house of Mickey. He sought power, and was willing to jettison the old Disney culture to get it. One of the interesting nuggets that Iger discloses is how everyone at Disney used to be obsessed with, well, Disney. The former CEO Michael Eisner almost always wore Disney ties with figures like Mickey Mouse on them, and most top executives enjoyed Disney gear, or at least pretended to love it. Iger writes in a chortling tone how he, having come from the ABC sports division, escaped this particular tacky way of dressing. It’s a small hint, that Iger disrespected the culture in a way his predecessors did not.

So has Iger succeeded in acquiring massive amounts of power? The short answer is yes. To answer that more fully, I want to draw attention to some truly wonderful reporting on the entertainment industry by Matt Zoller Seitz, who reported on Disney’s new policy of refusing to allow first-run theaters to show old Fox movies.

Disney has traditionally kept its movies in the vault, with theaters unable to show classic Disney fare. The goal is to create artificial scarcity, keep audiences excited that Disney films are something special. Disney is now applying its policy to its 21st Century Fox back catalogue, which includes classics like Beneath the Planet of the ApesZardoz, AlienAliensSay AnythingThe Princess BrideMoulin Rouge, and so forth. (Aliens fans are already upset).

This is a huge amount of film removed from circulation. As the American Prospect’s Brett Heinz noted, Disney, because of its acquisitions of Pixar and Fox, now “owns one in seven of all films to ever receive a Best Picture nod.” It can and does withhold these films from theaters.

One way to recognize monopoly power is when a corporation chooses to withhold output, which is what Disney is doing by sticking its old films into the vault. It shouldn’t be able to do this with its new Fox content, this is likely evidence that the merger was anti-competitive, but since neither Obama nor Trump enforced such laws, symptoms of monopoly power are a validation of Iger’s strategy. So how will this shift impact the market? Who is going to get hurt?

This restructuring of the movie market is going to have significant impacts on what we can see in theaters and what filmmakers can create. Well most theaters, after an explosion of mega-plexes in the 1990s due to private equity and lax merger enforcement, are large chains who don’t really show old movies. Because of the size and reach of chains, movie releases are increasingly first week phenomena, and so Marvel and Star Wars type branding dominates over weirder and more interesting fare.

But there are still 600 independent fist-run theaters left in the United States, and independent theaters are different than chains. They often screen films to celebrate old movies, or they show documentaries or iconoclastic movies. Independent theaters are some of the few places indy movie makers can show their films. These are the theaters Disney is now crushing, and what’s left of independent distribution will likely disappear, leaving an oligopoly of theater chains and giant studios controlling movies.

So that’s one illustration of Disney’s new market muscle under Iger. But Disney’s power goes well beyond withholding old films. It has roughly half of all ticket sales, and as Seitz notes, is able to demand coercive terms from theater owners, not just higher fees, but promises to screen Disney films, even ones that are likely to be unpopular. This is a practice known as block booking, where a distributor forces a theater to show movies that are less in demand in return for getting access to must-have content, like say a Star Wars or Marvel movie on opening weekend. Block booking is technically illegal under an old antitrust precedent, but, well…

With the market power Disney now commands, theater chains can’t say no. As Heinz reported a few weeks ago, when Disney negotiated the rights to show Star Wars: The Last Jedi with movie theaters, it gave the theaters “a set of top-secret terms that numerous theater owners say are the most onerous they have ever seen,” including giving Disney “65% of ticket revenue from the film, a new high for a Hollywood studio,” and forcing them to “show the movie in their largest auditorium for at least four weeks.”’ If the theater didn’t comply, Disney could impose a 5% tax of box office revenue on top of its already existing 65% share. .

Once again, that is power, which was Iger’s true aim.

The Disney Plus Endgame

Yet another way to recognize power is the intentional foregoing of selling your product to customers in order to capture market power elsewhere, or what is known as vertical foreclosure. This is most apparent in the new service Disney is rolling out called Disney Plus, which will bundle all of Disney’s massive trove of content into a Netflix-like bundle. In some ways, this looks like Iger’s end game in the strategy for global dominance. Disney can produce must-have branded content, force theaters to show all of its branded content, and then leverage that across its global network of theme parks and its dominant streaming service. It is vertically integrated from production lot to the end consumer.

Iger’s strategy is to do what Netflix is trying to do, except with more raw power. Netflix’s strategy is to produce so much content and sell it at a loss through subscriptions, in the hopes it can drive its competitors out of business. One it has a large base of subscribers and no competitors, it can then raise prices on its subscribers (as it is doing in the U.S.) and pay its talent less money. Where else are they going to go?

Well, it turns out they can go to Disney. But to set up a viable competitive product requires Disney to have a superior streaming service. What makes a streaming service good is the content, and Disney has content in spades. Yet, Disney also sells a lot of content to Netflix, and earns a lot of money doing that. To launch a rival streaming product, Disney must stop selling its content to Netflix. Otherwise Netflix viewers have no reason to watch Disney Plus. In other words, for some time as it gains subscribers, Disney will have to lose money it could otherwise make in order to differentiate its streaming service.

Such a move cuts against much industrial organizational economic theory. Theorists posit that corporations like Disney tend not to intentionally lose money just to acquire market power, because foregoing revenue is not, apparently, rational. This theory is nonsense. After all, if Disney is willing to tolerate losses just to drive competitors out of business, then vertical foreclosure is deeply problematic, and perhaps illegal. What’s interesting is that our antitrust enforcement is so lax that Iger announced his strategy of knocking out fellow intermediaries to Wall Street, and put it in his autobiography.

We were now fully committed to also becoming a distributor of our own content, straight to consumers, without intermediaries. In essence, we were now hastening the disruption of our own businesses, and the short-term losses were going to be significant. (As one example, pulling all of our TV shows and movies—including Pixar and Marvel and Star Wars—from Netflix’s platform and consolidating them all under our own subscription service would mean sacrificing hundreds of millions of dollars in licensing fees.)

Iger goes on to note something even more remarkable, saying about the company’s new streaming service that “it would take some time before success would be measured in profits.” It would instead, he wrote, “be measured in subscribers.” Consider what’s he really saying, which is that Disney isn’t trying to make a profit. That’s crazy. No one can compete with an entertainment powerhouse that sells half the movie tickets in the country, that has overly strong copyright protections, as well unlimited loss-making capacity. Iger goes on:

We wanted the service to be accessible to as many people as possible around the world, and we had settled on a price that we estimated would bring in somewhere between sixty and ninety million subscribers in the first five years. When Kevin announced we would be selling it for $6.99 a month, there was an audible gasp in the room.

The response from Wall Street went far beyond anything we anticipated. In 2015, our stock dropped like a stone when I talked about disruption. Now it was soaring. The day after our investors conference it jumped 11 percent, to a record high. By the end of the month, it was up nearly 30 percent.

The New Studio System

Analysts are betting Iger is setting up a new studio system. Disney will lose money in order to generate market power that the corporation can later use, often against consumers. Consumers will get a nice bundle at first, with great content at a low price. But that price will creep up over time, as it has with Netflix. And it’s not just consumers who will find their choices radically constrained. The real target of Iger’s monopolization strategy is suppliers of entertainment product. Put another way, the target is labor.

When Disney launches its streaming service Disney Plus to paid subscribers, it will radically change how creators are compensated for their work. Traditionally, TV and filmmakers get paid an upfront amount, and then paid again on the backend through residuals or royalties on sales of movies in the after-market. But now, with Disney+, there will be no after-market; Disney will simply take its content and distribute it directly to subscribers, with no one actually paying directly for TV or movie.

Comedy legend Judd Apatow discussed the problem on twitter, noting “Disney is also beginning to change how much back end profits they will make available to TV talent… They are so powerful they can just redefine how much everyone gets paid in success to their benefit.” The new arrangement in Hollywood looks increasingly like the pre-1948 studio system, where creators are signed to single studios, who have power and control over their careers and creative output.

Iger has so far succeeded in his strategy. But what are the costs of this strategy to Hollywood and the economy?

The Breakdown of Capitalism

One of the most important consequences is that Disney is simply getting rid of functional markets. Disney will simply pick and choose content, without guidance from, well, people being willing to pay money for tickets. It will be an uber-Netflix, and will simply give subscribers what it thinks they want, instead of what they choose to pay for.

Friedrich Hayek’s great intellectual innovation in economics was about the importance of information and prices in markets. Through open and competitive markets, the price system, he argued, carries information across millions of people who buy and sell things to each other, serving as a coordinating body that lets producers know what to produce and consumers know what is available inexpensively. It is decentralized and works through free exchange and liberty, but also is remarkably efficient (as long as there are no monopolies and regulations ensure power asymmetries among those engaging in exchange aren’t severe.)

In entertainment, this price system works via consumers being willing to pay money to see a movie, or to watch ads to see a TV show. These reflect a market transaction. A consumer is giving up money or time to pay for something, which indicates he or she things that something is a quality product. Aftermarkets where syndications and film rights are traded help quantify what creators are worth, and that enables creators to have bargaining leverage when they want to do something weird, controversial, or interesting. Such markets enabled strange movies like Back to the Future or shows like Seinfeld or All in the Family to get made, because they empower creators and audiences.

A subscription service based on monopoly power breaks this entire process. Netflix, for instance, pretends to have fancy algorithms to determine quality, but it’s not clear that they have figured out a good quality filter superior to the price system. Central planning in movies and TV shows doesn’t deliver as much as decentralized production and distribution, for the simple reason that a centralized system is less likely to let as much weird stuff through. Disney is likely to lose its filmmaking edge; indeed, it is already so large and has so many brands that the bad remake of films like The Lion King do suggest a loss of creativity. Such a loss will not matter to Disney the corporation, because to will have distributive power to compensate, but it will matter to all of us who love movies, and those who make them, and to the societies all over the world who use film and art to make sense of the world.

Yet another consequence of Disney Plus is that it will erode the basic foundations of capitalism. in his book, Iger notes he had to find ways to compensate Disney division heads with arbitrary metrics to get them to put their stuff on Disney Plus, and this was hard, because they were used to hitting revenue targets. The division heads have a point. Capitalism is premised on selling final goods for more than it costs for the initial inputs, otherwise you are destroying wealth. By selling below cost, which is what Disney may be doing, the corporation is reducing aggregate wealth to acquire market power. It’s simply impossible to compete with someone who is willing to gain revenue by paying a dollar for fifty cents. Disney may or may not be doing that with its low Disney Plus price, but the fact that Disney Plus makes it impossible to measure value coming out of each division shows that the breakdown of the price system and potential below cost pricing is likely eroding value.

Disney and China

There’s one last serious problem, and that is China’s increasing use of Western corporations to censor Americans. We saw this with the NBA, but Disney is clearly the biggest villain here. The U.S. government wrote about this problem in 2015, it has only gotten worse. Here’s Iger, on the recent Hong Kong protests and the NBA.

The biggest learning from that is that caution is imperative. To take a position that could harm our company in some form would be a big mistake. I just don’t believe it’s something we should engage in in a public manner.

And yet Disney is not staying neutral, but is taking sides. China’s side. You will never see any criticism of China in a Disney movie or entertainment property, and ESPN is using Chinese propaganda in portraying the geopolitics of southeast Asia. What this means is that monopoly power for Disney is monopoly power for the Chinese government. And the more assets Disney acquires, the more leverage for China.

What Is to Be Done?

I don’t have a fully thought out way of breaking up Disney yet. I am working through how to address this market power, which is simply overwhelming. It will likely require vertical and horizontal restrictions, and addressing problems with the abuse of copyright protections to leverage additional market power.

The nice thing is that we’ve dealt with similar problems in the past, and succeeded. And I’m pretty confident that we can do so again. After all, imperial Disney is less than 15 years old. The public policy underpinning Disney’s consolidation of power isn’t a permanent state of being, it’s just a particularly noxious way of regulating our entertainment industry.

Thanks for reading. And if you liked this essay, you can sign up here for more issues of BIG, a newsletter on how to restore fair commerce, innovation and democracy. If you want to really understand the secret history of monopoly power, buy my book, Goliath: The 100-Year War Between Monopoly Power and Democracy.


Matt Stoller

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