Last week, I offered thoughts on Judge Vargas’ decision in the Southern District Court of New York to grant Cumulus an injunction against Nielsen, which is being appealed.
The discussion surrounded a comment in Rich Tunkel’s declaration to the court that Nielsen might have to retire Nationwide if the company’s “tying policy” can’t be enforced, which I suggested was both unlikely and would be harmful to the radio industry and Nielsen’s private equity overlords. This week, let’s consider another aspect of the case and Judge Vargas’ decision, specifically competition in the local market space.
Much as I’m not an attorney, I’m also not an economist, and I am grateful for both conditions. However, I’m always thankful for the courses we were required to take during my Ph.D. program at Michigan State. My first term included a First Amendment class during which Professor Murray required that we read Supreme Court cases. Later, as I wrote papers about broadcast policy, law review articles helped greatly. Some of these articles had more verbiage in the footnotes than in the body of the article, but you learned how to read legalese.
We also took Media Economics with the late Dr. Barry Litman, a brilliant if quirky media economist. Barry was always happy to talk economics, but we students also knew not to put him on our dissertation committees because he was tough. In other words, I can muddle my way through court decisions and economics. Paraphrasing Yogi Berra, “I’m smarter than the average radio person” in these areas, but there are experts who know far more than I do.
To start your week off on the right foot, let’s talk about antitrust law. I’m a capitalist, but without some sort of regulation, some capitalists will inevitably go too far in the pursuit of profits. As a result, Congress has passed laws to protect consumers — and the definition of “consumer” can include businesses as well — starting with the Sherman Antitrust Act of 1890.
The Sherman Act didn’t outlaw monopolies but instead stopped companies from engaging in behavior that prevented other companies from competing. Sometimes, the market can support just one company. An often-used example is buggy whips. In the 19th century, people got around by horseback, and some had buggies. One needed a buggy whip to keep the horse or horses going where you wanted them to go, although I have zero buggy experience. I doubt any readers have a horse-drawn buggy at home today, but if you do, there is exactly one buggy whip manufacturer left from the good old days: the Westfield Whip Manufacturing Company of Westfield, Massachusetts, which traces its roots to 1884.
While a few other companies may manufacture something akin to a buggy whip, Westfield has a legal monopoly, a result of surviving a shrinking market, not by trying to force out competition.
The next law to pass was the Clayton Antitrust Act of 1914, which is the basis of Cumulus’ suit against Nielsen. One aspect of the Clayton Act is a prohibition on “tying” when this will lessen competition. Here’s the relevant text:
SEC. 3. That it shall be unlawful for any person engaged in commerce, in the course of such commerce, to lease or make a sale or contract for sale of goods, wares, merchandise, machinery, supplies or other commodities, whether patented or unpatented, for use, consumption or resale within the United States or any Territory thereof or the District of Columbia or any insular possession or other place under the jurisdiction of the United States, or fix a price charged therefor, or discount from, or rebate upon, such price, on the condition, agreement or understanding that the lessee or purchaser thereof shall not use or deal in the goods, wares, merchandise, machinery, supplies or other commodities of a competitor or competitors of the lessor or seller, where the effect of such lease, sale, or contract for sale or such condition, agreement or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce.
If you read through that passage from 112 years ago, you’ll see the basis of Cumulus’ argument against Nielsen. By tying Nationwide, which Cumulus must have for Westwood One, to the purchase of local market data — even in markets where Cumulus does not want any data or wishes to use a competitor (Eastlan) — Cumulus believes Nielsen is in violation of the Clayton Act. Judge Vargas’ initial decision was that Cumulus has a solid case and may win on the merits when an actual trial takes place, assuming no settlement in the interim.
Further, Cumulus is claiming that if it does use Eastlan in some of its markets, then Nielsen’s “Subscriber First” policy — a practice that shows only Nielsen subscriber data to agencies — means that Eastlan subscribers, along with stations that don’t subscribe to any ratings service, will be at a major disadvantage.
Nielsen has a monopoly in national radio ratings, as it has the only product nationwide. It’s not an illegal one. Another company could challenge Nielsen in this market, but no entity has chosen to do so. However, Nielsen stands accused of using its monopoly power in Nationwide, a service that Cumulus believes it must purchase, to force Cumulus to buy Nielsen services it doesn’t want.
Nielsen’s claim is that this is a business negotiation. Nielsen wants to charge more, and Cumulus doesn’t want to pay more. The two sides could negotiate a mutually agreeable price, as has happened for decades, and the company believes this dispute should not end up in a court of law.
Antitrust is hard to prove and win. If you’ve been around a while, you may remember when AT&T was split into seven “Baby Bells” back in 1982 as part of an antitrust settlement. Microsoft changed some practices in 2010 because of an antitrust case brought against the company.
The radio industry is facing enough problems, some a result of so many options for the time and attention of consumers and others self-inflicted. In my view, for the sake of the industry and its future, Nielsen needs to relent, but I can’t see this happening while the company is owned by private equity.
Private equity’s typical modus operandi is to raise prices, cut costs to a minimum, and after some number of years, either sell the firm to another buyer or take it public, reaping a nice profit as well as rewarding those who put up a large percentage of the money to buy the company in the first place. Given those conditions, I can’t imagine the PE folks backing down unless they lose in court.
One other option: the industry needs to tell Nielsen Audio that they’re done with these practices and pricing and will support an alternative. Keep your fingers crossed.
Let’s meet again next week.
Barrett Media produces daily content on the music, news, and sports media industries. Sign up for our newsletters to stay updated and get the latest information right in your inbox.
