Speaker 1: More than one billion dollars was spent on advertising in
Speaker 1: the US last year. Yet advertising is less regularly than
Speaker 1: some other media businesses, with trade bodies rather than government agencies,
Speaker 1: doing much of the oversight. But now the US Justice
Speaker 1: Department is investigating the industry, specifically possible bid rigging in
Speaker 1: video advertising production. WPP, the world's largest advertising company, is
Speaker 1: the fourth of the Big six ad agency holding companies
Speaker 1: to admit its subsidiaries have been subpoenaed by the Justice Department.
Speaker 1: The Antitrust Division of the Justice Department is investigating whether
Speaker 1: ad agencies manipulated bids for making TV commercials in order
Speaker 1: to steer business to their own units. According to people
Speaker 1: briefed on the matter, our guests are Jennifer Ree, senior
Speaker 1: litigation analyst for Bloomberg Intelligence, and Daniel Crane, professor at
Speaker 1: the University of Michigan Law School. Jan there have been
Speaker 1: years of tensions between big advertisers and their ad agencies.
Speaker 1: Was this investigation by Justice propelled in any way by
Speaker 1: a June study commissioned by the Association of National Advertisers. Well, June,
Speaker 1: thanks for having me first, and before I answer that,
Speaker 1: I do need to disclose that My husband works for
Speaker 1: j W JW T, which is an ad agency that
Speaker 1: falls under w PP, the agency you were just talking about,
Speaker 1: and he does hold stock options. So before I get in,
Speaker 1: I just have to disclose that. UM. Now, what's been reported,
Speaker 1: at least we think, is that a report by this UM,
Speaker 1: this company K two, that was commissioned by the Association
Speaker 1: of National Advertisers. This is a trade association that represents
Speaker 1: the brand companies or the advertisers. UM suggested that there
Speaker 1: was a lot of non transparent activity going on in
Speaker 1: these ad agencies that wasn't really working out to the
Speaker 1: benefit of the advertisers, but working out to the benefit
Speaker 1: of the agencies. And it seems that they mostly were
Speaker 1: focusing on media companies media suppliers, but and not so
Speaker 1: much production, which is what the d OJ is looking
Speaker 1: at here, but that they did have some finds that
Speaker 1: might not have fallen into their final report that suggested
Speaker 1: there may be this kind of bid rigging activity going
Speaker 1: on in which the ad agencies agree with some of
Speaker 1: these outside production companies not to compete essentially UM and
Speaker 1: try to get the business in house because they own
Speaker 1: some of their own production facilities in house. They want
Speaker 1: to give the advertisers several bids. Looks like they're competing.
Speaker 1: You know, here are three bids. We've come in lower
Speaker 1: than these other two bids, which at the end of
Speaker 1: the day all of them were artificially high. At least,
Speaker 1: this is what you know, looks like what they're investigating. Um,
Speaker 1: and it gives legitimacy to the ad agency's bid because
Speaker 1: it comes in lower than the others. But they've all
Speaker 1: agreed to put in these artificially high bids. Daniel Crane,
Speaker 1: I'll make a confession, I didn't know all that much
Speaker 1: about the advertising business before this morning. Some if I
Speaker 1: understand this correctly, is the idea that there are separate
Speaker 1: markets for the advertising contracts UH in general and for
Speaker 1: the video productions, so that if an ad agency gets
Speaker 1: a contract, it can't necessarily use its own production facilities.
Speaker 1: Is that the idea right? So, the idea is that
Speaker 1: there is a separate market for the production of advertisements,
Speaker 1: and that can be done by the vertically integrated shop
Speaker 1: of an ad agency or could be done outside by
Speaker 1: an independent video production company. As I understand it from
Speaker 1: media reports, the investigation is centering on allegations that the
Speaker 1: ad agencies, which already we're dealing with clients to sell advertising.
Speaker 1: Uh In Media had some sort of a kickback or
Speaker 1: collusive agreement with independent video production companies that the video
Speaker 1: production companies would submit bogus bids to the client and
Speaker 1: that the ad agency would therefore be able to come
Speaker 1: in and win the business for its own in house
Speaker 1: video production shop, but doing so at inflated prices. Jen,
Speaker 1: we know that four of the big six ad agencies
Speaker 1: have been subpoenaed. More might have been what stage are
Speaker 1: we at here, Well, you know, this is very early on.
Speaker 1: These things take time. Um. This subpoenas really mean that
Speaker 1: they're they're collecting documents, they're collecting evidence at the d
Speaker 1: J that is is collecting evidence and information now and
Speaker 1: these things can take several years. You know. By way
Speaker 1: of example, we know that there have been some recent
Speaker 1: informations issued by the DJ in the generic drug world
Speaker 1: that's like an indictment um um that two people have
Speaker 1: been involved in price fixing for generic drugs. And this
Speaker 1: is what shook out of subpoenas that were issued back
Speaker 1: in two thousand fourteen, and we're just hearing about some
Speaker 1: of the results of that investigation now, So that and
Speaker 1: and there's also something similar happening with auto parts that
Speaker 1: took many, many years to conclude. So this is at
Speaker 1: the beginning, and it's going to be a while before
Speaker 1: we understand what's happening here Dan Beyond what we've discussed,
Speaker 1: are there other things you you might think that the
Speaker 1: Justice Department might be looking into? Or is it primarily
Speaker 1: that issue of these these uh potentially uh uh I
Speaker 1: guess fake are are are inflated uh bids that are
Speaker 1: being genda. So my understanding is that would be the
Speaker 1: focus of this particular investigation. Obviously, as as the lead
Speaker 1: comment on the show made clear, there's been lots of
Speaker 1: of of concern in the advertising business about, for example,
Speaker 1: kickbacks from from media companies or to to ad agencies
Speaker 1: that were not passed on to consumers, or to two
Speaker 1: companies buying ads. That would probably will not raise an
Speaker 1: antitrust issue. It also wouldn't necessarily raise an anti trust
Speaker 1: issue for a vertically integrated ad agency simply to steer
Speaker 1: business to its own video production unit, as long as
Speaker 1: they don't collude with competitors. So, as I understand this investigation,
Speaker 1: it's really centered on allegations of horizontal collusion between competitors
Speaker 1: for video production, and that would be a serious antitrust
Speaker 1: violation if that were shown to be true. Jen explain
Speaker 1: the difference between vertical and horizontal. Oh, sure, So in
Speaker 1: the horizontal you're basically competing at the same level of distribution.
Speaker 1: The same service or same product is provided, and you're
Speaker 1: competing to provide that service or product. Vertical would be
Speaker 1: at a different level of the chain of distribution. You
Speaker 1: might be an input maker, um, and you don't compete,
Speaker 1: let's say, with the manufacturer of the final product that
Speaker 1: uses that input. So essentially here the ad agencies are
Speaker 1: vertically integrated where they come up with the ad ideas,
Speaker 1: but then they might have their in house production, which is,
Speaker 1: you know, another level of in that chain of the
Speaker 1: final product and and um. So it's in the sense
Speaker 1: they can steer you know, it wouldn't be an antetos violation.
Speaker 1: Just just try to steer work internally. You're just capturing
Speaker 1: internal work. This is one of the benefits of being
Speaker 1: vertically integrated. But where they have that division, that production
Speaker 1: division that then competes and they're also hired, might be
Speaker 1: hiring some of these outside production companies for some jobs.
Speaker 1: That's where they're also horizontally competing with these production companies,
Speaker 1: and that's where the conspiracy can't take place. We have
Speaker 1: just about thirty seconds left. Is this a good area
Speaker 1: dan for there to be more complying, more regulation. It's
Speaker 1: an advertising is an area where it's sort of looking
Speaker 1: at itself through its own groups. Right. So one thing
Speaker 1: we don't just know right now, though, it's what's going
Speaker 1: to happen when the Trump administration comes in on January
Speaker 1: twenty and so you ask is it a good or
Speaker 1: bad idea just in terms of predicting where things are
Speaker 1: going to go in the next four years UM In
Speaker 1: an ordinary year of transition from a democratic to Republican administration,
Speaker 1: you would expect it to be a high level of
Speaker 1: continuity on issues like collusion. This is anything but an
Speaker 1: ordinar year, though. And one thing we just don't know
Speaker 1: yet is what antitrust enforcement will look like under the
Speaker 1: Trump administration. The business community is guessing about President elect
Speaker 1: Trump's anti trust policy position because it's an area he
Speaker 1: has said very little about. Trump has accused several companies
Speaker 1: of violating antitrust laws and vowed to regulate their conduct.
Speaker 1: For example, the A T and T Time Warner merger
Speaker 1: as an example of the power structure of fire. A
Speaker 1: T and T is buying Time Warner and thus CNN
Speaker 1: a deal we will not approve in my administration because
Speaker 1: it's too much concentration of power in the hands of
Speaker 1: too few. Yet, the people on his transition team advising
Speaker 1: him on anti trust have records of conservatism. We've been
Speaker 1: talking with Jennifer Reese and your litigation analyst for Bloomberg Intelligence,
Speaker 1: and Daniel Crane, professor at the University of Michigan Law School.
Speaker 1: Jen what's your analysis of what the Trump administration policy
Speaker 1: and anti trust might be? Well, I really don't have one, because,
Speaker 1: as you said it, everybody's guessing about this. I mean,
Speaker 1: with the comments that he made on the campaign trail
Speaker 1: about A T and T and also there were some
Speaker 1: about Comcast, an, nbc U, and Amazon. You know, it's
Speaker 1: unclear are these part of his populist message? Is this
Speaker 1: is this what he intends the direction he tends to
Speaker 1: go on anti trust or you know, or is this
Speaker 1: just his anger at the media, you know, and his
Speaker 1: isn't a desire to lash to the media or or
Speaker 1: or scare the media. Um, it's really unclear. And and
Speaker 1: the people he has advin Now we don't know who
Speaker 1: will be appointing at the Department of Justice or Federal
Speaker 1: Trade Commission, but the people advising him on these things
Speaker 1: are two gentlemen. You know, both have records of conservatism.
Speaker 1: One was a former FTC commissioner who all of his
Speaker 1: votes were quite conservative. Another one and worked for the
Speaker 1: Department of Justice under George Bush, you know. And I
Speaker 1: guess i'd say that if you look at their records
Speaker 1: and things they've said publicly, that they're more typical. They
Speaker 1: take a more typical Republican approach, which is generally to
Speaker 1: let businesses regulate themselves, you know, a little bit more
Speaker 1: hands off. I think in some areas that there's really
Speaker 1: been a bipartisan consensus that we need to go after
Speaker 1: the really egregious antitrust activity, like what we were just
Speaker 1: talking about, bid rigging and price fixing. But sometimes these mergers,
Speaker 1: when they're evaluated, you know, they're really difficult. It's a
Speaker 1: very difficult decision. They could be borderline. Sometimes they might
Speaker 1: have the potential to put you know, harmon market to
Speaker 1: some extent, but they also might have some very great
Speaker 1: synergies and pro competitive benefits. And I think when you
Speaker 1: have those sort of on the borderline, there those deals
Speaker 1: that are difficult calls. That's where you might see Democrats
Speaker 1: and Republicans coming out differently. And that's where we have
Speaker 1: a record for, for instance, Josh Right, who's advising on
Speaker 1: the FTC, coming out differently than some of the Democratic commissioners.
Speaker 1: What's your take on that, Dan, Are we gonna see
Speaker 1: a typical Republican administration when it comes to antitrust law? Well?
Speaker 1: I think Jennifer is right that to the extent that
Speaker 1: we measure our predictions by the people directly involved in
Speaker 1: the transitional antitrust it'll look like a fairly conservative antitrust regime,
Speaker 1: both at the Federal Trade Commission and the Justice Department.
Speaker 1: The one thing we don't know, of course, is to
Speaker 1: what extent Donald Trump himself would be personally involved in
Speaker 1: making decisions about antitrust enforcement at that the case specific level.
Speaker 1: I mean for the last the thirty or four years,
Speaker 1: that's really been a big no. Now, presidents have stayed
Speaker 1: very much removed from the the the enforcement decisions as
Speaker 1: to particular cases to be brought or not to be
Speaker 1: brought in the that's really a decision made professionally in
Speaker 1: the Justice Department, in the Federal Trade Commission. Um. But
Speaker 1: with you know, with Donald Trump, you just don't know
Speaker 1: what sort of a managerial style he'll have, whether he
Speaker 1: would become much more active in saying here are particular
Speaker 1: cases we should bring or not bring, and at least
Speaker 1: as to the Justice Department. Uh, you know, if he
Speaker 1: has a be in his bonnet about a T and
Speaker 1: T time warner and really wants to communicate to the
Speaker 1: Justice Department that they should put up a fight, uh,
Speaker 1: he might make with President and and and actually give
Speaker 1: that kind of direction. So I think part of the
Speaker 1: just the guessing game here we really don't know is
Speaker 1: not only we don't know who will be in the
Speaker 1: leadership at a d O J and FTC um my
Speaker 1: my working guests, as those will be fairly typical Republicans.
Speaker 1: But the real question is to what extent will will
Speaker 1: will Donald Trump and Jeff Sessions actually take more of
Speaker 1: a personal managerial role with respect to some of these matters,
Speaker 1: And if so, it might might surprise us. All We
Speaker 1: certainly have been surprised by a lot recently. Thank you
Speaker 1: both for being on Bloomberg Law. That's Daniel Crane, Professor
Speaker 1: at the University of Michigan Law School, and Jennifer Ree,
Speaker 1: Senior litigation analyst for Bloomberg Intelligence. And for more of
Speaker 1: Jennifer's antitrust analysis, you can go to be I go
Speaker 1: on the Bloomberg terminal.