WEBVTT - WPP Announces DOJ Antitrust Investigation (Audio) 0:00:00.120 --> 0:00:04.240 More than one billion dollars was spent on advertising in 0:00:04.280 --> 0:00:08.239 the US last year. Yet advertising is less regularly than 0:00:08.320 --> 0:00:12.520 some other media businesses, with trade bodies rather than government agencies, 0:00:12.560 --> 0:00:15.720 doing much of the oversight. But now the US Justice 0:00:15.760 --> 0:00:20.400 Department is investigating the industry, specifically possible bid rigging in 0:00:20.560 --> 0:00:25.919 video advertising production. WPP, the world's largest advertising company, is 0:00:25.960 --> 0:00:29.240 the fourth of the Big six ad agency holding companies 0:00:29.440 --> 0:00:33.280 to admit its subsidiaries have been subpoenaed by the Justice Department. 0:00:33.760 --> 0:00:37.240 The Antitrust Division of the Justice Department is investigating whether 0:00:37.280 --> 0:00:41.640 ad agencies manipulated bids for making TV commercials in order 0:00:41.640 --> 0:00:44.400 to steer business to their own units. According to people 0:00:44.440 --> 0:00:47.640 briefed on the matter, our guests are Jennifer Ree, senior 0:00:47.640 --> 0:00:51.720 litigation analyst for Bloomberg Intelligence, and Daniel Crane, professor at 0:00:51.720 --> 0:00:55.040 the University of Michigan Law School. Jan there have been 0:00:55.320 --> 0:00:59.440 years of tensions between big advertisers and their ad agencies. 0:01:00.120 --> 0:01:03.760 Was this investigation by Justice propelled in any way by 0:01:03.800 --> 0:01:08.800 a June study commissioned by the Association of National Advertisers. Well, June, 0:01:08.800 --> 0:01:11.120 thanks for having me first, and before I answer that, 0:01:11.200 --> 0:01:13.280 I do need to disclose that My husband works for 0:01:13.360 --> 0:01:16.399 j W JW T, which is an ad agency that 0:01:16.520 --> 0:01:19.479 falls under w PP, the agency you were just talking about, 0:01:19.520 --> 0:01:21.880 and he does hold stock options. So before I get in, 0:01:21.959 --> 0:01:25.360 I just have to disclose that. UM. Now, what's been reported, 0:01:25.360 --> 0:01:28.640 at least we think, is that a report by this UM, 0:01:29.160 --> 0:01:32.520 this company K two, that was commissioned by the Association 0:01:32.520 --> 0:01:35.680 of National Advertisers. This is a trade association that represents 0:01:35.880 --> 0:01:40.200 the brand companies or the advertisers. UM suggested that there 0:01:40.319 --> 0:01:43.240 was a lot of non transparent activity going on in 0:01:43.280 --> 0:01:45.920 these ad agencies that wasn't really working out to the 0:01:45.959 --> 0:01:48.800 benefit of the advertisers, but working out to the benefit 0:01:48.840 --> 0:01:51.400 of the agencies. And it seems that they mostly were 0:01:51.440 --> 0:01:55.320 focusing on media companies media suppliers, but and not so 0:01:55.440 --> 0:01:57.680 much production, which is what the d OJ is looking 0:01:57.720 --> 0:02:00.280 at here, but that they did have some finds that 0:02:00.400 --> 0:02:03.960 might not have fallen into their final report that suggested 0:02:04.120 --> 0:02:07.520 there may be this kind of bid rigging activity going 0:02:07.600 --> 0:02:10.600 on in which the ad agencies agree with some of 0:02:10.639 --> 0:02:14.680 these outside production companies not to compete essentially UM and 0:02:14.760 --> 0:02:17.120 try to get the business in house because they own 0:02:17.480 --> 0:02:20.240 some of their own production facilities in house. They want 0:02:20.280 --> 0:02:23.440 to give the advertisers several bids. Looks like they're competing. 0:02:23.720 --> 0:02:26.040 You know, here are three bids. We've come in lower 0:02:26.040 --> 0:02:27.800 than these other two bids, which at the end of 0:02:27.800 --> 0:02:30.239 the day all of them were artificially high. At least, 0:02:30.280 --> 0:02:33.639 this is what you know, looks like what they're investigating. Um, 0:02:33.680 --> 0:02:36.720 and it gives legitimacy to the ad agency's bid because 0:02:36.720 --> 0:02:38.480 it comes in lower than the others. But they've all 0:02:38.520 --> 0:02:42.000 agreed to put in these artificially high bids. Daniel Crane, 0:02:42.240 --> 0:02:44.200 I'll make a confession, I didn't know all that much 0:02:44.200 --> 0:02:47.280 about the advertising business before this morning. Some if I 0:02:47.320 --> 0:02:50.560 understand this correctly, is the idea that there are separate 0:02:50.600 --> 0:02:55.240 markets for the advertising contracts UH in general and for 0:02:55.320 --> 0:02:58.320 the video productions, so that if an ad agency gets 0:02:58.320 --> 0:03:02.240 a contract, it can't necessarily use its own production facilities. 0:03:02.360 --> 0:03:04.960 Is that the idea right? So, the idea is that 0:03:05.280 --> 0:03:08.480 there is a separate market for the production of advertisements, 0:03:08.560 --> 0:03:12.200 and that can be done by the vertically integrated shop 0:03:12.360 --> 0:03:15.400 of an ad agency or could be done outside by 0:03:15.400 --> 0:03:19.000 an independent video production company. As I understand it from 0:03:19.000 --> 0:03:23.200 media reports, the investigation is centering on allegations that the 0:03:23.240 --> 0:03:27.000 ad agencies, which already we're dealing with clients to sell advertising. 0:03:27.400 --> 0:03:30.960 Uh In Media had some sort of a kickback or 0:03:31.000 --> 0:03:35.240 collusive agreement with independent video production companies that the video 0:03:35.240 --> 0:03:40.040 production companies would submit bogus bids to the client and 0:03:40.120 --> 0:03:42.200 that the ad agency would therefore be able to come 0:03:42.240 --> 0:03:45.600 in and win the business for its own in house 0:03:45.960 --> 0:03:50.040 video production shop, but doing so at inflated prices. Jen, 0:03:50.280 --> 0:03:54.040 we know that four of the big six ad agencies 0:03:54.040 --> 0:03:57.760 have been subpoenaed. More might have been what stage are 0:03:57.800 --> 0:04:00.520 we at here, Well, you know, this is very early on. 0:04:00.600 --> 0:04:03.680 These things take time. Um. This subpoenas really mean that 0:04:03.680 --> 0:04:06.320 they're they're collecting documents, they're collecting evidence at the d 0:04:06.560 --> 0:04:09.400 J that is is collecting evidence and information now and 0:04:09.440 --> 0:04:12.280 these things can take several years. You know. By way 0:04:12.280 --> 0:04:15.000 of example, we know that there have been some recent 0:04:15.360 --> 0:04:18.559 informations issued by the DJ in the generic drug world 0:04:18.640 --> 0:04:22.919 that's like an indictment um um that two people have 0:04:23.000 --> 0:04:25.719 been involved in price fixing for generic drugs. And this 0:04:25.800 --> 0:04:27.720 is what shook out of subpoenas that were issued back 0:04:27.760 --> 0:04:29.919 in two thousand fourteen, and we're just hearing about some 0:04:29.960 --> 0:04:32.360 of the results of that investigation now, So that and 0:04:32.360 --> 0:04:35.000 and there's also something similar happening with auto parts that 0:04:35.000 --> 0:04:37.320 took many, many years to conclude. So this is at 0:04:37.320 --> 0:04:39.200 the beginning, and it's going to be a while before 0:04:39.240 --> 0:04:44.320 we understand what's happening here Dan Beyond what we've discussed, 0:04:44.839 --> 0:04:46.919 are there other things you you might think that the 0:04:47.000 --> 0:04:50.480 Justice Department might be looking into? Or is it primarily 0:04:50.520 --> 0:04:55.520 that issue of these these uh potentially uh uh I 0:04:55.560 --> 0:04:58.880 guess fake are are are inflated uh bids that are 0:04:58.920 --> 0:05:02.320 being genda. So my understanding is that would be the 0:05:02.320 --> 0:05:05.440 focus of this particular investigation. Obviously, as as the lead 0:05:05.680 --> 0:05:09.440 comment on the show made clear, there's been lots of 0:05:09.080 --> 0:05:12.680 of of concern in the advertising business about, for example, 0:05:12.800 --> 0:05:18.120 kickbacks from from media companies or to to ad agencies 0:05:18.160 --> 0:05:21.160 that were not passed on to consumers, or to two 0:05:21.160 --> 0:05:24.520 companies buying ads. That would probably will not raise an 0:05:24.520 --> 0:05:27.800 antitrust issue. It also wouldn't necessarily raise an anti trust 0:05:27.880 --> 0:05:31.920 issue for a vertically integrated ad agency simply to steer 0:05:31.960 --> 0:05:34.279 business to its own video production unit, as long as 0:05:34.320 --> 0:05:38.480 they don't collude with competitors. So, as I understand this investigation, 0:05:38.480 --> 0:05:42.440 it's really centered on allegations of horizontal collusion between competitors 0:05:42.480 --> 0:05:45.680 for video production, and that would be a serious antitrust 0:05:45.800 --> 0:05:49.400 violation if that were shown to be true. Jen explain 0:05:49.440 --> 0:05:53.200 the difference between vertical and horizontal. Oh, sure, So in 0:05:53.200 --> 0:05:56.480 the horizontal you're basically competing at the same level of distribution. 0:05:56.760 --> 0:05:59.120 The same service or same product is provided, and you're 0:05:59.160 --> 0:06:02.400 competing to provide that service or product. Vertical would be 0:06:02.520 --> 0:06:04.640 at a different level of the chain of distribution. You 0:06:04.720 --> 0:06:07.279 might be an input maker, um, and you don't compete, 0:06:07.360 --> 0:06:09.520 let's say, with the manufacturer of the final product that 0:06:09.600 --> 0:06:13.360 uses that input. So essentially here the ad agencies are 0:06:13.440 --> 0:06:15.599 vertically integrated where they come up with the ad ideas, 0:06:15.640 --> 0:06:17.680 but then they might have their in house production, which is, 0:06:17.720 --> 0:06:20.240 you know, another level of in that chain of the 0:06:20.240 --> 0:06:25.400 final product and and um. So it's in the sense 0:06:25.520 --> 0:06:28.000 they can steer you know, it wouldn't be an antetos violation. 0:06:28.080 --> 0:06:31.120 Just just try to steer work internally. You're just capturing 0:06:31.160 --> 0:06:33.040 internal work. This is one of the benefits of being 0:06:33.120 --> 0:06:37.040 vertically integrated. But where they have that division, that production 0:06:37.080 --> 0:06:40.000 division that then competes and they're also hired, might be 0:06:40.080 --> 0:06:43.279 hiring some of these outside production companies for some jobs. 0:06:43.320 --> 0:06:47.120 That's where they're also horizontally competing with these production companies, 0:06:47.160 --> 0:06:51.200 and that's where the conspiracy can't take place. We have 0:06:51.480 --> 0:06:55.160 just about thirty seconds left. Is this a good area 0:06:55.600 --> 0:07:02.280 dan for there to be more complying, more regulation. It's 0:07:02.360 --> 0:07:06.680 an advertising is an area where it's sort of looking 0:07:06.720 --> 0:07:10.880 at itself through its own groups. Right. So one thing 0:07:10.920 --> 0:07:12.680 we don't just know right now, though, it's what's going 0:07:12.720 --> 0:07:15.760 to happen when the Trump administration comes in on January 0:07:15.800 --> 0:07:17.920 twenty and so you ask is it a good or 0:07:18.000 --> 0:07:20.720 bad idea just in terms of predicting where things are 0:07:20.720 --> 0:07:23.520 going to go in the next four years UM In 0:07:23.560 --> 0:07:27.120 an ordinary year of transition from a democratic to Republican administration, 0:07:27.200 --> 0:07:28.720 you would expect it to be a high level of 0:07:28.760 --> 0:07:32.160 continuity on issues like collusion. This is anything but an 0:07:32.240 --> 0:07:34.480 ordinar year, though. And one thing we just don't know 0:07:34.560 --> 0:07:37.400 yet is what antitrust enforcement will look like under the 0:07:37.400 --> 0:07:42.040 Trump administration. The business community is guessing about President elect 0:07:42.040 --> 0:07:45.320 Trump's anti trust policy position because it's an area he 0:07:45.400 --> 0:07:49.280 has said very little about. Trump has accused several companies 0:07:49.280 --> 0:07:53.240 of violating antitrust laws and vowed to regulate their conduct. 0:07:53.560 --> 0:07:56.520 For example, the A T and T Time Warner merger 0:07:57.560 --> 0:08:01.040 as an example of the power structure of fire. A 0:08:01.200 --> 0:08:03.800 T and T is buying Time Warner and thus CNN 0:08:04.440 --> 0:08:08.320 a deal we will not approve in my administration because 0:08:08.360 --> 0:08:13.520 it's too much concentration of power in the hands of 0:08:13.600 --> 0:08:18.800 too few. Yet, the people on his transition team advising 0:08:18.880 --> 0:08:22.800 him on anti trust have records of conservatism. We've been 0:08:22.800 --> 0:08:26.520 talking with Jennifer Reese and your litigation analyst for Bloomberg Intelligence, 0:08:26.640 --> 0:08:29.840 and Daniel Crane, professor at the University of Michigan Law School. 0:08:30.280 --> 0:08:34.559 Jen what's your analysis of what the Trump administration policy 0:08:34.600 --> 0:08:38.360 and anti trust might be? Well, I really don't have one, because, 0:08:38.640 --> 0:08:41.520 as you said it, everybody's guessing about this. I mean, 0:08:41.800 --> 0:08:43.720 with the comments that he made on the campaign trail 0:08:43.760 --> 0:08:45.360 about A T and T and also there were some 0:08:45.440 --> 0:08:48.720 about Comcast, an, nbc U, and Amazon. You know, it's 0:08:48.800 --> 0:08:51.679 unclear are these part of his populist message? Is this 0:08:52.040 --> 0:08:53.839 is this what he intends the direction he tends to 0:08:53.880 --> 0:08:55.840 go on anti trust or you know, or is this 0:08:55.960 --> 0:08:57.960 just his anger at the media, you know, and his 0:08:58.360 --> 0:09:00.880 isn't a desire to lash to the media or or 0:09:01.080 --> 0:09:05.160 or scare the media. Um, it's really unclear. And and 0:09:05.960 --> 0:09:07.720 the people he has advin Now we don't know who 0:09:07.760 --> 0:09:10.040 will be appointing at the Department of Justice or Federal 0:09:10.080 --> 0:09:12.360 Trade Commission, but the people advising him on these things 0:09:12.360 --> 0:09:15.880 are two gentlemen. You know, both have records of conservatism. 0:09:15.920 --> 0:09:18.800 One was a former FTC commissioner who all of his 0:09:18.880 --> 0:09:22.560 votes were quite conservative. Another one and worked for the 0:09:22.559 --> 0:09:25.280 Department of Justice under George Bush, you know. And I 0:09:25.280 --> 0:09:28.160 guess i'd say that if you look at their records 0:09:28.240 --> 0:09:31.400 and things they've said publicly, that they're more typical. They 0:09:31.440 --> 0:09:34.120 take a more typical Republican approach, which is generally to 0:09:34.200 --> 0:09:37.160 let businesses regulate themselves, you know, a little bit more 0:09:37.200 --> 0:09:40.080 hands off. I think in some areas that there's really 0:09:40.080 --> 0:09:42.640 been a bipartisan consensus that we need to go after 0:09:42.720 --> 0:09:45.880 the really egregious antitrust activity, like what we were just 0:09:45.920 --> 0:09:49.560 talking about, bid rigging and price fixing. But sometimes these mergers, 0:09:49.559 --> 0:09:52.040 when they're evaluated, you know, they're really difficult. It's a 0:09:52.120 --> 0:09:55.880 very difficult decision. They could be borderline. Sometimes they might 0:09:55.920 --> 0:09:58.840 have the potential to put you know, harmon market to 0:09:58.920 --> 0:10:01.760 some extent, but they also might have some very great 0:10:01.880 --> 0:10:04.760 synergies and pro competitive benefits. And I think when you 0:10:04.840 --> 0:10:07.320 have those sort of on the borderline, there those deals 0:10:07.320 --> 0:10:10.040 that are difficult calls. That's where you might see Democrats 0:10:10.040 --> 0:10:12.200 and Republicans coming out differently. And that's where we have 0:10:12.240 --> 0:10:15.040 a record for, for instance, Josh Right, who's advising on 0:10:15.120 --> 0:10:17.960 the FTC, coming out differently than some of the Democratic commissioners. 0:10:18.520 --> 0:10:20.720 What's your take on that, Dan, Are we gonna see 0:10:20.760 --> 0:10:25.400 a typical Republican administration when it comes to antitrust law? Well? 0:10:25.400 --> 0:10:27.679 I think Jennifer is right that to the extent that 0:10:27.720 --> 0:10:31.040 we measure our predictions by the people directly involved in 0:10:31.040 --> 0:10:35.400 the transitional antitrust it'll look like a fairly conservative antitrust regime, 0:10:35.480 --> 0:10:38.000 both at the Federal Trade Commission and the Justice Department. 0:10:38.559 --> 0:10:40.000 The one thing we don't know, of course, is to 0:10:40.040 --> 0:10:44.040 what extent Donald Trump himself would be personally involved in 0:10:44.080 --> 0:10:48.400 making decisions about antitrust enforcement at that the case specific level. 0:10:48.559 --> 0:10:50.520 I mean for the last the thirty or four years, 0:10:50.520 --> 0:10:52.760 that's really been a big no. Now, presidents have stayed 0:10:52.840 --> 0:10:56.679 very much removed from the the the enforcement decisions as 0:10:56.720 --> 0:10:58.520 to particular cases to be brought or not to be 0:10:58.559 --> 0:11:01.719 brought in the that's really a decision made professionally in 0:11:01.760 --> 0:11:04.520 the Justice Department, in the Federal Trade Commission. Um. But 0:11:04.600 --> 0:11:06.520 with you know, with Donald Trump, you just don't know 0:11:06.559 --> 0:11:08.839 what sort of a managerial style he'll have, whether he 0:11:09.520 --> 0:11:12.600 would become much more active in saying here are particular 0:11:12.640 --> 0:11:14.760 cases we should bring or not bring, and at least 0:11:14.800 --> 0:11:16.920 as to the Justice Department. Uh, you know, if he 0:11:16.960 --> 0:11:18.760 has a be in his bonnet about a T and 0:11:18.760 --> 0:11:20.760 T time warner and really wants to communicate to the 0:11:20.760 --> 0:11:23.360 Justice Department that they should put up a fight, uh, 0:11:23.400 --> 0:11:25.760 he might make with President and and and actually give 0:11:25.760 --> 0:11:28.480 that kind of direction. So I think part of the 0:11:28.600 --> 0:11:30.680 just the guessing game here we really don't know is 0:11:30.880 --> 0:11:32.800 not only we don't know who will be in the 0:11:32.920 --> 0:11:36.080 leadership at a d O J and FTC um my 0:11:36.080 --> 0:11:38.920 my working guests, as those will be fairly typical Republicans. 0:11:39.400 --> 0:11:41.880 But the real question is to what extent will will 0:11:42.000 --> 0:11:45.440 will Donald Trump and Jeff Sessions actually take more of 0:11:45.440 --> 0:11:48.559 a personal managerial role with respect to some of these matters, 0:11:48.600 --> 0:11:52.000 And if so, it might might surprise us. All We 0:11:52.120 --> 0:11:55.480 certainly have been surprised by a lot recently. Thank you 0:11:55.520 --> 0:11:59.160 both for being on Bloomberg Law. That's Daniel Crane, Professor 0:11:59.200 --> 0:12:01.839 at the University of Michigan Law School, and Jennifer Ree, 0:12:01.920 --> 0:12:05.680 Senior litigation analyst for Bloomberg Intelligence. And for more of 0:12:05.880 --> 0:12:09.520 Jennifer's antitrust analysis, you can go to be I go 0:12:09.840 --> 0:12:11.200 on the Bloomberg terminal.