Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: Last year's Supreme Court decision barring universities from using race
Speaker 2: and admissions has left a lot of open questions about
Speaker 2: admissions policies that don't explicitly consider race but nonetheless affect
Speaker 2: a school's racial composition. But on Tuesday, the Supreme Court
Speaker 2: decided not to step into the fray again, refusing to
Speaker 2: review a Virginia public high school's use of its admissions
Speaker 2: policies to achieve more socioeconomic diversity in the student body
Speaker 2: over the descents of Justices Samuel Alito and Clarence Thomas.
Speaker 2: Joining me is Audrey Anderson, head of the higher education
Speaker 2: practice at Bassbarian Simms. So, the high school here claimed
Speaker 2: that its admissions standards were race neutral. Explain the policy
Speaker 2: change that led to this lawsuit.
Speaker 3: Yeah, Jan, there was really no question but that the
Speaker 3: policy that the high school Thomas Jefferson are called TJ,
Speaker 3: was using before the change and after the change was
Speaker 3: race neutral all the time. But the change that happened
Speaker 3: was that for many years TJ had used a series
Speaker 3: of entrance tests, which were the major way that they
Speaker 3: chose students. For admission to the high school, the students
Speaker 3: had to take something like four different tests, and the
Speaker 3: school board was looking at data and saw that the
Speaker 3: students who were going to TJ, who were selected for
Speaker 3: TJ were not racially diverse. There were not many black
Speaker 3: or Hispanic students. But also, in fact more importantly probably
Speaker 3: for the district, they came primarily from only eight of
Speaker 3: the twenty six middle schools that TJ served. Also, the
Speaker 3: TJ population did not have very many low income students,
Speaker 3: so the district was something like twenty three percent students
Speaker 3: who qualified for free and price meals, and at TJ
Speaker 3: was something like one percent of students qualified for free
Speaker 3: price meals. So the board wanted to see what they
Speaker 3: could do in order to make the population at TJ
Speaker 3: more diverse in a lot of different ways geographically, racially, socioeconomically,
Speaker 3: and then also on students who speak English as a
Speaker 3: second language. So the policy they put in place got
Speaker 3: rid of the entrance exams. There was still one problem
Speaker 3: solving exercise students had to do, but the main change
Speaker 3: was that they allocated seats by middle school, so every
Speaker 3: middle school got a certain number of seats at TJ,
Speaker 3: so students were competing with their peers at their middle
Speaker 3: school primarily, and then after those seats were allocated, there
Speaker 3: were some seats left over for all applicants who had
Speaker 3: not gotten in through their middle school process. And in
Speaker 3: addition to this problem solving exercise, they also looked at
Speaker 3: some factors, you know, teacher recommendations, grade point average, and
Speaker 3: they actually raised the grade point average that was necessary
Speaker 3: in order to apply from a three to zero to
Speaker 3: a three point five. And then they also looked at
Speaker 3: what they called experiential factors, which were socioeconomic status, whether
Speaker 3: the student came from a family that spoke English as
Speaker 3: their first language, and whether their school was a school
Speaker 3: that had traditionally not sent a lot of students to teach.
Speaker 2: So the changes did seem to though, have an effect
Speaker 2: on the racial composition of the student body. After they
Speaker 2: went into effect, the percentage of Asian American students dropped
Speaker 2: from offered admissions, dropped from seventy three percent of fifty
Speaker 2: four percent. The percentage of Black students grew from no
Speaker 2: more than two percent to eight percent, the percentage of
Speaker 2: Hispanic students grew from three percent to eleven percent, and
Speaker 2: the percentage of white students from eighteen percent to twenty
Speaker 2: two percent. So it did have an effect on the
Speaker 2: racial composition of the student body.
Speaker 3: Yes, and that can be expected. I don't really know
Speaker 3: in the demographics of the Falls Church area, but we
Speaker 3: know generally in the United States there's a lot of
Speaker 3: residential segregation, so people tend to live in neighborhoods by race.
Speaker 3: So anytime that you choose admissions policy that's going to
Speaker 3: equalize opportunity across a whole school district, you're likely to
Speaker 3: get more racial diversity than if you're only getting it
Speaker 3: from some parts of the district. So by adopting a
Speaker 3: policy that said, hey, look what we're getting now is
Speaker 3: students only from these eight middle schools. Let's do something
Speaker 3: so that we get them from all the middle schools
Speaker 3: in the county, anyone would expect that that would give
Speaker 3: you greater racial diversity. It would more match the racial
Speaker 3: diversity of your district, rather than of just some neighborhoods.
Speaker 2: The appeals court narrowly divided found the parents group had
Speaker 2: and established that the board adopted its race neutral policy
Speaker 2: with any discriminatory intent.
Speaker 1: Is that the right standard?
Speaker 3: Yes, I think that everybody agrees to that the right
Speaker 3: legal standard was used. I think that where the disagreement
Speaker 3: is is in how they applied and looked at that standard.
Speaker 3: So the biggest question, and the thing that Justice Alito
Speaker 3: took issue with, is one of the things that you
Speaker 3: look at when you're trying to figure out whether a
Speaker 3: policy that is rased neutral on its base, does it
Speaker 3: nonetheless violate the equal protection clause? Because because it's racially discriminatory,
Speaker 3: one of the things you look at is did the
Speaker 3: policy have a disproportionate impact on one race rather than another?
Speaker 3: Because if it did, that's one piece of evidence that
Speaker 3: would show that there might have been racially discriminatory intent.
Speaker 3: You can't show that violates the equal protection clause just
Speaker 3: based on that, but that's one important piece of evidence.
Speaker 3: So the question, though, is how do you determine whether
Speaker 3: a policy has a racially disproportionate effect. What Justice Alito
Speaker 3: says you have to do is you have to look
Speaker 3: at how did that racial group faire under the old policy,
Speaker 3: and now how do they fare under the new policy.
Speaker 3: What the Fourth Circuit said and what the school district
Speaker 3: says is that's the wrong way to look at it.
Speaker 3: What you have to look at is when you've got
Speaker 3: two different policies that are both race neutral, you have
Speaker 3: to just look at the new policy and say, how
Speaker 3: do different racial groups fair under this new policy. Does
Speaker 3: this new policy put any barriers based on race? And
Speaker 3: the Court of Appeal said it doesn't, because even though
Speaker 3: the percentages of Asians went down under the new policy,
Speaker 3: Asians as a group, their applications were forty five percent
Speaker 3: of the application pool and they got fifty four percent
Speaker 3: of the offers to attend TJ. So that would show
Speaker 3: that they're not being disproportionately affected based on their race
Speaker 3: under this new policy. That's the biggest thing that Justice
Speaker 3: Alito is upset about.
Speaker 2: And Justice Thomas and Justice Thomas not a surprise because
Speaker 2: these two are justices who have been consistently anti affirmative action.
Speaker 3: Right, And I think what's also underlying this and it
Speaker 3: comes out in the end of Justice Alito's opinion. And
Speaker 3: if you look at the district court opinion here the
Speaker 3: trial court judge who found that the policy was unconstitutional,
Speaker 3: he was very concerned that the school board was talking
Speaker 3: about racial diversity at all. There is no evidence in
Speaker 3: the record that any school board member wanted to hurt
Speaker 3: Asian Americans with the new policy, that they had a
Speaker 3: goal of lessening the percentage of Asian Americans in the
Speaker 3: school there's in fact evidence saying that they were concerned
Speaker 3: that would look like or that they would be hurting
Speaker 3: Asian Americans, But there's lots of evidence saying that they
Speaker 3: wanted to increase the diversity. So I'm including diversity by race.
Speaker 3: But Judge Hilton, the district court judge, said that just
Speaker 3: the discussion that they wanted to increase diversity by race
Speaker 3: infected the whole process, and he used that word infected,
Speaker 3: and Justice Alito uses the same kind of language that
Speaker 3: it infects things. So the question that some of us
Speaker 3: were really concerned about with this case is can a
Speaker 3: governmental body even consider the racial diversity? What the outcome
Speaker 3: will be of a racially neutral policy on the demographics
Speaker 3: of something. Is it okay if a school board is saying,
Speaker 3: if we adopt this policy which is racially neutral, it's
Speaker 3: going to affect the demographics of our schools in this way?
Speaker 3: Can they do that now? At TJ As it turns out,
Speaker 3: actually for the policy that they adopted, they ran no
Speaker 3: racial statistics. They did not run a simulation of if
Speaker 3: we adopt this policy, the policy that it adopted, what
Speaker 3: will the racial demographics of TJ look like. Their folks
Speaker 3: told them they could not run that simulation because there
Speaker 3: were two many questions about who would apply or I
Speaker 3: don't remember what they all were, but they said they
Speaker 3: couldn't run that. So the choice that was actually made
Speaker 3: by the school board was made without looking at what
Speaker 3: the racial demographics would be. Choices they voted down. There
Speaker 3: were racial simulations run for, but the choice they voted
Speaker 3: for it approved. No racial simulation was done, which is
Speaker 3: also part of the evidence here that I think might
Speaker 3: have made some on the Supreme Court say, you know,
Speaker 3: even if we were interested in this, this is not
Speaker 3: really the right case for us to take.
Speaker 2: What does it tell you that the Supreme Court turned
Speaker 2: this case away and at the beginning of the month
Speaker 2: the Court decided to allow West Point to continue using
Speaker 2: race as an admissions factor.
Speaker 3: I think that the decisions made by the Court are
Speaker 3: actually quite different. You know, as we discussed, what they
Speaker 3: turned away at West Point was emergency relief on a
Speaker 3: completely undeveloped record. I think that the Court will still
Speaker 3: be very interested in the West Point case after it
Speaker 3: makes its way through the whole system. This case they've
Speaker 3: turned it away and now they will have no chance
Speaker 3: to review it. It is done, it is on the books.
Speaker 3: I think that they're turning it away says that they're
Speaker 3: just not interested in taking it up so quickly after
Speaker 3: students for fair admissions, and they do want to allow
Speaker 3: this area of the law to what we say, percolate
Speaker 3: a little bit. But as I said, this record is
Speaker 3: not a great record for them to take. If there
Speaker 3: are some on the court that we know that there are,
Speaker 3: we know that Alito and Thomas are interested in this question.
Speaker 3: If there are others who are interested in it on
Speaker 3: the court, this case I think does not have a
Speaker 3: great record for it because the policy actually adopted by
Speaker 3: the school district that's being challenged, they did not run
Speaker 3: any racial simulations for and because it is not only
Speaker 3: race neutral, it's completely race blind. They take all the
Speaker 3: names off of the applications and assign them numbers, so
Speaker 3: the people making the decisions can't even guess by students'
Speaker 3: names what race they might be. So the lengths that
Speaker 3: the school district has gone to to make this really
Speaker 3: race blind, I think also is another factor that would
Speaker 3: make some on the Court say this isn't the right
Speaker 3: case for us to take up.
Speaker 2: And just remind us what question is left open after
Speaker 2: the Harvard and North Carolina decisions.
Speaker 3: Well, I mean, that's the other thing here. This, of
Speaker 3: course is K twelve, which is different than higher education.
Speaker 3: So there are a number of questions left open. One
Speaker 3: of the questions is a question that will be posed
Speaker 3: by the West Point case, which is are there other
Speaker 3: interests other than the educational benefits of diversity that the
Speaker 3: Court may find compelling enough to support the use of race.
Speaker 3: And in the West Point case, the United States is
Speaker 3: saying that the military academies have a compelling interest supported
Speaker 3: by national defense goals that are compelling that support the
Speaker 3: use of race. But we also have to remember, and
Speaker 3: this has really gotten me thinking about this, the court
Speaker 3: in Harvard and North Carolina did not technically over rule Grutterer.
Speaker 3: It is still on the books that the benefits of
Speaker 3: diversity in higher education, not K twelve, is a compelling interest. Now,
Speaker 3: they wrote the opinion in such a way that no
Speaker 3: college or university can use that interest in order to
Speaker 3: support the use of race. But if it's still on
Speaker 3: the books that it's a compelling interest. I think it
Speaker 3: makes it harder for someone to say it is constitutionally
Speaker 3: improper for a school board to even talk about what
Speaker 3: the racial composition of their school is going to be
Speaker 3: when they use race neutral measures. I think that there
Speaker 3: are some on the Supreme Court and certainly some advocates
Speaker 3: who do believe that universities and K twelve schools should
Speaker 3: just not be able to look at consider what the
Speaker 3: racial demographics of their classes look like at all. That
Speaker 3: even to think about that violates the equal Protection Clause.
Speaker 3: And if it's a compelling interest to have diversity, well
Speaker 3: then it's hard to say that you can't even see
Speaker 3: what your race neutral measures will do to achieve that goal.
Speaker 2: So anti affirmative action groups are testing these restrictions in
Speaker 2: a lot of different ways. Are they making progress in
Speaker 2: any particular area or is it too soon?
Speaker 3: You know, we know that they had the early cases
Speaker 3: against some law firms for internship programs that were limited
Speaker 3: to applicants based on their race, and they brought lawsuits
Speaker 3: and law firms change those programs to open them up
Speaker 3: to people of all races. So I think that those
Speaker 3: are some victories, and I think that by just bringing
Speaker 3: those kinds of lawsuits, it has made institutions in all
Speaker 3: kinds of fields take a look at their programs to say,
Speaker 3: are our programs really open to everyone, regardless of their race.
Speaker 3: We need to make sure that, regardless of what the
Speaker 3: goals are of our program everybody has to be able
Speaker 3: to have a place in them. And so I think
Speaker 3: that even if they haven't had a lot of legal
Speaker 3: victories yet, they have already made a lot of change
Speaker 3: in society for how entities are looking at these kinds
Speaker 3: of programs.
Speaker 2: More of these cases certainly short. Thanks so much, Audrey.
Speaker 2: That's Audrey Anderson, head of the higher education practice at
Speaker 2: Bassbarian Simms. Coming up Mergermania. This is Bloomberg from Capital
Speaker 2: One's thirty five billion dollar plan to take over Discover Financial,
Speaker 2: Kroger's twenty four point six billion dollar acquisition of Albertson's
Speaker 2: to Disney, Fox and Warner's streaming deal. The question is
Speaker 2: always which deal will survive antitrust scrutiny by federal regulators
Speaker 2: and which we'll go to court. And it appears the
Speaker 2: Federal Trade Commission and a group of states are poised
Speaker 2: to sue as soon as next week to block the
Speaker 2: tie up between Kroger's and Albertson's. According to Bloomberg sources,
Speaker 2: the scrutiny seems to come from the top. Remember back
Speaker 2: in July of twenty twenty one, President Joe Biden signed
Speaker 2: an executive order directing the federal government to aggressively enforce
Speaker 2: the nation's anti trust laws.
Speaker 4: No more tolerance for abusive actions I monopolist, No more
Speaker 4: bad mergers that lead to mass layoffs, higher prices, fewer
Speaker 4: options for workers and consumers alike.
Speaker 2: Joining me to discuss these deals is a leading antitrust expert,
Speaker 2: Harry First, a professor at.
Speaker 1: NYU Law School.
Speaker 2: Harry Capital One and Discover would form the largest US
Speaker 2: credit card issuer. And I've been reading many legal experts
Speaker 2: say this will reveal whether regulators are serious about policing
Speaker 2: consolidation in the financial sector.
Speaker 5: Do you agree, Well, it shows that they're serious. Well,
Speaker 5: first of all, they have to examine this, so in
Speaker 5: that sense they'll be serious. There haven't been very many challenges,
Speaker 5: I guess to bank mergers. This really isn't a bank merger. Historically,
Speaker 5: Justice Department and any trust and forces have paid attention
Speaker 5: to payment systems, particularly to Visa and MasterCard. So I'm
Speaker 5: not sure test this is the right word. They're being
Speaker 5: tested in many different areas. But what it may test
Speaker 5: is whether I think it's the Office of the Controller
Speaker 5: that has jurisdiction one of the banking regulators, and whether
Speaker 5: they will stop it because they've been fairly lacked themselves.
Speaker 5: But even if they don't, the Justice Department can still
Speaker 5: step in. So yes, I think it will be a
Speaker 5: test to see how we're going to analyze this, And apparently,
Speaker 5: at least early views are somewhat split on how this
Speaker 5: is going to come out in terms of whether it
Speaker 5: will pass MUSTER after anti trust review.
Speaker 2: Capital One is arguing that the deal will lead to
Speaker 2: more robust competition among credit card networks currently dominated as
Speaker 2: you mentioned by Visa and MasterCard, with American Express and
Speaker 2: Discover in the mix.
Speaker 1: There is that a solid argument in this case.
Speaker 5: This is an argument that often put forward and certainly
Speaker 5: has been put forward in a lot of cases. Please
Speaker 5: let us harm competition so that we can help it.
Speaker 5: It's sort of you have to draw on Vietnam experience
Speaker 5: when they said we had to destroy that village so
Speaker 5: we could save it. So the idea that we're going
Speaker 5: to end competition between these two firms so that there
Speaker 5: can be more competition is one that any trust people
Speaker 5: tend to look at skeptically. So the first question is
Speaker 5: will it lessen competition? And before we get to whether,
Speaker 5: well it might lessen it in some ways but increase
Speaker 5: it in others, that's the skeptical argument for any trust,
Speaker 5: The first question is will it lessen competition at all? Now,
Speaker 5: this is in credit card issuance, given discovers rather small
Speaker 5: market share, so you don't get to the justification unless
Speaker 5: it's harmful in the first place. One thing that seems
Speaker 5: to me to be true about Discover. Discover has always
Speaker 5: been sort of the map in some ways. I think
Speaker 5: we wouldn't have cash back credit cards if it weren't
Speaker 5: for Discover. So this was Discover's business model when Visa
Speaker 5: MasterCard weren't doing it. So they've been a sort of
Speaker 5: competitive upstart. Now how that's going to look to any
Speaker 5: trust enforcers at the moment, I'm not certain, but that's
Speaker 5: a little wrinkle in this particular case. Now, it may
Speaker 5: be that putting those two firms together doesn't in itself
Speaker 5: raise problems, although I think it probably will in the
Speaker 5: card issuance market, but that's not the only market. So
Speaker 5: there are a lot of banks that issue cards, but
Speaker 5: there are only as you mentioned, four processing networks or
Speaker 5: really three Visa, MasterCard and Discover, which processes the credit
Speaker 5: card payments on the merchant side. And this may cause
Speaker 5: some problems because Discover is an independent process. So I
Speaker 5: think the Justice Department is going to look at that
Speaker 5: in terms of payment systems, how it works for processors
Speaker 5: because merchants pay good money for this, and how this
Speaker 5: merger will affect that I think is going to be important.
Speaker 1: I assume that.
Speaker 2: The Office of the Controller of the Currency and the
Speaker 2: Federal Reserve looking at different things than the Justice Department is.
Speaker 5: That's a great assumption. So the banking agencies are supposed
Speaker 5: to in some ways look at bank stability, convenience, and needs.
Speaker 5: This doesn't involve depositors because Discovery only has one bank outlet.
Speaker 5: I think, so, yes, they have some overall responsibility for
Speaker 5: public interests, but they do apply a competition standard, and
Speaker 5: one of the questions has always been whether they're applying
Speaker 5: maybe a more lenience standard. But then the Justice Department
Speaker 5: can come in and go to court and apply the
Speaker 5: standard that's applied in all other industries. So that's one
Speaker 5: of the interesting wrinkles of this, is to see where
Speaker 5: the banking regulators will be. But then we may get
Speaker 5: to see where the Justice Department is if they approve
Speaker 5: the transaction. So there's a lot to be seen yet,
Speaker 5: you know, in terms of how this will go. But
Speaker 5: it is a very big deal in dollar terms, and
Speaker 5: discoverers played an important competitive role, and what they had
Speaker 5: envisioned for the future, and what you know, capital one's
Speaker 5: vision for the future might be in all this, I
Speaker 5: think will be important once the government starts looking at
Speaker 5: those documents.
Speaker 2: Okay, let's turn to the next possible Okay, antitrust problem.
Speaker 2: The Federal Trade Commission and a group of states are
Speaker 2: poised to sue as soon as next week to block
Speaker 2: the tie up between supermarket giants Kroger and Albertson.
Speaker 1: According to Bloomberg source is.
Speaker 2: The supermarkets here again saying that the deal is needed
Speaker 2: so that they can better compete with their bigger rivals
Speaker 2: Amazon and Walmart, and the FTC in the state attorneys
Speaker 2: general are concerned that it would lead to lower wages
Speaker 2: for workers, higher prices for groceries.
Speaker 1: But Walmart and Amazon are rather big.
Speaker 5: Well they are, of course, A lot of this depends
Speaker 5: on how you want to think about the market. Amazon's big,
Speaker 5: But do you consider online sales as being in the
Speaker 5: same market as grocery store sales? So if you don't,
Speaker 5: then you're talking whole foods. So that's one wrinkle of it.
Speaker 5: Walmart is very big, and sometimes in these supermarket mergers
Speaker 5: firms argue that shouldn't be in the market at all,
Speaker 5: But they probably look like number one in terms of
Speaker 5: retail sales of food in physical stores. Of course, they
Speaker 5: also sell things lawn. Again another wrinkle of this that
Speaker 5: I think Kroger and Albertsons might pursue in litigation. But
Speaker 5: however we slice it. Do we slice food mergers, chop
Speaker 5: food mergers? However we slice the supermarket mergers. These are
Speaker 5: two of the biggest players. We haven't talked about the
Speaker 5: warehouse clubs, specifically Costco, which are often in any trust
Speaker 5: cases not included in supermarket mergers because they're business models
Speaker 5: so sort of different. So if they aren't, then Kroger
Speaker 5: and Albertson's are number two in number three in the
Speaker 5: United States if you include Costco, it's two and four.
Speaker 5: But in any event, these are the major chains. Now,
Speaker 5: the idea that they need to consolidate so as to
Speaker 5: compete with Walmart is another version of we have to
Speaker 5: kill competition so that we can have competition. Because these
Speaker 5: chains compete against each other. They are major players, and
Speaker 5: they compete presumable in many ways for sources, for private
Speaker 5: sorts of things, and if they say they have to
Speaker 5: get bigger, it seems factually to perhaps be problematic. So again,
Speaker 5: as I mentioned before, the first question is is it
Speaker 5: any competitive? Not what their justification is, So how is
Speaker 5: it any competitive? Exactly? And even though they're big, a
Speaker 5: lot of times for supermarkets, enforcers look at local markets,
Speaker 5: sometimes very small markets, you know, three to five mile
Speaker 5: radius around stores, which is where most consumers do most
Speaker 5: of their shopping in most places. How's that I put
Speaker 5: in plenty of most. So if any of us say no,
Speaker 5: I don't do it that way, I say, well, other
Speaker 5: people do. But that's sort of the default way of
Speaker 5: how it's looked at. So the discussion generally starts out
Speaker 5: with what are the geographic overlaps between these two chains?
Speaker 5: And then can that be cured? You know, so sell
Speaker 5: the overlapping stores. If you've got a safe way right
Speaker 5: near a Kroger or a Harris Tweeter Teeter, I would
Speaker 5: say Tweeter Harris.
Speaker 1: Teeter, I'm not familiar with that.
Speaker 5: Well in the DC area, these two chains are pretty big,
Speaker 5: so you know, sell some of the overlaps. So now
Speaker 5: you're not competitors, you don't you know, sell it to
Speaker 5: someone else, it will still be in competition. This has
Speaker 5: been going on since October of twenty twenty two, you know,
Speaker 5: trying to figure this merger out. So I think a
Speaker 5: lot of the discussion has been what do we need
Speaker 5: to sell to satisfy the Federal Trade Commission and to
Speaker 5: satisfy state attorneys general, all of whom frankly are concerned
Speaker 5: about and should be concerned about high food prices and
Speaker 5: wages to labor. So talk about, you know, concerns and
Speaker 5: concerns for important segments of our economy. This is very important.
Speaker 5: So a lot of discussion over how many stores to
Speaker 5: divest and.
Speaker 2: Harry in the discussions, how many stores have the companies
Speaker 2: agreed to divest.
Speaker 5: Apparently there's an agreement now to invest four hundred sum
Speaker 5: stores to another chain. Called Pigley Wiggly. You always shop
Speaker 5: at Pickley Wiggly.
Speaker 2: I definitely don't. But I know from a lot of
Speaker 2: the movies that I watch about the pin chain.
Speaker 5: Oh, that's right. Seems to all be in southern movies
Speaker 5: in the nineteen fifties, yes.
Speaker 1: And even some more recent movies.
Speaker 5: So to divest it to them? And people have said, well,
Speaker 5: you know, if you need to put together your two chains,
Speaker 5: which are about five thousand stores, so that you can
Speaker 5: compete effectively, tell me how spinning off one hundred and
Speaker 5: nineties stores or four hundred stores will recreate effective competition,
Speaker 5: Because if you can't be effective, you're huge size. How
Speaker 5: are those chains supposed to be effective? So the question
Speaker 5: whether you can cure competition defects by spinning off some
Speaker 5: of the overlapping stores then usually moves on to well,
Speaker 5: those divestitures have often been unsuccessful because the number of
Speaker 5: stores spun off are not enough to form a viable
Speaker 5: chain of stores, even if given to another operator. So
Speaker 5: this is probably what the discussion and argument has gone around.
Speaker 5: And I gather from you know what you mentioned the
Speaker 5: Bloomberg source that they haven't come up with enough of
Speaker 5: a divested your plan, and there may not be a
Speaker 5: divestiture plan that would be satisfactory other than you know,
Speaker 5: you just can't merge. Now, there is one wrinkle that's
Speaker 5: really quite unusual and interesting in this is that two
Speaker 5: state attorneys general have already filed suit. And normally the
Speaker 5: state's file suit under federal law for reasons that get
Speaker 5: to be too complicated to explain, but both of them
Speaker 5: have filed suit under state law in state court, and
Speaker 5: this is quite unusual and will be very interesting to see.
Speaker 5: So that's the state of Washington, state of Colorado. So
Speaker 5: those suits are already filed to stop the merger in
Speaker 5: some way. So the end of the story hasn't been
Speaker 5: written yet.
Speaker 2: But I'm going to ask you about the end anyway.
Speaker 2: So let's assume that the suit is going to go forward.
Speaker 2: Which side has the better odds in court? Do you
Speaker 2: think it sounds like you think the government does.
Speaker 5: I think the government does, but it's going to have
Speaker 5: to be careful about what the theory is, you know.
Speaker 5: I Mean, normally we talk about the number of stores
Speaker 5: and all that, but again, the usual markets that are
Speaker 5: looked at in supermarket mergers are very local. So the
Speaker 5: total number of stores. In some sense, the government usually
Speaker 5: does not focus on They very well might focus on
Speaker 5: the network generally in this merger, on the argument that
Speaker 5: these big networks, these big chains compete in ways that
Speaker 5: are not localized. They haven't pushed this argument in the past.
Speaker 5: It's an important argument, you know, when we think about
Speaker 5: major tech platforms, when we think about competition today, it's
Speaker 5: you know, not localized geographically. So you know, I think
Speaker 5: the parties are not certainly not out of legal arguments
Speaker 5: if they choose to fight it. And there was apparently
Speaker 5: an upper limit on the number of stores divested before
Speaker 5: the parties could pull out. It was six hundred some stores.
Speaker 5: So I think we should try to keep our eye
Speaker 5: on whether the deal will be killed, not so much
Speaker 5: directly but indirectly. But the bottom line is I've always
Speaker 5: found it hard to believe that the government will not
Speaker 5: oppose this. I think they'll come up with some theories
Speaker 5: for why it should be stopped, and I think ultimately
Speaker 5: they're probably going to be successful. But it isn't a
Speaker 5: laydown coming up.
Speaker 2: The new streaming service proposed by Disney, Fox and Warner,
Speaker 2: this is Bloomberg. I've been talking to anti trust expert
Speaker 2: Harry First, a professor at NYU Law School, about several
Speaker 2: megadeals and whether they'll pass anti trust scrutiny.
Speaker 1: So now we go from.
Speaker 2: Credit cards and supermarkets to streaming sports. Right, The Justice
Speaker 2: Department plans to scrutinize the new streaming service proposed by
Speaker 2: Walt Disney, Fox and Warner Brothers over concerns it could
Speaker 2: harm consumers, media rivals, and sports leagues. City analysts estimate
Speaker 2: the venture would control about fifty five percent of UA
Speaker 2: sports rights by cost.
Speaker 5: What about this, This is a fun one. We do
Speaker 5: need food, and apparently we do need credit cards, and
Speaker 5: apparently there are a lot of people who just need
Speaker 5: their sports all the time. I have to say, I
Speaker 5: don't put myself in that category. So here I'm not
Speaker 5: speaking as an interested consumer, just as sort of an observer,
Speaker 5: noting that a lot of anti trust action recently has
Speaker 5: involved entertainment of one sort or another, with video games
Speaker 5: or sports. And so now we're on the sports end.
Speaker 5: And you know, as with many of these things, they
Speaker 5: become important to any trust enforces, particularly because there are
Speaker 5: a lot of zeros at the end of these deals.
Speaker 5: So I means Disney, Fox and Warner. They are major
Speaker 5: distributors of sports programming today, and if you put this
Speaker 5: all in a single streaming service, they would have a
Speaker 5: lot of current sports programming. It wouldn't have everything. Apparently
Speaker 5: there's some people who watch the National Football League. I
Speaker 5: don't know, Taylor, I don't know, right, Yeah, so half
Speaker 5: of the NFL is on comcasts, NBC, Paramount Global, Amazon
Speaker 5: has rights to some games. So it's not a complete
Speaker 5: lock up, but it's it's a fair amount, and you
Speaker 5: don't want to forget that this Apparently this new service
Speaker 5: will have The Simpsons and The Bachelor, so there's going
Speaker 5: to be some entertainment programming. So the question with this,
Speaker 5: as with the others, the first question is so how
Speaker 5: does it harm competition in what way? And here it's
Speaker 5: even less clear because although initial reports sort of sketched
Speaker 5: out with adventures, wasn't a sense that the exact terms
Speaker 5: may not be fully fleshed out. It's hard to say,
Speaker 5: And the Justice Department and is supposed to be saying
Speaker 5: they will review it, but it's not clear exactly what
Speaker 5: they have to review. So the big question is, well,
Speaker 5: you put all this together, but what's the issue. And
Speaker 5: usually in these things. The issue involves exclusivities. So will
Speaker 5: this programming be available only on this app through this
Speaker 5: distribution channel or can it be distributed elsewhere through other
Speaker 5: channels so that it's not tied up? Now, apparently it's
Speaker 5: not supposed to be exclusive, so if your Fox, you
Speaker 5: can also maybe distributed elsewhere. But I'm a little skeptical
Speaker 5: about how that may work in practice or what the
Speaker 5: joint venturer's incentives are. ESPN is supposed to be launching
Speaker 5: a streaming service.
Speaker 2: Yes, Disney still plans to launch a streaming service of
Speaker 2: ESPN in about a year.
Speaker 1: So where does that fit in?
Speaker 5: Well, year is a long time, and so suppose they do.
Speaker 5: But they also have this platform. You know, what are
Speaker 5: their incentives? Who pays?
Speaker 3: What?
Speaker 5: Where do they make the most money? If you can
Speaker 5: get it all in one bundle and you're a viewer,
Speaker 5: you're really going to pay separately for an ESPN streaming channel.
Speaker 5: You know? How is that all about? How do the
Speaker 5: party's envision this is working? So will it be any competitive?
Speaker 5: The parties are going to argue, hey, we add a
Speaker 5: new service. Adding output is usually good. You know, there's
Speaker 5: a new service for consumers, and hey, consumers like having
Speaker 5: a one stop shop. You know, they just sit there
Speaker 5: and watch hundreds of hours of Major League Baseball, National
Speaker 5: Basketball League, National Hockey League, NASCAR, College basketball, all in
Speaker 5: one place and never leave their basements. So what could
Speaker 5: be better? That's a rhetorical question.
Speaker 1: I was going to answer that question right.
Speaker 5: So that's an argument for this is a benefit to consumers.
Speaker 5: But the question is if they get control of monopoly,
Speaker 5: and the end is never beneficial to consumers. If they
Speaker 5: get enough control so that Fox and Disney and Warner
Speaker 5: really aren't distributing on other platforms, does the price of
Speaker 5: the streaming service start going up when they're not faced
Speaker 5: with competition from other services that don't offer this bundle?
Speaker 5: And what about the suppliers of these programs? You know,
Speaker 5: of sports entertainment programming, who can they get bids from
Speaker 5: for their products?
Speaker 2: You know?
Speaker 5: Do they have lots of bidders or very few? So
Speaker 5: if you have fewer bidders, they get less for their rights,
Speaker 5: which means they pay whoever produces these things less. So
Speaker 5: you know, not clear how this will all go. And
Speaker 5: in some sense, if the pro competitive benefit is putting
Speaker 5: everything in a bundle, why does it have to be
Speaker 5: in a bundle. I mean, is it really that hard
Speaker 5: to switch from ESPN to Fox? I don't know. That's
Speaker 5: what we like, competition for the different channels that different platforms,
Speaker 5: different apps, whatever you want to call them, can offer
Speaker 5: different product, not just the game itself, but different things
Speaker 5: different you know. However, they want to differentiate themselves to
Speaker 5: compete for customers, So there's a lot to find out
Speaker 5: about how they've structured it and how exclusive it is,
Speaker 5: either on paper or financially. There are past cases in
Speaker 5: this industry where the Justice Department has not looked favorably
Speaker 5: on tie ups of distributors with rights to programming who
Speaker 5: are big in the distribution market. Those go back to
Speaker 5: the eighties. There was in fact litigation over one of
Speaker 5: them where this is way back in the early days
Speaker 5: of what used to be called PayTV. Columbia Universe Versal,
Speaker 5: Paramount and Fox put together a service that would have
Speaker 5: all of their movies and it was going to be
Speaker 5: called Premiere and you know, consumer could get it all
Speaker 5: in one bundle and they would have those movies for
Speaker 5: exclusive window for nine months and other services could get it.
Speaker 5: Justice Apartment sued and one in court that that was
Speaker 5: a violation of the Shermanac. So there are you know,
Speaker 5: legal roadblocks to this, and you know, again we'll have
Speaker 5: to see how here. This is a little more you know,
Speaker 5: uncertain what the terms are and you know, sort of
Speaker 5: see how the terms are crafted and what objections the
Speaker 5: Justice Department might have.
Speaker 1: So Parry, is it just me?
Speaker 2: We talk a lot about antitrust and it seems like
Speaker 2: there's one deal after the next that the Justice Department
Speaker 2: or the FTC is challenging or thinking of challenging. Is
Speaker 2: it just because the Biden administration is on a pro
Speaker 2: competitive bend.
Speaker 5: Yeah, it is very interesting. I mean in the merger area,
Speaker 5: people have suggested that the rhetoric of the Biden administration
Speaker 5: will discourage firms from merging because they're so afraid of
Speaker 5: being challenged. You might wonder about that idea given all
Speaker 5: the mergers we're seeing. So we're seeing a lot of
Speaker 5: deals right now, and there are various reasons. Anti trust
Speaker 5: may be far down on the list, business reasons may
Speaker 5: be higher up. But I think we're seeing it, as
Speaker 5: you know, the anti trust frame around it because the
Speaker 5: Biden administration has been serious, not only in its rhetoric
Speaker 5: but in bringing cases that investigating, so you know that continues,
Speaker 5: and you know there is an expectation that they're not
Speaker 5: just going to let things slide. So we do get
Speaker 5: these reports and there are lots of industries there. You know,
Speaker 5: there's acquisitions in the chip industry, there's energy mergers, a
Speaker 5: lot of consolid the energy industry. I mean, you know,
Speaker 5: I don't know when they sleep.
Speaker 2: Well, at least we'll have lots to talk about and
Speaker 2: I always enjoy our conversations. Harry, thanks so much. That's
Speaker 2: Professor Harry First of NYU Law School. And that's it
Speaker 2: for this edition of the Bloomberg Law Podcast. Remember you
Speaker 2: can always get the latest legal news by subscribing and
Speaker 2: listening to the show on Apple Podcasts, Spotify, and at
Speaker 2: Bloomberg dot com, slash podcast, Slash Law.
Speaker 1: I'm June Grosso and this is Bloomberg