I Want My Antitrust!
MTV Experiences Government’s Peculiar View of the Real World
In December, the antitrust division of the Department of Justice confirmed that it is investigating MTV for possible anticompetitive practices. The following is a fictional conversation between an antitrust lawyer at the Justice Department and an economics student at a college where the lawyer delivered a talk. We join the scene just as the lawyer is finishing his prepared remarks.
Lawyer: "So, in conclusion, I’m proud to announce that the Antitrust Division of the Department of Justice is investigating MTV for engaging in anticompetitive activities. We are concerned by MTV’s refusal to air a music video unless the record company that produced the video gives MTV exclusive rights to it. This practice threatens to kill competition in the music-video market. And it’s our job at Justice to protect consumers from monopoly. Thank you. Any questions?"
Student: "Dude, I still don’t get it. What makes MTV’s purchase of exclusive rights to broadcast videos anticompetitive?"
Lawyer: "It’s obvious. MTV is cornering the market on an essential input for a music-video channel: videos. If record companies give MTV exclusive rights to air their videos, no other rival channels will have access to these videos. These other, potential competitors of MTV never really get off the ground; they never become effective competitors. MTV becomes a monopolist."
Student: "Sorry, it just isn’t ‘obvious’ to me. Does MTV stick a gun to the heads of record company executives and say ‘Sign here or else?’ Seems to me that record companies–hardly pipsqueaks that can be pushed around–sign those contracts voluntarily. And don’t these companies have a strong interest in keeping the music-video market competitive?"
Lawyer: "Well, of course, no one is literally coerced into signing a contract. But in practice record companies really have no option. You see, the only other major popular-music video channel is VH-1. But both it and MTV are owned by the same parent company, Viacom. So if record companies refuse to give MTV exclusive rights to broadcast their videos, their videos won’t be aired. It’s that simple. Despite the record companies’ interest in keeping the broadcasting of music videos competitive, they are now forced to concede to MTV’s demands, no matter how unreasonable."
Student: "Do you ever watch TV? Ever hear of MuchMusic? It’s a music-video channel that plays popular- and rock-music videos–just like MTV. If a record company doesn’t want to give exclusive rights to MTV, it can have its videos aired over MuchMusic. How can you say that record companies have no choice but to cave to whatever MTV demands?"
Lawyer: "Of course I’m aware of MuchMusic. But it isn’t anywhere nearly as popular as MTV. It’s in only a small fraction of the homes reached by MTV. MuchMusic isn’t much competition. Get it? MUCH music isn’t MUCH competition."
Student: "Uh huh. But you still don’t make MUCH (get it?) sense. Seems to me that what you’re upset about is that MTV is popular. Let’s take this step by step, okay? First, record companies don’t have to rely on MTV; they can show their videos on MuchMusic–which, it turns out, is no weakling. I checked before you came to give your talk: MuchMusic is owned by a conglomerate made up of NBC, Cablevision Systems, and other heavy hitters. And second, consumers don’t have to watch MTV to get entertainment. They can watch literally hundreds of other channels; they can watch VCRs and DVDs; and they can surf the Web. You know, I’m, like, only half your age, and even I’ve personally witnessed an explosion in entertainment options. If you’re supposed to be saving consumers from a dreary life of restricted choices, you’re focusing on the wrong industry. It’s not like our only choice is watching MTV or going bowling. And third . . ."
Lawyer: "Excuse me, but you define the market too broadly. You would be correct if the market were defined as, say, entertainment for the under-40 crowd rather than as the commercial broadcasting of pop-music videos. In that broader market, MTV isn’t dominant. But I think that our narrower definition is appropriate."
Student: "I don’t know why you would believe that. Do you think that my friends and I attach some special significance to watching music videos on television? Do you think that if MTV started falling down on the job that we don’t have a gazillion other really excellent ways to spend our entertainment dollars?
"But, hey, for argument’s sake, let’s say the relevant market is the commercial broadcasting of music videos. I still don’t see why you’re out to get MTV. I still don’t see why you don’t count MuchMusic as a competitor. And–another important point–even if MuchMusic happens to be run by a bunch of idiots, don’t you realize that if MTV starts behaving like a monopolist, some other new rock-music video channels will be created to better serve consumers?"
Lawyer: "MuchMusic, as I told you, is now only in a small number of households. And your hypothetical new rivals are in precisely no households."
Student: "Yeah, but correct me if I’m wrong, don’t cable companies have incentives to offer their customers the most attractive line-up of channels possible?"
Lawyers: "I suppose they do. So what?"
Student: "My man! If MTV really were hurting consumers, many more cable companies would start offering MuchMusic. They’d have every reason in the world to do so, and they’d be able to do it quickly.
"You’ve got it backwards. The fact that MTV has such a prominent position in the industry isn’t because it’s some sort of monopoly monster. Instead, it’s successful because it delivers a kick-ass product. As soon as it stops, it’s history."
Lawyer: "You’re pretty naïve, young man. Neither MuchMusic or any of your hypothetical rivals have the clout that MTV has. Neither MuchMusic . . ."
Student: "Whoa! What do you mean by ‘clout’?"
Lawyer: "I mean that no other music-video channel has the distribution and the visibility–the name-brand capital–that MTV has."
Student: "Maybe not. But you gotta explain why it’s so and why you think that it’s permanent. What’s the source of this ‘clout,’ as you call it? If the source of MTV’s ‘clout’ is nothing more than a very strong consumer preference for MTV, then you’ve given us only evidence that MTV pleases–rather than harms–consumers.
"I grant you, dude, that MTV is the most successful music-video channel to date. But unless you can show me some reason other than consumer choice for why MuchMusic and other rivals are unable to compete successfully against MTV, I’m just not gonna buy your argument."
Lawyer: "I already showed you such a reason. It’s MTV’s insistence on having exclusive rights to air music videos."
Student: "And I already told you that proves nothing. See, if these contractual terms were so harmful to record companies–and if these terms threaten, as you claim, to give MTV true monopoly power – record companies would start showing their videos over some other music-video channel, such as MuchMusic. And cable companies would drop MTV and replace it with MuchMusic."
Lawyer: "But consumers are effectively locked in to MTV. It’s what they know. It’s what’s available."
Student: "What?! How can you say that consumers are locked in to MTV? All that anyone unhappy with MTV has to do is pick up the remote and–click, click–he’s got another channel pronto. There’s nothing at all about the success of one music-video broadcaster that makes it difficult for consumers to switch to another music-video broadcaster if the first one gets lazy, cocky, or incompetent. And because it’s as easy as flicking the remote for consumers to switch to a better channel, there’s every reason in the world that cable companies and record companies will shift their weight to a rival channel if MTV really and truly is not delivering to consumers the best possible product."
Lawyer: "But if what you say is true, why does MTV insist on getting exclusive rights to air videos? You have to explain that."
Student: "Wrong. I’m no executive for a TV channel. I don’t know enough of the millions of specialized details unique to MTV’s industry to explain everything these firms do. But you’re in the same boat. The best either of us can do is guess; for example, maybe MTV invests more heavily than anyone else in maintaining the popularity of music-video broadcasts. After all, man, this was a market that didn’t even exist twenty years ago. MTV created it. But whatever the reason, I disagree strongly that the burden is on any firm in a competitive industry–such as MTV–to justify to you its contract terms.
"You see, dude, record companies and cable companies have both the money and the incentive to promote rivals to MTV–and consumers can easily switch from MTV to MuchMusic or to any other rival if MTV underperforms. Consumers don’t need you to protect them from monopoly in this industry."