Karl wrote a bit about how the new antitrust bill from Amy Klobuchar and Tom Cotton pretends that the only industry that has competition issues is the internet industry — despite evidence suggesting other industries are much worse off — and briefly mentioned the fact that their bill conveniently excludes Walmart and Target. But the setup of the bill and those particular exclusions are so nefariously done, and so obviously corrupt, that they deserve a second post to call it out.
First off, when the House version of this bill came out, we highlighted that the $600 billion threshold seemed curiously specific, since it seemed specifically drawn just above a ton of politically powerful companies — including Walmart, Disney, AT&T, Verizon, Visa, Mastercard, JP Morgan Chase, Disney, Bank of America and others. But notably the House version of the bill would put down the $600 billion line as a marker, and if those companies reached that threshold, then they too would be subject to the same rules, and prevented (or, significantly hindered) from buying other companies.
And that’s where the Senate version is so nefarious. Under the terms of the Klobuchar/Cotton bill, it only applies to companies who are over the $600 billion line on the day the bill is signed. In other words, while the House version would eventually impact Walmart (largest employer in Tom Cotton’s state) and Target (largest employer in Klobuchar’s state), Klobuchar and Cotton conveniently changed the rules in the bill so that they would not impact the biggest companies in their home states.
There is no way to look at that other than as corrupt.
And, as Pat Hedger points out, Walmart has been growing like crazy over the last five years or so (which seems odd, considering we keep hearing that Amazon has “monopolized” commerce and is driving out all the competition):
So, as I type this Walmart is valued at a little over $400 billion. That might seem far off from $600 billion, but as recently as 2016 Walmart was valued below $200 billion. $600 billion in the next few years is not at all out of the question. And if this bill passes, it won’t matter for Walmart.
So both of those companies — which compete fairly directly with Amazon — have been growing like gangbusters, and their own Senators are introducing a bill that will block Amazon from acquiring companies, but has a built-in exemption that keeps both of these competitors from being limited in the same way Amazon is being limited.
Is there honestly any way to view this setup other than out and out corruption by Klobuchar and Cotton? Protecting the largest employer in each of their states by shackling the major competitor to each, and making sure their own companies are exempted from the law no matter how large they grow?
We’ve noted more than a few times how the AT&T Time Warner and DirecTV mergers were a monumental, historical disaster. AT&T spent $200 billion to acquire both companies thinking it would dominate the video and internet ad space. Instead, the company lost 9 million subscribers in nine years, fired 50,000 employees, closed numerous popular brands (DC’s Vertigo imprint, Mad Magazine), and basically stumbled around incompetently for several years before recently spinning off the entire mess for a song.
I just got done noting how the US press’ total failure to adequately outline the scope of this mess ensures that the executives, regulators, and various megamerger cheerleaders will never be held accountable for it. That, in turn, all but guarantees it will happen again. And again. And again. America’s obsession with “growth for growth’s sake” and megamergers is built on the inherent promise that no matter how many times a megadeal results in layoffs, chaos, and no benefits for anyone other than executives and investors, we’ll simply refuse to learn anything from the experience.
That requires a lot of revisionist history. So, as if on cue, AT&T CFO Pascal Desroches this week complained that AT&T didn’t get enough credit for turning HBO Max into a successful streaming brand. AT&T was forced to spin off this mess because the doddering telco sucked at running a media company. But Desroches is trying to claim the recent spinoff of its media ventures occurred because AT&T didn’t get enough credit for building HBO:
“AT&T CEO John Stankey was ?keenly focused on? the company being in the early stages of a ?significant evolution in connectivity,? 5G and fiber, with management knowing it needed to invest there and in HBO Max, he told the Oppenheimer Annual Technology, Internet & Communications Conference.
?One of the things we realized (was that), even though we were succeeding in our launch of HBO Max, the market wasn?t giving us the appropriate credit for it,? Desroches said.
This is a weird rewriting of history. Ex-AT&T CEO Randall Stephenson was literally shoved into early retirement because instead of focusing on the company’s core competencies (running and building networks; spying on Americans; lobbying the government to hamstring competition), AT&T blew an absolute ocean of money trying to elbow its way into the TV business. But like so many telcos (see: Verizon Go90), decades as a pampered government telecom monopoly leaves you ill-suited toward making adequate inroads in creative, competitive industries.
To be clear, AT&T’s path post-merger was pretty obvious. It had to take the HBO brand, not fuck it up, and shovel it into a functional streaming experience. But the company struggled for the first several years to do that. It released so many conflicting, confusing AT&T and HBO streaming brands that they even managed to confuse their own support employees. Meanwhile, AT&T executives, obsessed with engagement over quality, have taken the HBO brand and watered it down. Now you can see a lot of quality HBO fare like Six Feet Under intermingled with AT&T concepts like “Fuckboy Island,” which kind of speaks for itself.
If you actually talk to any of the creatives at places like DC or HBO (the ones who weren’t fired, anyway), they’re quick to point out that AT&T brass really had no idea what they were doing. It was like having an alleyway brawler run an opera house. Telcos aren’t good at adaptation, creativity, competition, or innovation, because as government-pampered monopolies, they’ve never had to be. I’m not sure how many times we have to watch a telco fall on its face in this fashion before that becomes clear to people.
The reality is that AT&T screwed up, then had to spin off the entire mess because it screwed up. For AT&T’s CFO to suggest the spin off was because the “market didn’t give us a cookie” for building HBO Max is some weird, revisionist history. Revisionist history that once again ignores the 50,000 post-merger(s) layoffs, the fact AT&T received billions from government to make all of this work (the $42 billion Trump tax cut, merger approvals, the death of net neutrality), and still somehow screwed it up. There is absolutely no scenario in which any AT&T executive involved in any aspect of this mess gets a cookie.
When last we checked in with Verizon, the company had just been caught exploiting the government’s Covid broadband relief program to upsell struggling Americans to more expensive plans. Now, as Verizon tries to gain regulatory approval for its $6.2 billion acquisition of Tracfone, consumer groups and a small cadre of Senators are wondering if a company that thinks nothing of exploiting struggling Americans in need is a good steward for a discount phone company whose client base is predominantly comprised of low-income Americans.
Five U.S. Senators recently wrote the FCC, rather timidly wondering if Verizon would use the acquisition to simply upsell these lower-income Americans to more expensive plans (spoiler: yes):
“Senators Richard Blumenthal, Sheldon Whitehouse, Dianne Feinstein, Ron Wyden and Ed Markey said in a letter “Verizon would have significant incentives and opportunities to push subscribers from Lifeline and inexpensive prepaid services to higher revenue plans.”
The amusing part here is that there’s 40 years of documented history showing how Verizon and AT&T’s overall strategy is to acquire everyone, then use that consolidation and reduced competition to relentlessly nickel and dime their subscribers. This is just a factual reality and the way publicly-traded companies are structured to take full tactical advantage of the market and weak regulatory environments to the benefit of investors. It’s not some errant opinion that this will happen again in the wake of yet another industry merger, it’s the likely outcome based on decades of history.
Yet the concern that they’d do so again here (spoiler: they will) is framed as some kind of radical theoretical or — as is the preference of the DC Beltway “he said, she said” reporting set — purely a partisan concern expressed only by Democrats. But the fact Congress could only cobble together five Democratic Senators interested in giving a shit shows you pretty clearly that apathy to this kind of mindless consolidation is very much a bipartisan sport.
1.7 million of Tracfone’s customers currently enroll in the FCC’s Lifeline program. Started under Reagan and expanded by Bush, the program doles out a measly $9.25 monthly credit that struggling Americans can use to get a discount off of their phone, wireless, or broadband bill (they have to choose one). It’s literally the very least the government can do to help poor people afford telecom services, but it’s been endlessly demonized by folks like Trump FCC boss Ajit Pai, who think even this half-assed effort is a bridge too far.
If this telecom merger follows the pattern of other U.S. telecom mergers, a bipartisan coagulation of lawmakers will trip over themselves to ignore warnings and approve the deal. They’ll then sign off on a bunch of flimsy conditions — most likely crafted by Verizon — that not only won’t really do all that much, but won’t be enforced or adhered to. Meanwhile, Verizon gets way with rather nebulous claims that this deal creates amazing synergies and benefits that you just can’t get without greater industry consolidation:
“The company said the proposed deal “will bring value and benefits to value-conscious consumers in a myriad of ways.”
Then in two to three years, when policymakers and the press have forgotten all about the deal, Verizon will exploit the consolidation to steadily raise rates. The very same policymakers who signed off on yet more consolidation in the space will then stand around with their hands on their hips and a dumb look on their face wondering how we got here. Right before signing off on yet another “growth for growth’s sake” telecom megamerger that benefits absolutely nobody outside of the Hamptons set. Rinse, wash, and repeat, with absolutely nobody learning anything from the experience.
On Friday, as has been widely expected for a while, a bunch of House lawmakers led by David Cicilline introduced five new antitrust bills that would, if they become law, completely reshape how antitrust works in the US. At least for tech companies. Somewhat notably, many of the bills seem written specifically to target just one industry and to avoid having to deal with other industries. The text of the bills has been floating around all week as the Democrats who are pushing them hoped to find some Republican co-sponsors. And, based on Friday’s press release, it appears they found at least one Republican to sponsor each bill (though only four Republicans in total, as they got Lance Gooden to agree to sponsor two of the bills).
Now, most of the bills strike me as extremely problematic — and even me just saying so will lead people to claim I’m somehow in the tank for these companies. Nothing is further from the truth. I’m all for creative ideas on how to end the dominance of the largest companies and to increase competition. But I fear poorly thought out proposals will have massive unintended consequences that go way beyond punishing Facebook, Google and Amazon.
Each bill does something different, and there are some occasionally creative and interesting ideas in them, but it really seems like these bills are more designed to destroy the thriving tech industry out of spite, rather than to actually encourage competition. As noted above, I’m in agreement that it would be good if we got more competition in the tech industry, but these bills take a very backwards-looking view on how to do that, basically by punishing companies for building successful products, rather than looking for ways to enable more actual competition. I’ve written before on ways to actually break up the dominance of big tech players, mainly by getting rid of many of the existing rules that have allowed the big players to block and limit competition. But these bills don’t do that. They take a much more punitive approach to successful companies, rather than an approach that enables more competition through innovation. That’s disappointing.
To me, the one that seemed most interesting at a first glance was the ACCESS Act (“Augmenting Compatibility and Competition by Enabling Service Switching Act”) by Rep. Mary Gay Scanlon. It basically requires “covered platforms” to maintain open APIs for interoperability and data portability. And, at a first pass, that is a good thing, and obviously quite consistent with my belief that we need to build a future that is based more on open protocols rather than silo platforms. Portability and interoperability are certainly a step in the right direction for that.
However, the way the bill actually is written suggests a real lack of futuristic technical thinking. It would lock in certain ideas that don’t necessarily make any sense. Basically, all this bill would actually do is make sure that you could transfer your data out of an existing internet giant. The big internet companies already do this… and because of the way it’s been implemented, it’s almost entirely useless and doesn’t help anyone. This bill wouldn’t change that, unfortunately.
On top of that, this bill fails to deal with the very real and very tricky challenges regarding data portability and interoperability as it pertains to privacy. Instead, the bill just handwaves it away, basically saying “don’t do bad stuff regarding privacy” with this data. That’s… not going to work, and is more or less an admission that the drafters of the bill don’t want to deal with the very significant challenges of crafting a data portability/interoperability setup that is also congruent with protecting privacy.
The real way to do this would be to separate out the data layer so that it’s not controlled by the centralized companies at all, but in the hands of the end-users or their agents. But while that could happen as an accident of this bill, it’s clearly not the intent. Thus it seems like this bill would not help very much, and that’s a real missed opportunity. It’s nice that it recognizes portability and interoperability as issues, but it doesn’t do the hard work necessary to make that actually meaningful.
Finally, perhaps the most problematic (by far) part of this bill is that if a “covered company” wants to change its APIs, it would need to get FTC approval — and that seems like a terrible idea. Imagine having to get approval from the government every time you change your API? What? No. Bad.
A covered platform may make a change that may affect its interoperability interface by petitioning the Commission to approve a proposed change. The Commission shall allow the change if, after consulting the relevant technical committee the Commission concludes that the change is not being made with the purpose or effect of unreasonably denying access or undermining interoperability for competing businesses or potential competing businesses.
I mean, yikes. That’s going from permissionless innovation — the very core of our innovation engine — to having the FTC act as the approver of any slight change to an API. That’s really, really bad.
The bill that may get the most attention is Cicilline’s own bill that basically says successful internet companies could no longer promote their own ancillary services over those of competitors. Basically, Google couldn’t insert its own local results, or its own maps, over a third party’s. Think of this as the Yelp Finally Forces Google To Use Yelp’s Listings Act, because that’s the main driver behind this bill. Basically, some companies that do more specialized search and content don’t want Google to be able to compete with them, and more or less want traffic they might not have earned. I can see a slight argument for how the practice of actual monopolies favoring their own services and excluding others could be anticompetitive, but this bill would make it defacto anti-competitive — and that seems likely to create massive unintended consequences that won’t be very good for the internet.
There are, after all, lots of cases where it makes quite a lot of sense for companies to link their ancillary products. Yet, here, doing so will almost definitively lead to a costly antitrust fight, meaning that it will be quite difficult for many companies to build useful complementary services. I don’t see how that benefits the public. Again, it seems that a much better solution would be to remove the barriers that currently limit the ability for third party competitors to step in and build tools that interoperate with the bigger players, but that’s not the goal here. The goal seems to be to restrict the big internet companies to much more limited offerings, rather than providing a wider suite of services.
Another major change comes from Rep. Hakeem Jeffries, and would effectively make it much, much harder for internet giants to buy companies. A key part of the bill is that the acquiring company would have to affirmatively show that the merger is legit, rather than the government having to show that the merger is problematic. Shifting the burden of proof would basically mean that most such mergers would be presumed unlawful, rather than the opposite. This could have huge and problematic implications for how our economy operates today.
On the good side, the bill would give the FTC and DOJ more resources to review acquisitions. However, as we’ve discussed before, in trying to block out anti-competitive acquisitions (which are a legitimate concern!) a bill this broad will almost certainly knock out other kinds of important and useful acquisitions (such as ones that keep failing or flailing services alive). More importantly it may take investment capital away from competitive entrepreneurial ventures.
No good investors invest in a company with a plan to just sell it off to a big tech company (indeed, most investors will ask startups how they would deal with such a competitive threat), but having the big guys act as a buyer is an alternative out — not as successful as succeeding on your own, but still better than losing all of the investment entirely — makes it easier for the investors to make these kinds of bets. Now that possibility of return will become much more difficult, meaning that investment capital is less likely to go to entrepreneurs trying to create competitive solutions. And that’s not good!
A separate bill from Rep. Neguse basically just raises the cost of mergers and acquisitions and… um… sure? Fine. I don’t see that as problematic really. I mean, at the margins, making it more costly to do an acquisition might be a nuisance, but the changes and increases don’t seem particularly significant here — and certainly not enough to stop a major acquisition (though, arguably it might drive down the amount that the owners of the acquired company get, effectively transferring it to the government). Consider it kind of a slight tax on selling your business. The bill would also increase funding to the FTC and DOJ to work on antitrust issues, and that seems reasonable as well.
Finally, there’s Rep. Jayapal’s bill that is pretty clearly designed to just stop Amazon from selling its own goods on Amazon. I know this is an issue lots of people complain about, but it remains unclear to me how much of an actual problem it is. Lots of retailers sell house branded products and compete against others without much of a problem. Costco has its house Kirkland brand, which it sells alongside other companies’ competing products. Is that so problematic?
As some are pointing out already, these bills could kill off (or severely limit) a bunch of services that people actually like, mostly as punishment that the innovations have been so successful. And that’s a problem.
It’s fine to admit that there’s a delicate balance here. How do you stop companies from becoming too powerful such that they alone squeeze out or stifle competition, while at the same time not putting in place stringent rules that, by themselves, stifle useful innovations? There really are two major themes of approaches: (1) punish or limit the ability of companies to act or (2) figure out better ways to create incentives for competitors to succeed. Unfortunately, regulators tend to jump to (1) and avoid even trying (2). That seems to be the case here.
Last week, Senator Amy Klobuchuar introduced a major antitrust reform bill, entitled the Competition and Antitrust Law Enforcement Reform Act. This isn’t much of a surprise, as Democrats have made it quite clear that they seek to use antitrust much more aggressively than it’s been used over the past few decades. I’m a big believer in the need for more competition, in general, but often worry that antitrust is not the best way to get there.
The bill will put more budget and power in the hands of the DOJ and the FTC, and also would change the legal standards for anticompetitive mergers, as well as put the burden on merging companies to prove that they are not violating antitrust, rather than as it stands now, with the burden being on the DOJ to show that the merger violates the law. Better funding the DOJ and the FTC on competition issues strikes me as a sensible move here (more the FTC than the DOJ, but no need to get that picky). However, a lot of the rest of the bill seems like it could have the opposite of the intended effect.
I get the thinking behind this, but as structured, it appears like it could have significant unintended consequences that actually decreases competition rather than increases it. In a lot of ways, the key thing this bill would do is to significantly reduce merger and acquisition activity. It has two main mechanism that would basically kill a significant number of deals:
Update the legal standard for permissible mergers. The bill amends the Clayton Act to forbid mergers that ?create an appreciable risk of materially lessening competition? rather than mergers that ?substantially lessen competition,? where ?materially? is defined as ?more than a de minimus amount.? By adding a risk-based standard and clarifying the amount of likely harm the government must prove, enforcers can more effectively stop anticompetitive mergers that currently slip through the cracks. The bill also clarifies that mergers that create a monopsony (the power to unfairly lower the prices to a company it pays or wages it offers because of lack of competition among buyers or employers) violate the statute.
Shift the burden to the merging parties to prove their merger will not violate the law. Certain categories of mergers pose significant risks to competition, but are still difficult and costly for the government to challenge in court. For those types of mergers, the bill shifts the legal burden from the government to the merging companies, which would have to prove that their mergers do not create an appreciable risk of materially lessening competition or tend to create a monopoly or monopsony. These categories include:
Mergers that significantly increase market concentration
Acquisitions of competitors or nascent competitors by a dominant firm (defined a 50% market share or possession of significant market power)
Mega-mergers valued at more than $5 billion
On that first one — changing the standard to “create an appreciable risk of materially lessening competition” seems potentially insurmountable for nearly any merger. Any merger decreases competition in some form, because (definitionally) it’s removing one competitor from the market. But that doesn’t mean that it’s necessarily damaging to the market, to innovation, or to consumers. Say, for example, there’s a market with 10 firms, and one of them is struggling and likely to go under. A merger between it and one of its more successful competitors technically “lessens” competition, but it might mean that that same firm doesn’t go out of business at all. Or, it might mean that by combining two of the companies in the market that they can better compete with some of the others.
I recognize this becomes a very different story when the market is down to just a few players — and that’s certainly true of a few too many industries these days. But that’s why the standard is set at the current “substantially lessen competition” not “creating a risk” that it might “materially lessen competition.”
The second one, on the burden shifting is perhaps equally problematic. And, here, the real risk is in killing off new startup creation. When VCs invest in a startup, their hope is that the startup is their unicorn or rocketship — becoming a multi-billion dollar market leader. These are the deals where VCs make all their money — on the huge success stories, the 100x return investments. But only a very small percentage of investments are such hits. The second best result for a VC is to have the startup acquired for a decent gain. A 10x gain is nothing for them to write home about, though it’s nice. A 2 to 3x gain is a failure in the world of VC, but it’s better than… nothing at all.
So, for an investor to fund startups, it helps to know that the backup plan for companies that don’t become billion dollar unicorns is that they can sell out to someone else, and at least get some return. But under this bill, the deal flow for those kinds of deals will dry up. The big companies that startups and VCs rely on for decent (but nothing special) exits go away. As a result, it makes VCs less interested in investing. Because the expected returns drop significantly. That means it’s likely that they’ll invest in fewer startups, thereby diminishing innovation and competition.
This is the exact opposite of the intention of this bill, but it (tragically, again) suggests how little regulators understand how startups, investments, and competition actually work.
And, of course, none of this even touches on the fact that we just had a DOJ and Attorney General in place who, it was revealed, deliberately used antitrust as a weapon against companies the president disliked. It’s kind of amazing that not even a year after that was revealed, Democrats are quick to make it even easier for a future Bill Barr to have even more power to do that.
Yes, competition is important — and there are certainly many industries that have become too consolidated. Indeed, I’ve been coming around to the belief that almost every “problem” people describe when talking about the tech industry (and a bunch of other industries) simply comes down to a lack of viable competition. But assuming that the only tool to increase competition is via antitrust, you run the risk of having exactly the wrong result. It can lead to a world in which you get less investment in startups and new competitors, since the risk becomes much greater.
Several weeks ago, Microsoft bought Zenimax Media, the parent organization of Bethesda Softworks for over $7 billion. Bethesda is a celebrated studio best known for its Fallout and Elder Scrolls titles. Both series have long histories of being published across a wide range of gaming platforms, including the PC, PlayStation, and Xbox markets. Almost immediately after the deal, however, many gamers openly worried that Microsoft would warehouse the properties to either the PC or Xbox markets exclusively.
The worry didn’t cease when Kotaku interviewed Xbox chief Phil Spencer about the implications of the deal and Spencer’s remarks were decidedly noncommittal.
“Is it possible to recoup a $7.5 billion investment if you don’t sell Elder Scrolls VI on the PlayStation?” I asked.
“Yes,” Spencer quickly replied.
Then he paused.
“I don’t want to be flip about that,” he added. “This deal was not done to take games away from another player base like that. Nowhere in the documentation that we put together was: ‘How do we keep other players from playing these games?’ We want more people to be able to play games, not fewer people to be able to go play games. But I’ll also say in the model—I’m just answering directly the question that you had—when I think about where people are going to be playing and the number of devices that we had, and we have xCloud and PC and Game Pass and our console base, I don’t have to go ship those games on any other platform other than the platforms that we support in order to kind of make the deal work for us. Whatever that means.”
Whatever that means. Well, what it means is that there has been enough conversation of how Bethesda franchises will be distributed and sold that Spencer felt confident saying that those games didn’t need to be multi-platform in order for the deal to still be profitable. Couching this all in the fact that the specific language of the acquisition didn’t mention exclusivity is all fine and good, but Spencer had this answer ready to go. That likely means that there has been at least some discussion about taking those games exclusive to the Xbox, or Microsoft’s forthcoming game-streaming services. Coupled with a growing trend in exclusivity both in the console and PC gaming spaces, this wasn’t exactly encouraging for those that think exclusivity deals are a terrible idea and terrible for the industry.
“I would agree that is hard to imagine” The Elder Scrolls VI restricted to Microsoft platforms, Howard said in response to a direct question on the matter.
Elsewhere in the interview, Howard admits that the parties haven’t fully discussed the details of multiplatform publishing as part of the purchase deal, which won’t be finalized until next year. “We haven’t gone through all of that, to be honest,” he said. Howard also stressed Bethesda’s autonomy to “[run] our games and [push] everything the way that we have,” even as a Microsoft subsidiary. “We felt very strongly about their view of access; games for everybody that we can bring to anybody regardless of where they are, what devices they’re playing on. We’re very, very passionate about that, and at the end of the day we’re convinced we’ll make better products and get them to more people easily by being part of Xbox as opposed to being just a third party.”
But that’s still not really a firm answer. Bethesda’s vision can be whatever it wants, but its part of Microsoft now. If you’re into reading industry tea leaves, it doesn’t look like there are any serious plans by Microsoft for locking up these beloved franchises. But sans a commitment by the company to not do so, there is still much worry that access to them may go away for many.
Why anyone would think that would push more people to buy an Xbox in significant numbers is an mystery.
Comcast’s latest effort to grow even larger is spooking even the company’s investors. “Growth for growth’s sake” has been the mantra of the telecom and TV sectors for years. Once growth in any particular market (like broadband) saturates, companies begin nosing about for efforts to grow larger in other sectors, even if it it’s well outside of their core competencies (see Verizon Sugarstring, Go90). Unfortunately for the end user, such growth isn’t accompanied by any meaningful parallel investment in quality product or customer service, a major reason so many users “enjoy” Comcast services today.
At the same time, this growing power results in increased efforts to thwart any effort to rein in this power, leaving oversight of the natural monopolies more precarious than ever (see: net neutrality). That’s exceptionally true for Comcast, where the one-two punch of fading state and federal oversight, expiring NBC Universal merger conditions from its last 2011 megadeal, and a growing monopoly over broadband is forging a perfect storm of trouble.
Comcast’s latest gambit came over the weekend, when the nation’s biggest cable operator toppled 21st Century Fox with a $39 billion for Sky broadcasting, Europe’s biggest pay TV operator. But even Wall Street stock jocks, traditionally more than happy to cheerlead mindless growth for growth’s sake, have become nervous about the expansion, worrying that Comcast’s overseas exploits are little more than a pricey distraction:
“Craig Moffett, an analyst at MoffettNathanson LLC, downgraded Comcast?s stock Monday to neutral, saying the company had ?grossly overpaid for Sky.? Timothy Horan, an analyst at Oppenheimer, also downgraded Comcast?s stock, citing the company?s need to invest instead in the U.S., where it faces growing competition from wireless and online TV rivals.”
?It?s going to be incredibly hard to justify having paid such a high price,? Moffett said in an interview Sunday. ?This is an asset that neither Disney nor Comcast investors wanted to win.?
Comcast stock price took a major tumble as a result. The biggest problem for many investors is debt. Like AT&T’s acquisition of Time Warner, the deal saddles Comcast with so much debt it’s going to be forced to cut corners on other fronts in order to shore up the losses. Usually, at least in telecom, that results in cuts to customer service. It also results in companies nickel and diming captive customers harder than ever, whether that means usage caps and overage charges, bullshit fees, or even charging users more money if they want to protect their own privacy.
As you might expect, Comcast tried to put a more positive spin on its latest looming acquisition, company CEO Brian Roberts bubbling over about the overseas expansion:
“This is a great day for Comcast. Sky is a wonderful company with a great platform, tremendous brand, and accomplished management team. This acquisition will allow us to quickly, efficiently and meaningfully increase our customer base and expand internationally. We couldn?t be more excited by the opportunities in front of us. We now encourage Sky shareholders to accept our offer, which we look forward to completing before the end of October 2018.”
The problem, of course, is the same one Comcast has always faced. Its ragingly incompetent customer service has made it the laughing stock of the tech industry for the better part of the last decade. What Comcast actually needs is to pause, invest in overall quality and support, and focus on its core competencies. But because traditional broadband is never profitable enough, quickly enough for Wall Street, Comcast executive eyeballs are always fixed everywhere other than fixing some of the company’s many, fatal flaws.
As you almost certainly know by now, earlier this week Microsoft announced that it was acquiring Github. There’s been plenty of hand-wringing about this among some. Microsoft has a pretty long history of bad behavior and so many of the developers who use Github don’t have much love or trust of Microsoft, and thus are perhaps reasonably concerned about what will happen. While I’m disappointed that another interesting independent company is being snapped up by a giant, I’m not completely convinced this will be a bad thing in the long run. Microsoft is a fairly different company than it was in the past, and there are reasons to believe it should know enough not to fuck things up. Alternatively, if it does fuck it up, it’s really not that hard for a new and innovative company to step into the void (and certainly, others are already jockeying for position to attract disgruntled Github users).
For this post, however, I wanted to point to three different reports in reaction to the news — because I was fascinated by all three of these takes. More specifically, I found two of them thought-provoking, and one laugh-inducing. And it made me realize just how poorly many non-specialized reporters understand the stuff they’re reporting on, while how those who have a really deep and implicit understanding of things provide so much greater insight. Let’s start with the laugh-inducing one, before moving on to the thought-provoking. The hilariously bad take is found as an editorial in the Guardian, which has already been corrected once for falsely claiming that Github was open source software, rather than that it hosted open source software (among other things). But the really insane paragraph is this one:
GitHub, by contrast, grew out of the free software movement, which had similar global ambitions to Microsoft. The confused ideology behind it, a mixture of Rousseau with Ayn Rand, held both that humans are naturally good and that selfishness works out for the best. Thus, if only coders would write and give away the code they were interested in, the results would solve everyone else?s problems. This was also astonishingly successful. The internet now depends on free software.
Confused ideology? Mixture of Rousseau with Ayn Rand? What the fuck are they talking about? And then after noting how free software has been phenomenally successful, it then says this:
But the belief that everyone coding would solve anyone?s problems has been shown up as completely ludicrous. If anything, computer literacy has declined over the generations as computers have got easier to use. In the heyday of Microsoft, almost everyone knew some tricks to make a computer do what it should, because almost everyone had to if they wanted to get anything done. But hardly anyone today has the first idea of programming a mobile phone. They just work. That?s progress, but not in the direction some idealists expected. Significant open source software is now produced almost entirely by giant commercial companies. It solves their problems but could be said to multiply ours. Huge cultural and political changes are presented as technological inevitabilities. They are not. The value of GitHub lies not in the open-source software it hosts, which anyone could copy, but in the trust reposed in it by users. It is culture, not code, that?s worth those billions of dollars.
The whole piece seems premised entirely on a near total misunderstanding of the reasons why people use Github, the ethos of free software, and well… just about everything. Of course it’s culture that’s important… but it’s so odd that this editorial goes out of the way to insult a strawman culture it believes permeates Github, while then claiming that it’s what’s valuable.
So let’s move on to the better takes. I’ll start with Paul Ford who is, hands down, the absolute best, most thoughtful, insightful and thought-provoking writer about technology issues around. His piece for Bloomberg Businessweek, entitled GitHub is Microsoft’s $7.5 Billion Undue Button is truly excellent. It not only does one of the best jobs I’ve seen in explaining Github for the layman, but does so in the context of explaining why this deal makes sense for Microsoft. Amusingly, I think that Ford is making the same point that the Guardian’s editorial was trying to make, but the difference is that Ford actually understands the details, whereas whoever wrote the byline-less Guardian editorial clearly does not.
GitHub represents a big Undo button for Microsoft, too. For many years, Microsoft officially hated open source software. The company was Steve Ballmer turning bright colors, sweating through his shirt, and screaming like a Visigoth. But after many years of ritual humiliation in the realms of search, mapping, and especially mobile, Microsoft apparently accepted that the 1990s were over. In came Chief Executive Officer Satya Nadella, who not only likes poetry and has a kind of Obama-esque air of imperturbable capability, but who also has the luxury of reclining Smaug-like atop the MSFT cash hoard and buying such things as LinkedIn Corp. Microsoft knows it?s burned a lot of villages with its hot, hot breath, which leads to veiled apologies in press releases. ?I?m not asking for your trust,? wrote Nat Friedman, the new CEO of GitHub who?s an open source leader and Microsoft developer, on a GitHub-hosted web page when the deal was announced, ?but I?m committed to earning it.?
But perhaps most interesting in Ford’s piece is that, while it understands why Microsoft is doing what it’s doing, it’s also a bit wistful of how he’d always kind of hoped that Github would become something more — something more normal, something that applied to much more of what everyone did. While it doesn’t directly say it, it does imply that that dream probably won’t happen with Microsoft in control.
I had idle fantasies about what the world of technology would look like if, instead of files, we were all sharing repositories and managing our lives in git: book projects, code projects, side projects, article drafts, everything. It?s just so damned???safe. I come home, work on something, push the changes back to the master repository, and download it when I get to work. If I needed to collaborate with other people, nothing would need to change. I?d just give them access to my repositories (repos, for short). I imagined myself handing git repos to my kids. ?These are yours now. Iteratively add features to them, as I taught you.?
For years, I wondered if GitHub would be able to pull that off?take the weirdness of git and normalize it for the masses, help make a post-file world. Ultimately, though, it was a service made by developers to meet the needs of other developers. Can?t fault them for that. They took something very weird and made it more usable.
The final thought provoking piece comes from Ben Thompson at Stratechery, who sees the clear business rationale of Microsoft’s decision. Microsoft built its entire business as a platform for developers (who it sometimes treated terribly…). But as we’ve moved past a desktop world and into a cloud world, Microsoft has much less pull on developers. Github brings it tons and tons of developers.
Go back to Windows: Microsoft had to do very little to convince developers to build on the platform. Indeed, even at the height of Microsoft?s antitrust troubles, developers continued to favor the platform by an overwhelming margin, for an obvious reason: that was where all the users were. In other words, for Windows, developers were cheap.
That is no longer the case today: Windows remains an important platform in the enterprise and for gaming (although Steam, much to Microsoft?s chagrin, takes a good amount of the platform profit there), but the company has no platform presence in mobile, and is in second place in the cloud. Moreover, that second place is largely predicated on shepherding existing corporate customers to cloud computing; it is not clear why any new company ? or developer ? would choose Microsoft.
This is the context for thinking about the acquisition of GitHub: lacking a platform with sufficient users to attract developers, Microsoft has to ?acquire? developers directly through superior tooling and now, with GitHub, a superior cloud offering with a meaningful amount of network effects. The problem is that acquiring developers in this way, without the leverage of users, is extraordinarily expensive; it is very hard to imagine GitHub ever generating the sort of revenue that justifies this purchase price.
Thompson’s piece (among many other good insights) suggests why developers might not need to fear Microsoft’s ownership, because of all the potential acquirers, Microsoft probably has the least incentive to ruin Github:
This, by the way, is precisely why Microsoft is the best possible acquirer for GitHub, a company that, having raised $350 million in venture capital, was possibly not going to make it as an independent entity. Any company with a platform with a meaningful amount of users would find it very hard to resist the temptation to use GitHub as leverage; on the other side of the spectrum, purely enterprise-focused companies like IBM or Oracle would be tempted to wring every possible bit of profit out of the company.
What Microsoft wants is much fuzzier: it wants to be developers? friend, in large part because it has no other option. In the long run, particularly as Windows continues to fade, the company will be ever more invested in a world with no gatekeepers, where developer tools and clouds win by being better on the merits, not by being able to leverage users.
My own take is somewhere between all of these. As soon as I heard the rumor, I started thinking back to the famed Steve Ballmer chant of “Developers, Developers, Developers!”
Microsoft has always needed developers, but in the past it got them by being the center of gravity of the tech universe. A huge percentage of developers were drawn to Microsoft because they had to develop for Microsoft’s platform. That allowed Microsoft to get away with a bunch of shady practices that certainly created a bunch of trust issues (Facebook might want to take note of this, by the way). Nowadays, in the cloud world, Microsoft doesn’t have that kind of leverage. It’s still a massive player, but not one that sucks in everything around it. And, it does have new leadership that seems to understand the different world in which Microsoft operates. So it will be interesting to see where it goes.
But, as someone who believes in the value of reinvention and innovation among the tech industry, it’s not necessarily great to see successful mid-tier companies just gobbled up by giants. It happens — and perhaps it clears the field for something fresh and new. Perhaps it even clears the field for that utopic git-driven world that Ford envisions. But, in the present-tense, it’s at least a bit deflating to think that a very different, and very powerful, approach to the way people collaborate and code… ends up in Microsoft’s universe.
And, as a final note on these three pieces: this is why we should seek out and promote people who actually understand technology and business in understanding what is happening in the technology world. The Guardian piece is laughable, because it appears to be written by someone with such a surface-level understanding of open source or free software that it comes off as utter nonsense. But the pieces by Ford and Thompson actually help add to our understanding of the news, while providing insightful takes on it. The Guardian (and others) should learn from that.
On the campaign trail, you might recall that Donald Trump threatened to block AT&T’s $89 billion acquisition of Time Warner, insisting that the deal was “an example of the power structure” he was fighting, because it would deliver “too much concentration of power in the hands of too few.” Granted he subsequently appointed an FCC chairman in Ajit Pai who’s little more than a rubber stamp for companies like AT&T, and nominated an antitrust boss already on record stating he has no real problems with the merger, leading most analysts to believe the deal will be approved anyway.
There are of course a number of legitimate reasons to block the deal, including concerns that AT&T will make licensing access to necessary programming more difficult than ever for streaming video competitors. Or the fact that AT&T’s using its dominance in wireless to give Time Warner content an unfair advantage over competitors via usage caps and overage fees (aka “zero rating”). It would be foolish to think a company with such a rich history of anti-competitive and anti-consumer behavior wouldn’t use this greater size and leverage anti-competitively.
But these are complicated nuances it’s not-terribly-likely the current President actually understands. Instead, his focus in recent months has been the fact that he doesn’t like Time Warner-owned CNN’s critical coverage of his administration, and, according to the New York Times, hopes to use the deal as “leverage” to force CNN to soften its critcism of the President as part of his broader assault on the media:
“White House advisers have discussed a potential point of leverage over their adversary, a senior administration official said: a pending merger between CNN?s parent company, Time Warner, and AT&T. Mr. Trump?s Justice Department will decide whether to approve the merger, and while analysts say there is little to stop the deal from moving forward, the president?s animus toward CNN remains a wild card.”
Other news outlets noted that the Trump administration is also contemplating demanding the ouster of current CNN boss Jeff Zucker in exchange for approving the deal. The news was quick to result in letters to the DOJ from several Senators who claimed Trump was “interfering” in an approval process that should be left up to regulators and the DOJ to decide:
“Any political interference in antitrust enforcement is unacceptable,” Minnesota Sen. Amy Klobuchar wrote in a letter to Attorney General Jeff Sessions. “Even more concerning, in this instance, is that it appears that some advisers to the President may believe that it is appropriate for the government to use its law enforcement authority to alter or censor the press. Such an action would violate the First Amendment.”
If you’re at all familiar with the ethical behavior over at AT&T (like the times it ripped off a program for the hearing impaired or made bills harder to understand to help criminals scam its own customers), it would certainly be in character for AT&T to agree to trample the editorial firewall between itself and CNN to get the deal done — it just wouldn’t be stupid enough to put any such agreement in writing. As the net neutrality fight makes clear, telecom giants aren’t particularly concerned about the whole free speech thing (check out Verizon’s first foray into tech content, for example).
AT&T’s also a world-class expert at making utterly bogus claims when it comes to its latest megamergers, consistently claiming such deals will lower prices, expand broadband coverage and create oceans of new jobs (telecom megamerger history makes it abundantly clear the exact opposite almost always occurs). Given some similar expertise over at the Trump camp, there’s an incredible opportunity for some amazing bullshit here; an opportunity Trump likely won’t want to waste by continuing what’s become an arguably unhealthy fixation on CNN.
The likely outcome is that we’ll get to have our rotten cake and eat it too: a torrent of bogus job and broadband expansion promises the likes of which we’ve never seen before — and a CNN left bridled by a meddling new corporate parent focused exclusively on currying favor in the Trump administration to anti-competitive benefit. Just think of the incredible potential for synergies…and bullshit.
EA, a company right up there with Comcast in terms of consumer disdain, has a long and proud history of gobbling up talented developers, then either obliterating them outright, or homogenizing them until the products are the very pinnacle of bland. Studios like Bullfrog, Westwood Studios, and Origin were all near legendary game developers when acquired, but are now little more than fond memories after ham-fisted attempts to cash in on the catalogs (Ultima IX, anyone?). Other studios like Maxis were similarly legendary, but now struggle to put out rushed, highly-flawed simulacrum under the EA banner.
After twenty years of such stumbling, scorched-earth acquisitions, EA’s bloated belly appears to be full, and the company has finally decided that perhaps it should focus on developing content with the acquired talent army it already has. Company CFO Blake Jorgensen would even go so far as to admit EA’s history with such acquisitions is “marginal” at best:
“I think our history with acquisitions is somewhat marginal in performance,” Jorgensen said when asked if EA has identified any acquisition targets in the industry. “We have some that are spectacular, and some that didn’t do so well. It’s a headcount business, right? You’re buying headcount, and that’s always difficult to manage in acquisitions. It doesn’t mean we won’t do them, but I think where we’ve been most successful is in smaller acquisitions that we’ve integrated very quickly.”
In other words, EA finally has all the talent it needs to keep rolling out barely-interesting Madden after Madden updates (shielded from competition via their exclusive NFL arrangement) and a decade of new, semi-interesting Star Wars games courtesy of its deal with Disney. If EA’s stock is any indication, investors think EA has learned a thing or two about making friends with consumers, and the company claims it’s working hard to change its customer reputation in the market (EA gave away several free games as a promotional effort over the weekend). Though dysfunction may just be grafted to EA’s genetic code, 2015 might be the year that Ubisoft steals EA’s consumer annoyance crown.
