Corporate Welfare, Cronyism and Excess: The AccuWeather Case Study

            Bloomsburg BusinessWeek provides a thorough and distressing account of unsavory business practices originating in my small town.  See https://www.bloomberg.com/news/features/2018-06-14/trump-s-pick-to-lead-weather-agency-spent-30-years-fighting-it.  The article reports how President Trump has nominated Barry Lee Myers, CEO of AccuWeather, to lead the National Oceanic and Atmospheric Administration, which has the National Weather Service (“NWS”) under its aegis.  Might this candidate constitute the proverbial fox guarding the chicken coop? 

            AccuWeather adds value to a taxpayer underwritten, government function.  The company enhances the data it freely acquires.  I have no problem with that.  The company does not participate in a public private partnership, by investing funds in a joint venture with the government.  Instead, it masterfully executes a business strategy of adding human presentation and interpretation of weather data in a graphics-intensive, user friendly format.  So far, the company offers a case study in brilliant execution of a business plan. Bravo.

            Sadly, the company overreaches and has done so for years.  Its lobbying activities and advocacy in Washington, D.C. evidence a campaign to stifle the NWS from doing anything that could reduce the “wingspan” and profitability of the company’s products.  Simply put, AccuWeather wants Congress to restrict public dissemination of NWS-acquired and taxpayer-financed data. 

            Accuweather wants to prevent the NWS from any “retail,” direct-to-public data dissemination and analysis, particularly via direct Internet outlets and indirectly via social networks such as Facebook.  Here the company attempts to bite the hand that feeds it.  The possibility of more scrutiny of its business practices may risk its ability to pay nothing for the data it needs to create profitable products.

            AccuWeather appears unsatisfied with its considerable organic growth over many years.  It perceives the NWS as a competitor who offer content at zero additional cost even as AccuWeather wants payment for somewhat similar products. Already, the public does not see NWS employees on television, or the Internet except for the occasional interview on the Weather Channel and broadcast networks.  Likewise, the NWS web presence lacks the userfriendliness available from AccuWeather. 

            Here’s an example of the rarified product the NWS offers in its Forecaster Discussion section for State College, PA on July 15, 2018:

             "Potent cold front will plow SE through the NW mtns Late Tuesday morning and clear our SE zones late in the day. High PWAT air, increasing deep layer shear and increasingly diffluent flow aloft will set the stage for some strong to potentially severe TSRA depending on the amt of sunshine, CAPE and the exact timing of the cfront."

             They do offer a glossary, but clearly the NWS is no competitor to AccuWeather’s general consumer products.

            The BusinessWeek article shows how Accuweather has undertaken a long term and relentless campaign to limit the scope and reach of NWS work product.  In effect, AccuWeather wants to rely on the NWS for rough data, as evidenced by the dozens of satellite earth stations installed at company headquarters.  AccuWeather receives the data and converts it into something user-friendly and profitable for the company.  In AccuWeathers self-serving mindset, it constitutes rampant socialism and “mission creep” for the NWS to serve the public directly, particularly via the Internet even if a timely Facebook post might save lives.  AccuWeather does not want the risk of liability in being the sole forecaster and outlet for severe weather, but it surely wants social networks and other Internet-based sites as green fields for growth completely free of any government-supplied content.

            AccuWeather’s strategy shows how something smart can become too clever over time as as a company becomes increasingly aggressive in tactics to secure captive markets and growth.  Not content to further mine and extend its well established market presence, the company wants to throttle NWS public outreach.  This does not serve the national interest, because not everyone—even with the widespread use of smartphones—receives forecasts and urgent weather information from value added services like AccuWeather and the Weather Channel. 

            I get my weather forecasts via radio, but not from the fast-paced local inserts originating at the AccuWeather mother ship.  In many locales, the NWS transmits continuously in the Very High Frequency band (around 162 MegaHertz).  I’m sure AccuWeather would like to confiscate my radio, or failing that, to lobby Congress for legislation terminating this option.

What the Justice Department Got Wrong in Opposing the AT&T –Time Warner Merger

            In a previous post, I offered insights on grievous flaws in the court decision rejecting the Department of Justice’s (“DOJ”) opposition to AT&T’s acquisition of Time Warner.  See http://telefrieden.blogspot.com/2018/06/grievous-defects-in-at-warner-court.html  This post will address problems with DOJ’s strategy.

            Both Judge Leon and DOJ largely ignored the impact of market and technological convergence that makes it all but impossible to frame a merger with a completely vertical or completely horizontal designation.  These two types of mergers trigger vastly different assumptions including the view that horizontal mergers require far greater scrutiny based on the comparatively greater potential for harm to competition than vertical transactions among assumed non-competitors.

            Convergence makes the vertical vs. horizontal dichotomy unsustainable.  Even before acquiring Time Warner, AT&T was in the content business in a BIG, BIG way as a content aggregator.  Content aggregators are to content creators as wireless resellers are to facilities-based wireless carriers.  Of course, AT&T was and remains a content purchaser, but it was and remains a content packager fully participating in and affecting the supply and cost of content to consumers.

            Courts have identified conditional First Amendment rights in content packaging and curation (Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 636 (1994) (“There can be no disagreement on an initial premise: Cable programmers and cable operators engage in and

transmit speech, and they are entitled to the protection of the speech and press provisions

of the First Amendment.”) (see also Rob Frieden, Invoking And Avoiding The First Amendment: How Internet Service Providers Leverage Their Status as Both Content Creators and Neutral Conduits, 12 U.PA. J. CONST. L. 1279 (2010); available at: https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?article=1134&context=jcl.

            Even before its acquisition of Time Warner, AT&T operated as a content speaker, through its content aggregation, curation and tiering.  The company seamlessly integrated this content-based function with its content carriage function.  In this convergent time, it made no sense for DoJ to concentrate almost exclusively on AT&T’s upstream activities, as content seller.  By doing so, DoJ made it possible for Judge Leon to embrace the incorrect assumption that the merger would eliminate $352 million in content markup revenues that AT&T would not incur and which the Judge wrongly assumed would completely flow through to consumers.

            DoJ’s second major mistake was to emphasize what AT&T probably would do now that it became fully integrated, i.e., price discriminate by charging downstream competitors higher content prices.  AT&T is far too sophisticated and clever to use such a blunt and readily detected anticompetitive strategy.

            What AT&T can and already has begun to do is strategically exploiting its market dominance, particularly in downstream delivery of content to consumers.  It appears that DoJ did not emphasize that AT&T shares a near duopoly in the ever more important wireless marketplace along with a significant market share in wireline delivery of content. 

            The FCC’s decision to abandon all regulatory safeguards addressing the downstream delivery of content means that AT&T has free reign to use content tiering as a powerful weapon, potentially quite harmful to both consumers and competition.  It starts with seemingly benign, if not consumer friendly, zero rating of content and proliferating bundles of content.  Because consumers love the concept of “free,” even when it isn’t, AT&T can upsell consumers, or at least prevent them from cord shaving with strategic placement of most desired (what some would term “must see”) content.  That’s how DirecTV streams for free now, but only to AT&T subscribers of both wireless and DirecTV. 

            Some of the $352 million in reduced overhead payments will flow through to consumers, particularly those maintaining or increasing their monthly payments to AT&T.  The real harm from the merger with Time Warner lies in the extraction of more revenues by AT&T simply with strategies that reduce, or eliminate consumer surplus. 

            Even as it appears to offer skinny and low cost, small bundles of content, look for AT&T to migrate the “good stuff” to higher and more expensive programming tiers.  AT&T can justify the higher fees and higher tier placement by claiming that even it has to recoup the ever higher program creation costs of its stars, HBO and CNN.  What will be framed as consumer friendly bundling of content masks a strategy of increasing Average Revenue Per User and raising both content licensing fees and subscriber out of pocket costs.

           

            Depending on your political and economic philosophy, that’s smart business strategy, or anticompetitive behavior.  The former emphasizes the need for size and scale to offer one-stop shopping and a competitive response to Netflix, Hulu and Amazon Prime.  The latter emphasizes how much undetectable downstream content meddling AT&T can execute, particularly now that network neutrality safeguards have evaporated.  Bear in mind we still don’t know who or what caused Comcast’s network congestion that slowed and Netflix traffic in 2015.  We do know what the problem ended overnight when Netflix blinked first and agreed to a paid peering arrangement with Comcast.

            Lastly, not forget, long ago, Time Warner vertically integrated with AOL with disastrous consequences.  This time, it might be different, because the marketplace has become far more concentrated, particularly on the downstream side.