New news in the craft beer world.
So, how do we break up a near-monopoly? And should we? History teaches us some lessons on both sides of this argument with one of its most impactful anti-trust conflicts ever.
In 1974, the U.S. government was dealing with a lawsuit against the dominance of the AT&T Corporation, who was invested in, and controlling, both national and local telephone companies through the Bell Operating Companies as well as manufacturing most of the hardware through its subsidiary, Western Electric. They were so dominant that new carriers and manufacturers couldn’t enter the market competitively, develop technologies, or offer innovative services. As a result, the DOJ decided to break up “Ma Bell” in 1982, giving them the freedom to dominate long-distance, while returning local and regional services to the Bell Companies, and divesting from Western Electric. The “Baby Bells” formed separately, and AT&T’s value was reduced by about 70%.
Following the break-up, Sprint and MCI entered the market with gusto, and AT&T was given permission to enter computer systems as a new venture for their technology and hardware. Western Electric split into Luscent and Nokia, which became hardware competitors offering new choices. Prices for local rates went up because they were no longer subsidized by long-distance rates, but long-distance rates dropped and we got Voice over Internet Protocol (VoIP) technology out of the deal.
Meanwhile, television broadcast had to shift toward more local delivery channels, which created demand for satellites. And as dial-up internet entered the marketplace, one of the Baby Bells, SBC Communications, became profitable enough against AT&T’s more confined operations that it was able to purchase it and form what we now know as the legacy AT&T provider.
All of these things are currently happening organically in the marketplace for beer. And it’s not because we’re breaking up ABI. It’s because we’re breaking up three-tier laws. And that’s naturally eroding ABI’s market share—in some cases, significantly—because it’s spurring on new competition. But it’s not creating new beer factories, it’s creating new models and paths to market that compete for the same consumers.
Comparing the AT&T scenario to ABI in the beer industry, there are significant differences, but also similar demands. ABI’s ZX Ventures is its own attempt at creating innovation and disruptions, at times even to its own core business. The very existence of such a group is a telltale sign that ABI isn’t in monopoly/protect mode. Rather, it’s seeking new ways to stave off stagnation and stay ahead of competition.
[Disclosure: ZX Ventures is an investor in October, a project owned by Conde Nast in which GBH serves as Executive Producer. We have no working relationship.]
Indeed, many of the companies ZX has invested in are intended to lead the next wave of consumer experiences through digital platforms like RateBeer (the jury’s out on what that value might be) and digital delivery services like BeerHawk in the UK (that one is convenience if nothing else). They seem to favor investments in non-U.S. countries where three-tier laws are looser or non-existent, and where those investments are able to re-shape the value chain. These are the kinds of things legislators want to see if they’re to be convinced that the market is dynamic and productive despite the apparent threat of dominance and vertical integration.
But because ABI is now acquiring and exploiting smaller parts of the ecosystem in a decentralized method of growth and influence, a new understanding of the ecosystem is needed for the original intent of three tier and anti-trust to continue being realized. It’s not just producers, wholesalers, and retailers anymore. It’s as gnarly a web as ever, and ABI is far ahead of the game in that respect—an advantage of their large pockets and tolerance for risk. As a result, they will likely define it for the next decade.