In simple terms for what is anything but a simple series of events, AT&T and the Department of Justice (DoJ) have traded blows on projections for what the knock-on effects of the Time Warner merger will be on the US video market – for once putting consumers at the forefront of implications rather than the President’s personal opinions.
In initial filings prior to the March 19 court date, the DoJ believes it has hardened evidence to block the mega merger on the grounds of anti-competitive practices, alleging that consumers will have to pay millions of dollars more to view content should the deal complete, centered around Turner Broadcasting System assets.
AT&T and Time Warner have hit back against allegations that the merged entity intends to restrict rival pay TV operators’ access to Turner content, by saying such a move would negatively affect Turner’s business, not benefit it. The theory behind the antitrust complaint is the new company could “more credibly threaten to withhold” networks such as CNN, TNT and TBS from pay TV distributors, forcing them to pay higher programming fees and therefore hike end users’ subscription prices – enabling AT&T to raise the prices of its own TV offerings.
However, AT&T claims the DoJ’s allegations against Turner are no longer relevant due to being disproved by findings from a leading economics expert from the US government, stating “the licensing and advertising revenues AT&T would lose would vastly exceed any gains it might theoretically receive from denying rivals access to that programming.”
The economics expert has claimed the exact opposite will occur, finding the combined firm will “reduce its own consumer prices for DirecTV compared to what it would have charged.” The complexities of negotiations between TV programmers and distributors, in a constantly shifting market, surely make any forecasts on how the merger will influence Turner’s dealings virtually impossible to grasp. Our sympathies are with the judge.
Advertising revenues are struggling as we know, so putting Turner in a position to drive harder bargains with the likes of Comcast and Dish Network is an obvious benefit to AT&T and Time Warner. Yet the advertising and licensing losses it could suffer as a result of any restriction may be more catastrophic to the business in the long-term. Therefore, AT&T’s defense states the merged company could realistically not afford to make its programming less accessible, rather the entire premise of the deal is to vertically integrate in order to create more competition in the market against Netflix, Amazon and Google.
This is a new angle in the lawsuit, which was filed by the DoJ against AT&T and Time Warner in November, as it omits the previous precedent of the government seeking to block the merger due to President Trump’s biased views against Turner’s news network CNN. Now, the revamped case looks to have got back to the real matter at hand – whether consumers and rival companies will suffer.
AT&T is going all guns blazing into the impending court case, accusing the government of retreating to purely theoretical realms to block the merger – one with the potential to fuel further growth and innovations in OTT video.
To balance the argument, a government brief stated, “The acquisition would give AT&T a new tool to slow down the development and growth of disruptive online competitors in the future. The fact that this is an evolving industry does not provide a reason to let the challenged acquisition proceed. Just the opposite: it provides a compelling additional reason why it should be blocked.”
It has been written and regurgitated countless times, but it’s worth repeating that blocking the merger would be unprecedented – contradicting years of antitrust instances. “Modern antitrust law recognizes that mergers between suppliers, such as Time Warner, and distributors, such as AT&T, almost always create efficiencies and synergies that lead to lower consumer prices and greater innovation,” wrote AT&T’s filing.
“What remains of the government’s case, like a Persian cat with its fur shaved, is alarmingly pale and thin,” said AT&T, quoting the Schurz Communications case against the FCC back in 1992.