AT&T and Time Warner: The Merger That May Not Happen

Jake Altobello – The future of major media mergers, conglomerates and corporate power will be decided in the showdown between the Department of Justice and AT&T. The case, filed by the DOJ as U.S v. AT&T Inc., seeks to block the $85.4 billion bid submitted by AT&T to purchase Time Warner. The DOJ contends that consumers would face higher prices for cable or satellite television subscriptions because of AT&T’s ability to charge more for licensing of valuable programming. It is also argued that the merger of AT&T and Time Warner would stifle innovation from online streaming firms that presently compete with AT&T. As such, the DOJ argues the merger would be in violation of Section 7 of the Clayton Act, 15 U.S.C. §18. This stance taken by the Justice Department regarding antitrust issues not only differs significantly from the Obama Administration, but has the potential to greatly broaden antitrust enforcement in cases with companies that do not compete against each other.

The Lawsuit

With the appointment of a new administration under President Trump, the Department of Justice has taken a different tone with potential mergers of major media companies. While the Obama Administration showed restraint in quashing mergers, such as Comcast’s purchase of NBCUniversal, the Trump Administration seems determined to nix major media mergers that potentially hurt consumers. AT&T, already one the largest internet and telephone providers in the United States, became the largest television distributor in the United States with its acquisition of DirectTV in 2015. Due to the extensive reach AT&T already has in the television market, the Justice Department argues that the union of Time Warner and AT&T would harm consumers and weaken competition. In their complaint, the Justice Department distinguished this merger with that of Comcast’s in 2015 by stating that the present one is much larger in scope, reaching nearly one-third of the country.

The DOJ faces a unique hurdle in their antitrust claim, however, due to the nature of both companies in question. Time Warner, largely a content business with control over HBO, TNT and TBS, does not directly compete with AT&T which is largely a media-distribution business. The Department of Justice argues in their complaint that with the distribution means AT&T already possesses through DirecTV, the addition of Time Warner’s expansive content would give them an anticompetitive advantage. In response to these claims, AT&T asserts that the deal with Time Warner would make film and TV more affordable for consumers. Additionally, due to the extremely competitive nature of the video marketplace, AT&T argues their merger with Time Warner would do little to slow these competitive forces.

Impact on the Industry

Notwithstanding the uniqueness of the antitrust suit with AT&T, and its potential legal ramifications, the economic implications are resounding in such a dynamic and shifting industry. Whether the DOJ is successful in prohibiting the merger proposed by AT&T may drastically change the business models many traditional media companies employ to compete with streaming technology companies such as Netflix. Just a month after the DOJ filed suit against AT&T, Disney purchased a majority of Century 21st Fox assets. This is yet another example of a large media conglomerate purchasing more assets to potentially position themselves into the ever-expanding digital streaming industry. The reluctance in allowing a merger such as the proposed AT&T/Time Warner merger should put a chill in many large, traditional media companies vying for consumers who flock to technology based media companies. With existing companies like Netflix, who have an established distribution chain and extensive content, companies like AT&T may not be able to successfully compete against them without acquisition of content. The litmus test moving forward will be the success of this antitrust case from the DOJ, and whether they intend to pursue the same course of action against Disney.

 

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