AT&T faces off with the Justice Department Monday in federal court hoping to succeed in its $85.4 billion bid for Time Warner.
The Justice League could have resolved this battle in an epic way.
Instead, AT&T’s fight to buy Time Warner — home to DC Comics heroes Batman, Superman and Wonder Woman, as well as HBO’s Game of Thrones and CNN — heads to a high-stakes throw-down with the Trump administration in the quieter confines of a Washington, D. C. courtroom Monday.
The nation’s largest telecom company, which counts one-third of Americans among its wireless customers, wants to convince the court that its $85 billion deal for buying media powerhouse Time Warner will help consumers. Its opponent, the Department of Justice, says the deal must be stopped.
The stakes are high for AT&T and could change how viewers watch the next decade of TV shows and movies — and how they pay for it. An AT&T victory would give the bigger company the firepower to produce more and better streaming services and it could open the floodgates to more entertainment deals. But it also, according to the Trump Administration, could raise costs for consumers.
The case is the most important antitrust case since those that led to the breaking up of AT&T, completed in 1984, and the DOJ’s attempt to block Microsoft from using its Windows operating system to monopolize software such as Web browsers on computers.
And consumers can follow along because the case “is about things consumers do every day,” said Jeffrey Blumenfeld, a partner with Lowenstein Sandler in Washington, D. C. He was a DOJ trial attorney in the AT&T divestiture case. “People are streaming Amazon and Netflix and are watching stuff on cable…. So it’s a good opportunity to see what antitrust is about in these areas… what is pro-competitive and what is not.”
In the 1½ years since AT&T announced its intentions to acquire Time Warne, the Dallas-headquartered communications and media company’s motives for the merger have intensified.
Revenues have stagnated in the saturated wireless industry, and so too has traditional pay-TV revenue from AT&T’s DirecTV satellite service and U-verse fiber-delivered TV service. Adding Time Warner’s immense and valuable library of movies, TV and live programming would expand AT&T’s ability to offer new streaming video services to the growing mobile and non-traditional video audiences.
That could be all-important for consumers, because without the deal, AT&T and Time Warner separately could be left weaker, compared to competitors such as Comcast and Disney, and less willing to deploy new services or green-light new movies and TV series — an argument made by the companies and analysts covering the sector.
Conversely, the Justice Department contends the merger is anti-competitive and would raise costs for TV operators wanting to distribute Time Warner content, increases that would likely be passed on to consumers.
Looming over the trial is the Trump factor. The president has said the merger would concentrate too much market power in one company. “AT&T is buying Time Warner, and thus CNN, a deal we will not approve in my administration,” he said in October.
Trump’s animus for CNN is well-known. He has repeatedly called Time Warner-owned CNN “fake news” and, son-in-law Jared Kushner, in meeting with Time Warner executives in February 2017, brought up concerns the network’s coverage was unfair to the administration.
In search of any evidence of White House pressure on the DOJ, AT&T asked the judge overseeing the case for access to White House correspondence, which the judge denied. Still, it’s likely the issue will be brought up during the trial.
Among the signs of escalating market intensity is a move by Disney to expand its own media empire. Two newsubscription streaming services are in the works: ESPN Plus, expected to launch this spring, and a service with Disney, Pixar, Lucasfilm and Marvel films and original TV series next year.
Beyond that, Disney has made a $52.4 billion bid for a collection of 21st Century Fox’s assets including its movie and TV studios, FX and National Geographic channels, and its 61% stake in U. K.-based TV and Internet provider Sky. Sky is considered so vital to future international growth and distribution that Comcast has made its own counteroffer for the company.
Speaking of Comcast, AT&T likely watched with envy the broadband and TV provider’s recent broadcasts of the Winter Olympics, which demonstrated how Comcast’s addition of NBC Universal (completed in 2013) could pay off with improved programming and services that may entice new subscribers and dissuade cord cutters.
Consumers could expect similar innovations from a combined AT&T-Time Warner, says Larry Downes, project director of the Georgetown Center for Business and Public Policy. Conversely, if the deal is denied, consumers may see fewer new services from AT&T and a decline in TV shows and movies from Time Warner, he says.
“If Time Warner doesn’t have the distribution might behind it that AT&T offers,” Downes said, “(the studio will) be able to do less original programming, fewer deals with the sports leagues and the movie studio, which is already under tremendous pressure, is going to be more conservative” in terms of doing deals.
Downes agrees the DOJ’s argument that AT&T would substantially raise prices for Time Warner content — or pull it back from competitors — is flawed. “When you’ve paid for all that content, your incentive is to distribute it as widely as possible and the buyers know that,” Downes said.
In fact, AT&T argues that it needs this deal to remain relevant in the marketplace. A combined company could better compete with digital advertising giants Google and Facebook and growing video players such as Netflix and Amazon, the company says in its pretrial brief.
But the potential harms from the merger are real, Blumenfeld says. AT&T acquiring Time Warner “doesn’t add anything to the marketplace and it risks subtracting from the marketplace if they (AT&T) act rationally on their economic incentives after the acquisition,” he said.
