Back to the Future for the AT&T-Time Warner Merger

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U.S. District Judge Richard Leon recently greenlighted the $85 billion AT&T-Time Warner merger, while failing to impose any conditions or restrictions upon the massive media consolidation.

The merger, about which reports have circulated since late 2016, was publicly opposed by President Donald Trump as well as by the Department of Justice, which in the fall of 2017 went to court to stop the transaction.

After a six-week trial, Judge Leon ruled that the merger could move ahead, belittling the government’s legal arguments.

In an unusual expression for a jurist, Leon, who also presided over the Comcast-NBC-U mega-merger in 2011, went so far as to urge the government not to appeal the decision.

Antitrust law exists to prevent monopolies that could potentially stifle competition and harm consumers. When the same company owns the means of media production as well as the means of distribution of media content, antitrust issues arise.

This is not the first time that media companies have been met with legal challenges over simultaneous ownership of content and the means by which the content is delivered. In the 1940s, Hollywood studios produced motion pictures while owning the theaters in which the very films were being displayed.

In a 1948 decision, United States v. Paramount Pictures, Inc., the Supreme Court ruled that Hollywood studios would be required to sell off movie theater holdings.

The landmark decision essentially ended the studio system of the “Golden Age” of movies, while fundamentally altering the way in which Hollywood movies were produced, distributed, and exhibited. It also fostered the idea that “vertical integration” should be restrained by courts and, based on antitrust principles, barriers should be put in place between corporate ownership of both distribution and content.

With regard to the AT&T-Time Warner merger, the Trump administration had argued that the resulting conglomerate would create the same vertical integration-dual ownership issue that the old Hollywood studio system faced, and as a negative consequence consumers would end up paying more for their television viewing.

This was the same position with regard to the proposed merger that then-candidate Trump held during the 2016 presidential campaign.

In addition to potential risk to consumers’ pocketbooks, the entertainment business will be significantly affected by the AT&T-Time Warner combination. Allowing the merger to proceed in its present fashion will have profound ramifications for the manner in which entertainment companies compete with one other.

Owners of news, movie, and/or entertainment cable television channels, who wish to be well placed on the AT&T-Time Warner system, will be beholden to a company that has control over the delivery system while simultaneously owning competing channels.

Producers of content that competes with that of AT&T-Time Warner may need to have the content distributed via the merged company’s delivery system.

It is certainly within the realm of possibility that the merged company would advertently or even inadvertently favor channels and content which the enterprise owns.

The court’s decision in approving the merger may also embolden other Hollywood studios to pair up with telecommunications companies in order to effectively deal with the cash-rich tech companies that have invaded the entertainment space of late, e.g., Apple, Amazon, Google, and Netflix.

One relevant case in point is that of Comcast, which has jumped into the bidding for 21st Century Fox’s assets that Disney had already been in the process of negotiating to purchase.

Consumers generally have very few options when it comes to cable, satellite, and broadband services. AT&T provides broadband and television via a cable media delivery service, U-verse. It also owns a major satellite television provider, DirecTV.

By acquiring Time Warner, the company obtains a major movie and television studio, which includes the DC Comics’ franchises, Batman, Superman, and Wonder Woman, along with television programming on TBS, TNT, CNN, and HBO.

By owning content and delivery, the newly merged company has the same kind of vertical integration that the Court broke up years ago, when it forced movie studios to divest in the Paramount case.

 

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