Big things are happening in the entertainment and telecom industries that may soon affect your banking account.
The Department of Justice (DOJ) filed a lawsuit last November to block AT&T’s $85 billion acquisition of Time Warner. After both sides presented their cases in April, federal judge Richard Leon ruled in favor of the merger with zero conditions. Judge Leon stated that “the government has failed to meet its burden of proof to show that the merger is likely to result in a substantial lessening of competition.”
What’s strange about this lawsuit is that the DOJ has rarely, if ever, pursued cases against mergers between companies with different types of business. AT&T is primarily a telecommunications company, whereas Time Warner is an entertainment company.
This type of merger is called a “vertical merger.” Vertical mergers are often cited as means of benefitting consumers without removing competitors within a particular market. The DOJ often pursues cases against “horizontal mergers” which coalesce similar businesses and create a de facto monopoly in the market.
So what’s at stake? Basically, a decisive ruling for AT&T means that other tech and telecom giants can pursue other media acquisitions.
Comcast’s failed bid for Twentieth Century Fox is a good example of what’s to come. This merger deal would give AT&T control over major networks such as CNN, HBO, TBS, and TNT. AT&T would be both the content creator and content distributor, much in the same way Netflix operates.
This sounds good on the surface. Netflix has produced award-winning content and turned the entire Hollywood movie and TV industries on their heads. AT&T could do the same with the likes of HBO under its belt.
But here’s the problem: The DOJ just appealed the decision. The DOJ argues that AT&T could charge rival distributors more for Time Warner content, which translates to higher prices for consumers and less market competition. Let’s take a look at some of the reasons why the DOJ believes it is important to appeal this merger.
- AT&T’s History
AT&T says that they’ll be able to provide better and cheaper options to consumers with the merger. Yet, it is difficult to accept AT&T’s word that they would maintain a competitive market and ethical business practices.
The company was recently accused of using unethical business tactics when trying to sell their DIRECTV Now streaming services. A recent FCC report claimed that AT&T’s zero-rated video service offerings violated the FCC’s Open Internet Order.
AT&T offers companies the option to pay for AT&T to exempt the company’s data from customers’ data caps. Now that Time Warner is under AT&T rule, AT&T can use its network to prioritize Time Warner content and services over competitors just like it has with its current offerings.
Here’s an example: AT&T now owns HBO now, and it can compete directly with the likes of Netflix and Hulu. HBO now has a distinct competitive advantage because it can be excluded from data caps and prioritized by the AT&T network. AT&T has stated time and time again that they are competing with Netflix, which may cause less competition in the market.
What does that do for you? You may get a larger cable bill and probably fewer options in the future.
- The Beef Between President Trump and CNN
One of the reasons the DOJ may be pursuing legal action against the merger at all is the man who oversees the department: President Donald Trump. His persistent attacks against CNN, which is owned by Time Warner, may be the political motivation behind blocking the merger.
To say that President Trump and CNN are at odds with each other would be a massive understatement. On the one hand, the DOJ and President have every right to pursue an appeal on the grounds of antitrust laws. On the other hand, it is troubling that a President would utilize his executive power to prevent a merger due to political reasons. AT&T has even stated that they could use the court to reveal communications between the White House and antitrust officials to prove malintent.
Issues like this rarely avoid the run-through in today’s political climate. Barry Lynn, the head of the New America Foundation’s Open Markets program, says, “The way that antitrust is supposed to work is that you have professionals who are working from principled guidelines to keep these decisions out of the realm of politics. But the antitrust process can’t be completely apolitical.”
Makan Delrahim, the DOJ’s top antitrust official, was forced to sign an affidavit during the trial that stated that the White House did not influence the case. Despite that effort by the court, it seems political influence may be a motivating factor in bringing this case to court.
- Lobbying and Concentration of Power
A big fear is that telecom companies could utilize their massive trove of financial resources to lobby for looser regulations. A current example is the appointment of long-time Verizon Wireless executive, Ajit Pai, to the head of the Federal Communications Commission.
It is ironic that Ajit Pai was appointed to head the FCC, since his conflict of interest represents a major threat to the competitive landscape of the internet. The entire purpose of the DOJ’s lawsuit and appeal is to make sure AT&T does not limit the competition within the telecom and entertainment industries. Ajit Pai recently came under fire after pushing through and approving the removal of Net Neutrality rules, which allow for even competition across the internet. (Read more about Net Neutrality here.)
If telecom companies are allowed to get bigger and bigger, money will become more concentrated, and their political lobbying power will increase as a result. This spells trouble for consumers, since corporations do not always have consumers’ best interests in mind.
What Happens Now?
The problem with this appeal by the DOJ is that it is likely to fail. Despite a likely loss by the DOJ, the point of the appeal is to put similar future mergers on notice.
If the DOJ were to win somehow, then AT&T would have to split off their Time Warner assets. However, the merger deal technically closed last month, and assets have already merged.
The big problem with telecom companies owning content companies is that a majority of content companies rely on the data services from the likes of AT&T and Verizon. Telecom companies could become gatekeepers to all content and limit what consumers receive. Nilay Patel at The Verge believes that this could be one of the worst antitrust court decisions ever simply because of the ramifications for future video content distribution.
Regardless of the outcome, this type of deal will become more commonplace as TV companies lose ground to online streaming content. This means more and more companies will be vying for your attention with quality content.