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AT&T/Time Warner Case Will Be A Court Drama For The Trump Era

A federal district court in D.C. will hear arguments this week on whether the telecom giant’s bid to buy TW violates antitrust law. Not to mention whether the president’s distaste for CNN may muddy the legal waters.

AT&T/Time Warner Case Will Be A Court Drama For The Trump Era
[Photo: Claire Anderson/Unsplash]

On October 22, 2016, just a few short weeks before Donald Trump was elected president, AT&T announced that it would pay $85.4 billion for Time Warner in one of the biggest media deals of all time. The telecommunications giant’s leadership probably knew there might be some regulatory opposition to the deal, but it hardly could have predicted the political drama that would ensue. 

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The whole thing is being hashed out in a D.C. federal district courtroom this week. AT&T’s attorneys are facing off against those of the Justice Department, which filed suit in November alleging that the Time Warner deal violates antitrust law and would eventually result in higher TV prices for millions of consumers. But the real motivation behind the DOJ’s case may be personal and political agenda of Trump himself, who wants only the worst for his political nemesis, CNN, one of Time Warner’s key properties. Regardless of the motivations, the court’s decision in the case could have an enormous impact on the media landscape and the fate of future corporate mega-mergers.

“Vertical Integration”

The AT&T/Time Warner pairing is all about the controlling video content costs and bulking up for war against the internet TV players.

AT&T is, among many other things, a pay TV operator, distributing video through both its DirecTV subsidiary and its own U-verse fiber-based TV service. Like other pay TV providers, it pays for movie and TV show content rights from video content producers like Time Warner and Viacom. Those costs, experts say, must be renegotiated every year (sometimes sooner) and they only go up. The licensing rates are held up in part by Americans’ abiding love of Hollywood, celebrities, and professional sports–a passion consumers end up paying for in sky-high cable bills.

Large distributors like AT&T and Comcast believe that, in the long run, it’s less expensive for them to buy up the content producers. It was that idea that drove Comcast’s 2009 acquisition of NBC Universal. And recently, the Redstone family, which holds controlling shares in both CBS (distributor) and Viacom (content owner) has suggested those two companies recombine (they split apart a decade ago).

AT&T argues in its filing with the court that its proposed acquisition of Time Warner is a defensive move against the increasing threat of internet TV services like Netflix, Amazon, and YouTube. Those internet players started out as “over the top” video distributors that deliver content to your home TV on broadband pipes provided by ISPs like AT&T and Comcast. But those players also want to be both distributor and producer, and that’s why they began to produce their own shows like Netflix’s House of Cards and Amazon’s Transparent.

If the AT&T/Time Warner deal ends up getting approved, more mergers between video distributors and producers might follow. The media industry might contain fewer but much larger “vertically integrated” players.

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[Photo: courtesy of AT&T]

The Antitrust Case

The government’s response to the proposed deal is less straightforward. The DOJ states in its complaint that, if the merger goes through, AT&T would likely jack up the prices that other pay TV distributors pay for rights to Time Warner movies and shows. The high cost of Time Warner’s HBO, CNN, and TNT might then be passed on to pay TV consumers. AT&T could also prevent other pay TV operators from using the common marketing practice of luring customers with free HBO. The DOJ predicts a $436 million increase in the price that Americans pay for TV every year.

Those consequences wouldn’t surprise many people. But why would the government put the kibosh on an AT&T/Time Warner deal in a world where Comcast’s tie-up with NBC Universal was allowed (with some restrictions)?

Judge Leon said the big difference between the two cases is that Comcast’s cable network is only regional, while AT&T’s satellite service is available nationwide. This suggests more consumers might be impacted and that DirecTV has more content buying power and therefore more power to influence content prices market-wide.

But Comcast shouldn’t be painted as a small player compared to DirecTV.  AT&T reported 25.2 million video subscribers (the majority of them DirecTV customers) at the end of 2017 (down 1.1% from the year before), compared to Comcast’s 22.3 million.

Trump’s Cable Nemesis

Could there be some other reason for the DOJ’s opposition? There’s reason to think so. There’s no shortage of experts who believe the DOJ is acting on Trump’s behalf to punish CNN, which the president has publicly disparaged many times for its coverage of the 2016 election and his presidency. Former chief White House ethics lawyer (under George W. Bush) Richard Painter is one of them:

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The current administration came to power on a pro-business, deregulatory, let-the-market-work-it-out platform. So it’s a little confusing to see the government hurry to put the brakes on consolidation in the media industry.

Indeed the Obama-era DOJ that approved Comcast’s 2011 acquisition of NBC Universal was actually far more aggressive on antitrust than the current DOJ.

Many inside the DOJ reportedly see no problems with AT&T’s deal. Before Trump appointed him, DOJ antitrust chief Makan Delrahim had said publicly he believed the AT&T/Time Warner combination presented no “major antitrust problem.” Once in his new role, Delrahim pledged to keep politics out his agency’s review of AT&T/Time Warner.

Yet AT&T said in November (before the suit was filed) that the DOJ was pressuring it to sell off CNN as a condition for approval of the deal (adding that it had no intention of doing so). The pressure may have started much earlier when AT&T CEO Randall Stephenson was called to Trump Tower in January 2017 to discuss the deal with then-president-elect Trump.

AT&T’s lawyers claimed in a court filing that the DOJ was “selectively” applying antitrust laws, and sought to find out if it was acting on the White House’s behest. They asked that correspondence between the White House and the DOJ on the matter be entered into the record, but the judge presiding over this week’s case–Judge Richard Leon (appointed under George W. Bush)–denied the request. A group of senior House Democrats also sent a letter to Attorney General Jeff Sessions asking for the release of the White House’s correspondence with the DOJ, but to no avail.

And if, in fact, Trump is using the DOJ to punish CNN, how much sense does that really make? Would rejecting the deal somehow blunt the aggressiveness of CNN’s reporters and curtail their willingness to criticize the president? I doubt it. CNN isn’t starving for resources. If anything, it might be a scrappier news organization if owned by a smaller company.

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Just the perception that Trump may be borrowing a page from Nixon and wielding government agencies for his own political ends should have prompted Congress to step in with a formal review of the deal.  As it stands, we’ll be listening to this week’s arguments with an ear for hints of Trump’s political agenda and not necessarily the legal merits of  DOJ’s antitrust case.

The case’s potential impact on the shape of the media landscape, and the size of the nation’s cable bills, is enough reason to warrant paying attention. But the Trump factor makes it something else again. If the DOJ somehow succeeds, we’ll be left to wonder about the validity of the court’s decision, and whether the White House will be emboldened to go even further in using government agencies as political weapons.

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