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AT&T And Time Warner: Why Cord-Cutters Could Get Screwed Either Way

If you’ve cut the cable cord, you shouldn’t be rooting for AT&T and Time Warner’s merger to succeed. But then, you might not be much better off if it doesn’t.

AT&T And Time Warner: Why Cord-Cutters Could Get Screwed Either Way
[Photo: plherrera/iStock]

Let’s assume for a few minutes that the government’s attempt to block AT&T from buying Time Warner isn’t motivated by politics.

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Maybe the Department of Justice has a point: Putting the nation’s largest TV provider—and second-largest wireless carrier—in charge of the company that runs HBO and Turner networks could lead to higher prices and fewer choices. That, in turn, could weaken the factors that have allowed cord-cutting to flourish over the past few years–namely, a decline in traditional pay-TV viewers and a wave of new streaming alternatives.

But even without AT&T, Time Warner could still move to increase its prices, especially if it turns around and merges with another major TV programmer. Unless the government becomes similarly opposed to mega-mergers between media companies–like the one that’s pending with Disney and Fox–cord-cutters could be worse off with or without a merged AT&T and Time Warner. Here’s why.

The Devil You Know

The DOJ’s main argument is that AT&T would would gain too much power over its pay-TV competitors if it owned Time Warner’s channels. To prop up its satellite-TV business—and its DirecTV Now streaming bundle—AT&T could, the DOJ argues, charge other providers more to carry Time Warner channels, such as HBO, TNT, and CNN. Those providers would then either be forced to forgo those channels or pass the costs onto customers, giving AT&T an unfair advantage.

That outcome seems unlikely, though. When Comcast bought NBCUniversal in 2011, the company was required to offer its channels to other TV providers under fair and reasonable terms for the next seven years. If a direct assault on competing services was the concern, the government could always impose similar conditions with this acquisition. AT&T has said it would agree to such conditions, which would at least curb the most blatant anticompetitive behavior.

However, AT&T’s real post-merger advantage will probably be more insidious. Instead of punishing competitors directly, the company could use its wireless and home internet businesses to steer customers toward its own content. This already happens today with DirecTV Now, which AT&T exempts from counting against wireless customers’ data caps. Down the road, AT&T could extend the same privileges to HBO or future services offered by Time Warner. And once carriers adopt 5G wireless technology, AT&T could bring the same uneven playing field to home internet users.

On the surface, these perks might seem beneficial. But in the long run, consumers would be worse off with their internet providers acting as content gatekeepers. Choosing the right provider would no longer be about price, reliability, and customer service, but about which one offers favorable terms for the customer’s preferred video service.

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In a way, this would bring us back to the cable-TV era, when competition was dictated largely by the companies controlling the data pipes. While AT&T says it needs this merger to compete with tech companies like Netflix and Google, wielding internet access as a gatekeeper power isn’t the right way to do it.

The Inevitable Merger

That’s not to say cord-cutters would be much better off with AT&T and Time Warner as separate entities. As analyst firm MoffettNathanson recently told investors, Time Warner will probably keep shopping itself around if AT&T’s bid fails. That could make it a target for other TV programmers such as CBS, Viacom, or Discovery, all of which are trying to bulk up for a content fight with digital companies like Amazon, Apple, and Netflix.

But while those traditional TV makers could launch their own standalone streaming services, it could be years before they provide anything truly competitive. Viacom, for instance, will only offer “library” shows (read: old shows) with its upcoming over-the-top product, and Disney’s upcoming ESPN service won’t have any programming that appears on its cable channels. For now, programmers still view streaming services as supplemental income, not an alternative to traditional TV service.

In the meantime, more mergers could spell trouble for streaming-TV bundles, which will become larger and more expensive as media companies gain more bargaining power. If Time Warner were to merge with Viacom, for instance, services like PlayStation Vue and Philo would have a tougher time excluding either cluster of channels like they do now. The same will be true with Disney should it be allowed to acquire Fox’s TV and movie business, and with Discovery, now that it owns Scripps Networks. Some TV executives are already declaring victory over cord-cutting; it’s hard to imagine them changing their tunes as their companies become larger and more powerful.

Hoping for Desperation

What’s the ideal outcome for cord-cutters, then? It might be best if the government took a stand against media mega-mergers in general, not just the vertical kind that AT&T and Time Warner are proposing.

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Some of the most disruptive events in TV have occurred when these companies feel threatened. Sling TV launched because Dish foresaw the decline of satellite TV. Hulu launched as a counterattack against piracy, with major TV networks forming an unusual alliance that has lasted for a decade. And HBO launched its standalone streaming service after Netflix surged ahead in U.S. subscribers.

For Time Warner, becoming part of AT&T or another media company provides a measure of security against a growing number of existential threats, and helps it uphold the status quo for a bit longer. In the event of a merger, perhaps the biggest risk to cord-cutters isn’t what might happen to today’s video services, but what new services might never exist at all.

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About the author

Jared Newman covers apps and technology for Fast Company from his remote outpost in Cincinnati. He also writes for PCWorld and TechHive, and previously wrote for Time.com.

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