There’s No Antitrust Case Against AT&T
The Justice Department announced Monday that it would file an antitrust lawsuit in federal court to stop the proposed merger of AT&T and Time Warner . In the days before the news broke, experts suggested such a challenge was likely to fail under current law. But the poverty of the government’s case is also a matter of economics.
The Justice Department asserts that “vertically integrating” AT&T’s distribution network with Time Warner’s content would make the merged company too powerful. The combined firm could raise the prices that AT&T’s competitors pay to carry Time Warner content on their networks. Or it could altogether withhold popular Time Warner programming, like CNN or HBO. Both of these claims miss the mark.
Withholding Time Warner content from competitors would make no financial sense. AT&T has agreed to pay $85 billion for Time Warner. More than half of Time Warner’s revenue, $6 billion last year, comes from fees that distributors pay to carry its content. Because fewer than 15% of home-video subscriptions are on networks owned by AT&T (DirecTV, U-verse, and DirecTV Now), the bulk of that revenue comes from other providers.
In other words: Calculated using expected revenue, AT&T is paying $36 billion for the portion of Time Warner’s business that comes from AT&T’s competitors. The theory seems to be that the merged company would simply forgo this revenue in a speculative hope that withholding Time Warner content from distributors would induce masses of viewers to switch to AT&T—and maybe, one day, put competitors out of business. That this strategy would actually work is unfathomable. “Game of Thrones” is good, but it isn’t that good.
Worth noting, too, is that Time Warner itself is already vertically integrated: It both produces content (such as Warner Bros. films) and distributes it through channels such as HBO, the CW and TBS. Still, some of Time Warner’s most valuable shows are available through unaffiliated distributors including Showtime, Netflix , Amazon and Fox. In fact, one of the highest-grossing film franchises in history, the Warner Bros. “Harry Potter” series, is available on cable exclusively on Disney’s Freeform channel. Next year a new deal will take effect and “Harry Potter” will be exclusive to NBCUniversal channels. This hardly seems anticompetitive.
AT&T is even less likely to withhold content that isn’t considered “must have”—like CNN, for starters. Sure, CNN is popular, but news sources abound. In TiVo’s most recent Video Trends Report, CNN doesn’t crack the top 25 of most desired channels. People watch it when it’s included in a basic cable package, but few are willing to pay for it particularly. Any strategy of “CNN exclusivity” would be destined to fail.