The AT&T and Time Warner merger could mean plenty — or nothing — to consumers, depending on a federal judge’s decision. USA TODAY
A media merger of super hero proportions is about to be settled.
A federal judge is expected to decide Tuesday whether AT&T should go ahead with its planned $85 billion acquisition of Time Warner, home to DC Comics’ heroes Batman, Superman and Wonder Woman, as well as CNN and HBO, the premium network where Game of Thrones resides.
The deal will have far-reaching repercussions for consumers, bringing together the nation’s largest telecommunications company and owner of DirecTV with Time Warner’s entertainment library. An AT&T victory is likely to bolster the variety and number of streaming services competing for Americans’ wallets and time as they ditch traditional options such as cable. But according to the Trump administration, it could raise costs for consumers.
Either outcome will send up the equivalent of a bat signal to other communications and entertainment companies, alerting them to whether they should push forward with their own acquisitions aimed at bolstering their competitive position against companies such as Netflix, Amazon and Apple.
Efforts by AT&T to buy Time Warner started 20 months ago. But the Department of Justice sued, arguing AT&T — whose reach extends to pay-TV, wireless and Internet broadband — would have the leverage to force rival pay-TV providers to pay hundreds of millions of dollars more annually per year for the right to distribute Time Warner’s networks. Those higher costs would be passed on to consumers, the government said.
AT&T has countered that the deal would actually help consumers, allowing the bigger company to better compete with a growing roster of online video competitors. Revenues have stagnated in the saturated wireless industry, as have traditional pay-TV revenue from AT&T’s DirecTV satellite service and U-verse fiber-delivered TV service.
Suspense about the outcome has been building since a six-week trial ended April 30. A new twist emerged in early May: the revelation that the telecom giant paid President Donald Trump’s personal lawyer Michael Cohen $600,000 for consulting services at the time the company was seeking regulatory approval for the merger.
AT&T CEO Randall Stephenson said hiring Cohen for insights into the new administration was legal but “was a big mistake.”
President Trump, dating to before his election, has opposed the deal, saying it would concentrate too much market power in a single company. His animosity against Time Warner’s CNN also is well-known.
In fact, prior to the DOJ’s case going to court in March, AT&T sought records to buttress a legal argument that the Trump administration’s opposition to the merger was politically motivated. But a judge denied the legal move.
Now it’s decision time. An approval of the deal by Judge Richard Leon will act as a “green light” to other mergers and acquisitions, such as Disney’s bid for a collection of 21st Century Fox assets including the movie and TV studios, UBS analyst John Hodulik wrote in a recent note to investors.
Also expected as a result of approval of the AT&T-Time Warner merger: an attempt by Comcast to outbid Disney for the Fox assets.
“The battle royale between Comcast and Disney for the Fox assets is heavily tied to the AT&T-Time Warner case with the long-standing belief that Comcast will only pursue the Fox deal if antitrust issues and the judge rule in favor of the AT&T deal,” said Daniel Ives, chief strategy officer and head of technology research for marketing and consulting firm GBH Insights.
If the judge rules against the deal or approves it only with the forced divestiture of DirecTV or the Turner networks, AT&T and Time Warner are expected to appeal.
Most Wall Street analysts expect the deal to be approved, perhaps with some conditions that limit behavior by the bigger company. During the trial, AT&T and Time Warner committed to not removing Time Warner content from competing pay-TV services and pledged to follow an arbitration process for any programming conflicts.
In a possible foreshadowing of the potential sniping that may follow if the deal goes through, last week a small discount wireless company — Mint Mobile — accused AT&T of anti-competitive behavior when AT&T’s DirecTV refused to sell it airtime for commercials because AT&T was a competitor. AT&T then told USA TODAY it had changed its policy to accept advertising “competitive to our internal brands.”
Brian Wieser, a senior analyst with Pivotal Research Group in New York, says it’s not uncommon for broadcast networks to decline to run ads for their competitors, though it usually depends on the business unit reporting lines. But with this situation, “Certainly the optics are bad. …They recognize what looks good and what doesn’t look good.”
Contributing: Edward Baig in New York City.