In the Aftermath of the AT&T/Time Warner Decision, There’s Still Hope

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Last week was a difficult week for antitrust and consumer rights advocates. On Monday, the net neutrality rules (the ones that kept internet service providers from acting as gatekeepers of the internet) officially went off the books. (We are, of course, fighting to bring them back.) The next day, U.S. District Judge Richard Leon issued a ruling permitting the AT&T/Time Warner mega-merger to proceed, in a lawsuit brought on by the Department of Justice. This ruling was more troubling news for consumers, as well as for the future of online competition.

In the $85 billion deal, AT&T has acquired Time Warner’s stockpile of popular film and television operations, including HBO, TNT, and Warner Bros. This means that your favorite media content – from “Game of Thrones” and the Harry Potter films to March Madness and CNN Newsroom – is now controlled by AT&T. (The DOJ may yet appeal the ruling, win, and have the deal unwound, but as of now AT&T and Time Warner are one company.)

What’s the problem with the telecommunications giant (already the second largest internet service provider and third largest mobile data and voice services provider) acquiring some of today’s most popular media content, you ask?  

Well, the resulting harms are twofold:

  1. Higher prices and fewer choices:

As the DOJ argued, the vertical merger will likely result in anticompetitive behaviors that will directly affect consumers. 

Specifically, the DOJ argued that ownership of Time Warner gives AT&T the ability to raise the price that rivals like Comcast and DISH pay to distribute Time Warner content on their cable TV or online video. A standalone video programmer just wants to make the most money from its programming; typically, this means that it will sell to as many buyers as possible, on mutually-advantageous terms. But a video programmer that is part of a larger business that includes a video distributor itself may be willing to leave money on the table, making its programming less accessible, because this will lead to it making more money overall by gaining subscribers to its distribution services.

Even without just charging uncompetitively high rates, AT&T can put restrictions on its programming, or make demands of rival distributors, that it does not have to follow itself. It may sell its most popular programming to rival services only as part of large bundles, forcing their customers to buy channels they may not want. It can restrict rivals’ abilities to offer new kinds of access to programming, such as on-demand or online access. It can require certain promotions, or restrict rivals’ abilities to carry rival programming, or demand favorable placement in the channel line-up.

As consequence of the merger, rival video services may be forced to offer larger bundles, while more personal offerings from streaming programs like Netflix and Hulu – once heralded as innovative newcomers to the media marketplace – are at a greater disadvantage against the new AT&T.

This is against the backdrop of the rollback of net neutrality rules. Even without the merger, AT&T has the incentive and ability to discriminate against rival video services. It already gives favorable treatment to its own DirecTV Now service, for instance:  Watching DirecTV now on AT&T’s network doesn’t count against data caps, while watching rival video services does. (“Free data” is good—but “free data” that is used to disadvantage rivals and push people away from using the video service of their choice is not.) The rollback of the rules could embolden AT&T to increase this discriminatory conduct, and because in owning Time Warner it now keeps more of the value of its video services, it has an increased financial incentive to do so, as well.

Ultimately, the increased incentive for AT&T to engage in anticompetitive behaviors inevitably results in higher prices and fewer choices of providers and programming for consumers.

  1. Merger-mageddon

Signaling to other major companies that consolidation of the media and transmissions may be permissible, the AT&T merger could mean the onslaught of many more mega-corporations. In fact, we’ve already seen the response to last week’s decision: It took Comcast less than 24 hours to bid on 21st Century Fox Inc. This is yet another example of a provider-turned-content producer which, again, incentivizes and enables ISPs to discriminate against rival video distributors and programmers.

After the AT&T verdict, what’s to stop other telecommunications companies like Verizon from further consolidating the market by buying up media companies? Though Judge Leon stressed that the case should not be taken as broad precedent, the immediate impact from the decision suggests that companies see the AT&T/Time Warner merger as the go-ahead to pursue their own deals. While we expect the DOJ to continue to vigorously enforce the antitrust laws, there seems to be an unending appetite for new mega-deals among some of the nation’s largest media and communications companies.

What’s Next?

While the result is disappointing, there’s light at the end of the dark tunnel that was last week.

First, the DOJ may yet appeal and win the AT&T case, and we hope it does. Even without that, one bad result will not deter the professionals in the DOJ Antitrust Division.

Further, the increased attention to competition and concentration issues by policymakers, both left and right means that new polices to strengthen antitrust or otherwise address market power may be on the horizon. At Public Knowledge, we will keep fighting for both strong antitrust enforcement and effective regulation to ensure that viewers can continue to access independent, diverse programming and competitive video services.

Finally, the Federal Communications Commission has its own regulatory tools to protect competition in the video marketplace. For example, program carriage rules prohibit companies from unreasonably discriminating in video programming distribution, and program access rules require that vertically-integrated video providers sell their programming on fair terms to competitors. These rules were instrumental in the 1990s in allowing satellite TV providers to access the same kinds of programming that cable systems had. Granted, these rules and policies need to be updated and strengthened, and this may not be on the policy agenda for the current FCC, but they point to another way forward, in addition to antitrust, to ensuring that the video marketplace operates fairly.

Oversight of the video marketplace is needed now more than ever to protect consumers in an increasingly uncompetitive environment. Public Knowledge will continue to be a strong opponent of anticompetitive behavior, including advocating against mergers that harm the public interest.

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