International Policy Digest

Josh Hallett
Business /19 Jun 2018

The Dilemmas Behind the AT&T-Time Warner Deal

It is becoming more and more rare for politicians on both sides of the aisle to come to any consensus, but both President Trump and previous Democratic vice presidential candidate, Tim Kaine, have expressed disapproval for telecom company AT&T’s acquisition of Time Warner, a conglomerate which owns major media platforms such as CNN and HBO. Critics argue that the merger will result in increasingly concentrated ownership of media companies, which will damage consumer interests by reducing competition. The Department of Justice tried to block the deal, but recently federal judge Richard Leon has allowed the merger to proceed.

However, unlike the case in most antitrust lawsuits, the two companies are not competitors, nor does either even have near monopolies in their respective areas of business. The merger of AT&T, the second largest wireless telecommunications company, and Time Warner, the third largest entertainment company, is not an isolated incident. Disney and Comcast are also both vying for the acquisition of 21st Century Fox. There is a trend of mergers between mass media distributors and content producers. This should come as no surprise with the ascendance of disruptive media giants like Netflix, Amazon, and Hulu, which are challenging traditional cable TV with online streaming services. Competition has also heated up for advertising, as companies like Facebook and Google attract more and more clients away from traditional TV advertising.

AT&T is trying to acquire a content producer like Time Warner to better compete with the likes of Netflix, Amazon, and Hulu in this quickly evolving media landscape. The DOJ case against the merger emphasized how the combined companies could potentially threaten to withhold Time Warner content from customers in order to have them to switch to AT&T. Although this situation could theoretically happen, the probability is slim because the risk of manipulating the market in that manner is too great, since AT&T could garner more reliable revenue from distributors that pay Time Warner to display its content.

The antitrust case against AT&T’s acquisition is weak, and the merger may increase competition and thus consumer choice in media and entertainment consumption. AT&T claims it will use its acquisition of Time Warner to introduce more innovative products in order to remain competitive. After the massive deal was completed, AT&T announced the launch of ‘Watch TV,’ a service that streams Time Warner’s Turner content, which will be free for AT&T users and $15 per month for other platforms.

However, there are still more reasons to be wary as net neutrality supporters predict the “doom” of the internet after the merger. Though AT&T is trying to increase the competition between streaming services, it does have an advantage over Google, Amazon, and Netflix by being an Internet service provider, since competing streaming services currently depend on telecom companies like AT&T for Internet to reach customers. The acquisition of Time Warner will likely cause AT&T to incentivize customers to watch more Time Warner content over competitors like Netflix. One way AT&T could utilize its advantage is through zero-rating plans, through which AT&T could exempt favored content from data caps but exclude rivals from the exemptions. However, there are other competing telecom companies that customers can turn to, such as Verizon and Comcast. T-Mobile even offers Netflix to its customers for free. Google is beginning to test out its own broadband internet through a subsidiary called Google Fiber.

What will be interesting to see is how the market will respond. Although traditional telecom companies and established content creators are merging in attempt to better adapt to a new era of media consumption, there is no guarantee that they will succeed. For one, Netflix has more experience delivering its services directly to customers and invests heavily in original shows, freeing it from complete dependence on large media corporations for content. Furthermore, inefficient consolidations of large companies, like the disaster of the AOL-Time Warner deal, could temporarily shift focus away from content creation, and the delay might give Netflix an edge in the game.

There is no room for complacency and “too big to fail” mentalities in today’s highly competitive business environment. Today’s giants could descend into history, as many have done in the past, if they do not adapt swiftly and successfully.