There is no doubt that AT&T needs the Time Warner deal…badly. Their land-based distribution network, which is dependent on old copper telephone lines, is far inferior to their cable competitors which have since installed coaxial or fiber lines that supply far faster internet speeds to data-hungry homes and businesses.
Of course, just a few years ago, AT&T attempted to ‘solve’ their copper network problem by ignoring the value of land-based networks altogether and instead buying a satellite TV business, DirecTV, for $67 billion. Predictably, that decision has been a total disaster as DirecTV has done nothing but shed hundreds of thousands of subscribers ever since…something AT&T management should have been able to predict if they didn’t discredit the growing value of streaming services…a necessary oversight for a company with an inferior network.
Now, rather than ignore the value of distribution, AT&T has apparently decided to pursue mergers that allow them to control content…content which the DOJ feels could be held hostage to make their inferior network somewhat more attractive to customers thus stemming the tide of subscriber losses for AT&T.
Of course, as we noted yesterday, an incredulous AT&T vowed that it’s not possible for a vertical merger to put customers at a disadvantage, as the DOJ has alleged with their anti-trust lawsuit. Per Axios:
“Vertical” mergers that combine companies in two different industries (AT&T is considered a telecom company and Time Warner is a content provider) are seen as less of an antitrust threat than “horizontal” mergers that combine two competing companies (such as AT&T’s unsuccessful attempt to purchase T-Mobile).
Before joining the administration, DoJ Antitrust chief Makan Delrahim had said he didn’t see problems with the proposed merger. He also said at his confirmation hearing that he would not allow political interference in merger reviews.
In a similarly structured deal, Comcast was allowed to buy NBCUniversal in 2011, albeit with conditions designed to prevent Comcast from using its market leverage to hamstring competitors.
That said, AT&T’s own distribution plans illustrate precisely how the company might use its newly acquired content to disadvantage other distribution companies and/or their customers. Using the model below, one could easily envision AT&T offering popular content, like HBO, to their customers at a discount and then hiking up their carriage fees to customers of other cable providers to subsidize their own.
All of which begs the question of whether the DOJ is about to set a precedent that will effectively kill any and all hopes of future mega media deals between distribution companies and content providers…
A number of telecom providers want to deploy their own streaming services with original programming to keep up with the likes of Netflix and Amazon. To do that, many are exploring entertainment acquisitions to keep up in the cutthroat race for content. AT&T’s bid for Time Warner was a litmus test for others who are also eyeing deals.
For example, Verizon and Comcast have both expressed interest in 21st Century Fox’s entertainment business. This mirrors AT&T’s bid, because it would involve the acquisition of studio businesses as well as cable channels.
…and what that precedent might mean for companies like Facebook and Google.
The legal fight may also bring a new focus on the question of media competition and the size of the most powerful players — notably Google and Facebook.
AT&T and Time Warner execs originally pitched the deal as a way to build a stronger rival to the major platforms companies like Google, Facebook and Amazon, which are gobbling up a growing share of programming and have drastically altered distribution models.
Stephenson noted that these companies, in addition to Netflix, are also creating original content yet have so far been unchallenged by antitrust cops.
Mark Cuban, who testified in favor of the deal at a congressional hearing last year, tweeted that Facebook and Google will be the big losers of DoJ’s suit to block the deal. “Their media advertising, content and distribution dominance will be a defense at trial. That could create bigger issues for them.”
Then again, maybe AT&T is right and this will all be exposed as a sham that goes back to Trump’s feud with CNN…
via http://ift.tt/2B8nQkW Tyler Durden