In the aftermath of a federal judge’s approval Tuesday of the mega-merger between AT&T and Time Warner, you’ll be reading about how this deal will vastly remake the entertainment and information landscape, most likely at consumers’ expense.
That take is absolutely true. What’s being overstated, however, is that this deal is unique. It’s not. Its template was laid out in 2011 by what was then the biggest such “vertical” merger in the information and entertainment sectors: Comcast’s $30-billion takeover of NBCUniversal.
That earlier deal united a big Internet service provider with a big purveyor of content. It was pitched as bringing huge benefits to the public — improved cable TV and internet technology, more innovative TV programming, lower prices.
Have you seen any of that since 2011? Me neither.
Identical claims for consumer benefits have been made for all the media mega-mergers of the last two decades, encompassing deals involving Walt Disney Co., ABC, Viacom, CBS, Time, Warner Bros., CNN and AOL, among other companies. None of them has come about.
AT&T and Time Warner made the same claims. As U.S. District Judge Richard Leon said in approving the merger, the deal was based partially on the expectation that “Time Warner could provide AT&T with and develop innovative video content and advertising offerings for AT&T’s many video and wireless customers.”
The threat posed by the AT&T-Time Warner merger is all the greater today because of the Trump administration’s initiative in keelhauling network neutrality at the Federal Communications Commission. As of this week, the FCC is no longer acting as a watchdog over efforts by content distributors — AT&T, say — to disadvantage content providers competing with their own subsidiaries — Time Warner, say. The era of media consolidation is entering an entirely new and awful phase.
The AT&T-Time Warner deal is vastly greater than Comcast-NBCUniversal, both quantitatively and qualitatively. It’s worth about $85.4 billion, more than twice the value of the earlier deal. More to the point, AT&T has a far more comprehensive reach over the American media landscape than Comcast does.
The latter is a cable operator that doesn’t serve large swaths of the country. AT&T, however, in part by virtue of its ownership of the satellite service DirectTV, but also because of its larger telecommunications footprint, reaches almost everywhere. Time Warner is the owner of CNN, HBO, Warner Bros. and the cable channels TNT, TBS, Cartoon Network and Turner Classic Movies, among numerous other entertainment and news offerings.
But the core arguments made by the merger partners, and accepted by Leon, are the same. They contend, in essence, that the merger is a matter for them of life and death. As Leon parroted their position, “‘techtonic changes’ brought on by the proliferation of high-speed internet access” leave pathetic little companies such as AT&T and Time Warner “facing two stark realities: declining video subscriptions and flatlining television advertising revenues.”
Leon observes that “cost-conscious consumers increasingly choose to ‘cut’ or ‘shave’ the cord, abandoning their traditional cable- or satellite-TV packages for cheaper content alternatives available over the internet.” In effect, the judge has given these two companies the ability to counteract the consumer’s quest for cheaper content and more choice by forcing them to buy all their content from one provider, at whatever price that provider dictates.
The uncountable drawbacks of this deal were, unfortunately, obscured by the attempted interference of Donald Trump, who campaigned against it evidently because he was ticked off at CNN and wanted to hurt its parent, Time Warner. At one point, the administration let it be known that it would approve the deal only if AT&T agreed to divest CNN after the merger, a condition AT&T rejected.
That made it seem as though the Department of Justice’s decision to sue to block the deal was a manifestation of political animus. But it was a case of Trump taking the right stance for the wrong reason. As we wrote last November, forcing AT&T to sell CNN would be a positive step in averting all the ills that will emanate from the merger, but only a modest step. The companies should not have been allowed to combine at all. (AT&T had been hoping to introduce evidence of Trump’s interference at the trial of the federal lawsuit, but Leon refused to admit it.)
Mergers of distributors of content with creators of that content create a special threat to the public interest. In this case, the danger is that AT&T, which owns the internet pipeline into an ever-increasing share of American homes, could use that power to steer its customers to its own content and degrade or block competing material.
If they’re kept separate from content providers, distribution companies such as AT&T and DirectTV have an incentive to offer their subscribers the best possible TV package. Content companies just want to create material that will attract the largest number of viewers. Put them together and their business incentives change drastically.
The new AT&T “might not want to give too good a deal to Dish Network (a satellite competitor of DirecTV), because it wants people to become DirecTV customers," John Bergmayer of the consumer group Public Knowledge told me last year. "There's not even a question about whether AT&T's TV packages are going to carry Time Warner programming, because of course they are. But that may be at the expense of viewers or competing programmers that might have something better, but aren't even going to be considered."
The historical record bristles with evidence of the bad habits of media distribution companies given the sort of control that will soon be exercised by AT&T and Time Warner. Many of the examples come courtesy of Comcast. The FCC thought it could keep Comcast on the straight and narrow by imposing more than a dozen conditions on its merger in 2011. It was wrong. Instead it was forced into countless battles with the ever-more-powerful company, and lots of litigation.