WSJ editorial on judicial approval of AT&T ’s merger with Time Warner without conditions

Justice’s Antitrust Humiliation: Judge Leon blows away the government’s case against the AT&T-Time Warner merger. Excerpt:

"The Justice Department last November sued to block the $85 billion deal on the dubious theory that the combined company would hinder competition by forcing competitors to pay hundreds of millions of dollars more per year for Time Warner’s “indispensable” programming. If rivals refused, AT&T could supposedly withhold its content and grab rivals’ customers.

The theory ignores the “tectonic changes” in the media and broadband markets, as Judge Leon explained in his 172-page analysis. “Generic statements that vertical integration ‘can’” lead to “‘an unfair advantage over its rivals’ do not come close to answering the question before the Court,” he added.

Lo, video subscriptions are declining while TV ad revenues have plateaued. Consumers are “cutting the cord” from cable and buying cheaper alternatives over the web. Facebook and Google’s digital ad platforms have surpassed TV advertising in revenue. Google’s YouTube boasts 1.8 billion registered monthly viewers, which is 72 times as many as AT&T’s TV subscribers.

The last time Justice went to court to stop a vertical merger was 1977, and it lost. Unlike with horizontal mergers between direct competitors, the government must prove that a vertical deal would reduce choice and harm consumers. Yet Justice couldn’t show how a combined AT&T-Time Warner would pose any more of a threat to competition than these other vertically integrated companies.

Government lawyers relied heavily on testimony by a University of California, Berkeley professor, but several economists disputed his models and Judge Leon said he largely agreed with their critiques.

The government also cited expert testimony from AT&T competitors. But “in the final analysis, the bulk of the third-party competitor testimony proferred by the Government was speculative, based on unproven assumptions or unsupported—or even contradicted—by the Government’s own evidence,” Judge Leon noted.

To significantly increase market share, AT&T would have to withhold content from most competitors, which would reduce Time Warner’s $31 billion in annual advertising and subscription revenue. This would be self-defeating. A major goal of the merger is to monetize customer data as YouTube and Facebook do.

Judge Leon also pointed out that Comcast ’s acquisition of NBCUniversal in 2011 did not cause content prices to increase. And Justice couldn’t explain why or how conditions imposed on that merger failed to prevent anti-competitive conduct. Thus, the government “failed to meet its burden to show that the proposed merger is likely to substantially lessen competition,” Judge Leon concluded.

Justice could have accepted AT&T’s offer to arbitrate content fees, yet it refused to settle for anything short of divestiture of Turner Broadcasting. Bad call. President Trump famously opposed the merger during the 2016 campaign, but hostility to CNN isn’t a legal argument." 

See also Godspeed to AT&T-Time Warner The $85 billion merger isn’t aimed at dominating cable TV. It’s an attempt to take on Silicon Valley by Michael D. Smith and Rahul Telang. Where they are both Telang are professors of information systems at Carnegie Mellon University. Excerpt:

"This is great news for the entertainment industry—and for anybody worried about genuine monopolies. Here’s why: In bringing the suit, the Justice Department’s antitrust chief, Makan Delrahim, argued that AT&T–Time Warner would quickly dominate the market for cable television, allowing the combined behemoth to raise prices at will. That sounds bad, right? Nobody wants that.

But think about it for a minute. Is this merger really about cable TV? That market is shrinking. Last year only 79% of American households paid for cable or satellite subscriptions, down from 84% in 2014 and from a peak of 88% in 2010. Would AT&T and Time Warner really ink an $85 billion deal merely to gain control of a business in obvious decline?

Of course not. This merger is about something else. It’s about where all of those former cable subscribers are going: online. Between 2013 and 2017, the number of streaming-only households in the U.S. tripled. Today nearly 200 million households use a subscription streaming service at least once a month. AT&T–Time Warner wants a piece of this growing market.

The problem is that breaking in isn’t easy. Readers of The Wall Street Journal may remember an article last month titled “Tech’s Titans Tiptoe Toward Monopoly.” Its author, technology columnist Christopher Mims, explained that the unique characteristics of digital markets have allowed a small number of internet giants—among them Amazon, Google, Netflix and Facebook —to dominate their industries and forestall entry by competitors.

These companies have put serious money into customer connections, data analytics and back-end systems, and these investments scale very well. Netflix has penetrated more than half of U.S. households. Google and Facebook control almost three-quarters of online advertising. Amazon does nearly half of all online retail sales. These are astonishing numbers.

Now that these tech giants have established their downstream power in the distribution business, they are beginning to amass upstream power by getting into the content-creation business. Soon, Mr. Mims asked readers to imagine, policy makers might decide they need to regulate Silicon Valley the same way that the steel, rail and telephone industries were in the 20th century.

Given the dominance of Silicon Valley’s internet giants, it makes no sense to prevent AT&T and Time Warner from merging. These companies aren’t trying to join forces because they want to take control of a dying industry; they want to be allowed to compete in a new one. "