The antitrust trial over the AT&T – Time Warner merger is now underway, and the Department of Justice has come out swinging. Lawyers for the DOJ told the court that AT&T could use Time Warner as a weapon because its competitors need Time Warner’s programming. The Justice Department is trying to block AT&T’s proposed $85 billion acquisition of Time Warner due to antitrust concerns.
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According to the Los Angeles Times, DOJ lawyer Craig Conrath said during his opening arguments in the lawsuit that a merger between the two companies would increase prices for consumers significantly. He also said that it would give AT&T extra leverage over its competitors because it would own the content produced by Time Warner, and thus, it could withhold that content from its competitors.
The DOJ believes that the merged company could then raise the prices that broadcast companies must pay for content while discounting the prices for itself, giving its TV business and its streaming TV service DirecTV Now an unfair competitive advantage. The agency’s lawyers plan to call a Cox Communications executive as their first witness because the company could end up paying higher prices for content if the merger goes forward. Regulators expect some of that increased cost to be passed to consumers.
The problem with vertical mergers
DOJ expert and economist Carl Shapiro estimates that Americans would see prices increase by over $400 million annually as a result of the merger, if it’s allowed to proceed. However, AT&T’s lawyers disagree with this estimate, saying that the assumptions he used to come up with it are flawed. They argued that the DOJ is assuming that a large number of consumers who subscribe to the merged companies competitors would switch away if they couldn’t watch Time Warner’s content on those services or if prices increased.
AT&T’s lawyers also said that prices did not increase after Comcast acquired NBCUniversal in 2011, which was a similar situation, so it may not be reasonable to argue that it will happen in this case.
The Washington Post quotes Conrath as describing the merger as a “frontal attack” because of the way it threatens competition within the media space. The newspaper explains that the problem with this merger is that it’s “vertical,” meaning that AT&T, which is involved in the internet, TV and phone business, is trying to acquire content creator Time Warner, which would mean that it would control two related areas of the media industry.
Not only would the merged company control sales of broadband and TV services, but it would also control much of the content that airs on TV channels. The company could even withhold the content from its competitors or charge them so much that they can’t afford to carry it.
Merger could worsen an already-existing problem
We’ve already been seeing what it looks like when content creators hold back their content from competitors. Bloomberg notes that there’s been a rush among major media companies to build their own over-the-top streaming services, as consumers have repeatedly shown that they’re sick of paying for lots of channels they never watch. Unfortunately, all these individualized OTT streaming services aren’t really fixing this problem.
Creators are hoarding their content and not allowing it onto other platforms, like Walt Disney’s move to pull all of its content off Netflix ahead of the launch of its own streaming service. This practice is making it impossible for consumers to really get what they want, and it sounds like the DOJ expects it to get even worse in the event that AT&T is allowed to merge with Time Warner.