Media Consolidation: United States v. AT&T and Implications for Future Transactions Page: 3 of 5
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United States v. AT&T
The merger of AT&T and Time Warner combines, in one entity, one of the nation's largest programming
distributors and mobile Internet service providers (AT&T) with a company that owns a great deal of
popular programming (Time Warner). Time Warner controls networks such as CNN, TBS, TNT, and
HBO. TBS and TNT own lucrative sports broadcasting rights, including portions of NCAA March
Madness and the NBA playoffs. HBO produces Game of Thrones, Big Little Lies, and other popular
programs. Time Warner also owns Warner Bros. film studios, which has the rights to some lucrative film
franchises, such as Harry Potter. AT&T and Time Warner, in announcing the merger, argued that their
combination would allow AT&T to deploy Time Warner's content in new and innovative ways that would
benefit customers and help the newly combined company compete against market leaders like Netflix,
Amazon Prime, and Hulu. In accordance with the HSR Act, the parties notified the antitrust enforcement
agencies of their plans to merge and the DOJ was chosen to conduct the Section 7 analysis.
After reviewing the deal, the DOJ disagreed with the companies' justification of the transaction, and, in
asking the district court to block the merger, argued, among other things, that the transaction would
ultimately raise prices for many consumers. To understand the DOJ's argument, a brief industry operation
background is instructive. Prior to the merger, Time Warner had two primary income sources. First, Time
Warner licenses its content to content distributors (e.g., AT&T/DirecTV, Comcast, Verizon) to distribute
its programming to the public. These programming licenses are vigorously negotiated by programmers,
like Time Warner, and the content distributors. Infrequently, the parties reach an impasse in such
negotiations, which can result in a distributor losing the rights to programming for some period of time,
known as a "blackout." A blackout causes financial damage to both the programmer, who may lose both
subscriber fees from the distributor and advertising money as a result, and the distributor, who may lose
subscribers when it loses the ability to distribute the programming to the public. Time Warner's second
income source is selling advertising on its various channels (except HBO, which does not accept
The DOJ presented evidence at trial to support its contention that the Time Warner/AT&T merger could
result in raised consumer prices in three ways. Primarily, the government asserted that, with guaranteed
distribution from AT&T's mobile and satellite platforms, the merged entity would be more able to
threaten programming blackouts and could demand higher licensing fees from other multi-channel video
programming providers (MVPDs, e.g., cable providers and satellite providers), which would ultimately be
passed on to consumers in the form of higher prices. The government also theorized that the merged
company could use its power over distribution channels to harm competing "over-the-top" programming
providers that offer streaming content but do not rely on cable or satellite television platforms (e.g., Sling
TV, which offers broadcast programming and some cable television channels streaming over the Internet)
by restricting their access to "must-have" content (e.g., CNN,TBS, TNT). Lastly, the government posited
that the merged company could restrict rival distributors from striking promotional deals with HBO,
which lure customers to subscribe to those distributors, thus harming the distributors' ability to attract and
The district court disagreed on all counts, holding that the government's proffered evidence was
insufficient to support any of its arguments. The court began its opinion with a description of the rapidly
changing media landscape where innovative companies like Netflix and other Internet-based entities have
challenged older firms to devise new ways to compete, and noted that the AT&T/Time Warner transaction
appeared intended to rise to that challenge. The court then discussed the legal standard to apply to the
merger. The court recognized that this case was unlike any other in recent history because it involved a
vertical transaction, leaving the court with a "dearth of authority" to guide its analysis. The court accepted
that vertical transactions "are not invariably innocuous," but was also cognizant of the prevailing view
that vertical integration can have significant competitive benefits.
Congressional Research Service
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Ruane, Kathleen Ann. Media Consolidation: United States v. AT&T and Implications for Future Transactions, report, July 16, 2018; Washington D.C.. (https://digital.library.unt.edu/ark:/67531/metadc1228586/m1/3/: accessed April 25, 2019), University of North Texas Libraries, Digital Library, https://digital.library.unt.edu; crediting UNT Libraries Government Documents Department.