As the Department of Justice (DOJ) lawsuit to block the AT&T/Time Warner merger concludes its fourth week, analysts are doing their best to read the tea leaves. The DOJ must convince an audience of one -- Judge Richard Leon -- that the merged AT&T/Time Warner would have the ability to leverage popular Time Warner content to raise the prices rival cable companies pay for that content or to deny access to that content altogether.
A key issue is whether Time Warner’s content is “must-have” programming, and if so, whether the new AT&T could “weaponize” CNN or TNT content by withholding those channels from rival cable companies or online streaming services. The DOJ claims that the merger will raise the price of TV subscriptions by an estimated 45 cents per month, cause rival cable companies to lose subscribers, and curb a developing trend toward slimmer TV packages.
AT&T counters that it will submit any dispute to “baseball-style arbitration,” which allows a third-party arbitrator to set the contract price, and that it will not go dark during a contract dispute, thereby mitigating these hypothetical concerns. Under questioning from Judge Leon, several competitors acknowledged they could live with a “fair” arbitration proposal, prompting some analysts to suggest the judge may look favorably on such a solution. Judge Leon oversaw the Comcast-NBCU settlement agreement, ultimately strengthening that merger’s baseball arbitration provision.
Ultimately, the Judge’s decision may come down to the battle between two top economists. AT&T’s expert, Dennis Carlton, took the stand to discredit the DOJ’s star witness Carl Shapiro’s “very complicated” economic model. Judge Leon agreed: “It’s like a Rube Goldberg contraption,” he quipped, perhaps indicating skepticism. According to AT&T’s Carlton, the DOJ model ignores real-world data about what happens to prices during black-outs, does not take into account long-term programming contracts that lock in prices, and, perhaps most significant, ignores the fact that Comcast did not raise prices after it bought NBC.
The trial is likely to go on for another two weeks.
6 key themes emerging from AT&T’s landmark antitrust trial (Washington Post, Apr. 6, 2018)
What We’ve Learned So Far From the AT&T-Time Warner Antitrust Trial (Variety, Apr. 12, 2018)
Americans could be paying an extra $571 million a year for TV is AT&T buys Time Warner, says DOJ’s expert economist (Washington Post, Apr. 12, 2018)
AT&T is trying to undercut the government’s star witness in the blockbuster Time Warner trial (Washington Post, Apr. 12, 2018)