Will AT&T get its hands on “Game of Thrones” and CNN?
That’s what a federal judge will decide as AT&T and Time Warner head to court this week to defend their proposed $85 billion merger, which would marry one of the nation’s largest wireless and broadband networks with one of the largest media companies.
On the other side is President Donald Trump’s Justice Department, which opposes the merger and has sued to block the deal.
The fate of the deal could have ripple effects on future deals between internet service providers and media companies, as well as affect what streaming services look like in the future. AT&T has invested heavily in a streaming video service called DirecTV Now, and it’s looking to Time Warner to bulk up its original programming. A Justice Department victory in the case could have a chilling effect on different companies looking to merge at a time when other streaming giants like Netflix and Google’s YouTube are commanding more eyeballs.
The trial begins Wednesday. Here’s what you need to know.
Why is the government suing AT&T?
The Justice Department argues that a combined AT&T and Time Warner could abuse their power and charge competitors more to access Time Warner content. The DOJ fears that AT&T, which owns the second largest wireless and broadband networks in the US, as well as TV distribution through its ownership of satellite DirecTV, could jack up prices to anyone looking to distribute Time Warner’s content. Time Warner owns cable channels such as CNN, TBS and TNT, as well channels like HBO, which produces its own original content. This would ultimately lead to consumers paying higher prices on their cable bill or for streaming services, like Netflix.
The government has also suggested that AT&T and Comcast, which owns NBCUniversal, could work together “either by overt collusion or implicit understanding” to restrict access to Turner and NBCUniversal.
“Expertise and real-world experience alike will demonstrate that this proposed transaction poses an unacceptable threat to competition and consumers,” the Justice Department said in a pretrial brief.
“For current consumers of traditional pay-TV content, economic modeling shows that the merger will mean paying for the equivalent of 13 months of Turner content per year, while getting only 12. That’s pure overcharge consumers will have to pay without getting anything in return,” the brief says.
What do AT&T and Time Warner say?
AT&T and Time Warner say that the government and consumers have nothing to fear. This merger will simply allow them to compete with the likes of Amazon, Netflix and YouTube, which offer an alternative to traditional cable TV via their streaming services.
“This merger has never been about making Time Warner programs less accessible or more expensive,” the companies said in a pretrial brief. “Just the opposite: it is about making Time Warner and AT&T more competitive during a revolutionary transformation that is occurring in the video programming marketplace.”
AT&T argues that combining the two companies will actually lead to more attractive pricing for consumers, because it will be able to compete more effectively in the advertising market, allowing it to shift some of the costs of service from consumers to advertisers.
To help put to rest some of the government’s fears, AT&T and Time Warner have offered to create an arbitration system that would ensure rivals could purchase content from CNN, TBS, TNT and HBO.
What’s Donald Trump have to do with all this?
President Trump has made it no secret that he’s not a fan of Time Warner’s CNN, often calling the cable news channel’s coverage of him “fake news.”
As a candidate for president, Trump vowed to block the merger, stating it would concentrate too much power in one company.
The Trump Administration’s opposition is somewhat surprising, given that Republicans are typically friendlier to industry consolidation. Before he became the head of the Justice Department’s antitrust division, Makan Delrahim told a Canadian news organization that he didn’t see “a major antitrust problem” with the merger. But he’s since changed his mind.
In spite of Delrahim’s assurances to Congress that he would be “free of political influence,” Democrats on Capitol Hill aren’t buying it. In February, Rep. Elijah E. Cummings, the ranking member of the House Committee on Oversight and Government Reform, and Rep. Gerald E. Connolly, the ranking member of the Subcommittee on Government Operations, sent a letter to Attorney General Jeff Sessions asking for documents and emails between the Justice Department and the White House about the decision to sue AT&T and Time Warner.
Sessions has not complied with the request. The Democrats sent another letter in early March to the Republican chair of the Oversight Committee, asking him to subpoena those communications.
Will the emails and communications between the Justice Department and the White House be part of this case?
No, the judge in the case ruled in February that the White House will not have to turn over all records of communications regarding the lawsuit with the Department of Justice.
Isn’t this deal similar to the merger between Comcast and NBCUniversal? So why can’t AT&T buy Time Warner?
That’s a good question, and it’s one that AT&T and Time Warner’s lawyers have asked as well. Indeed, Comcast was a large broadband company buying a big media conglomerate that controlled a lot of content. The arguments used by consumer groups against that merger are being employed again to argue against AT&T’s deal with Time Warner.
AT&T has accused the Justice Department of selectively enforcing antitrust laws. But the judge in the case has pointed out that the government did impose some restrictions on the Comcast-NBC Universal deal. And it has looked at other vertical deals.
“So while it may, indeed, be a rare breed of horse, it is not exactly a unicorn!” US District Judge Richard Leon wrote in February regarding the government’s antitrust case.
What does the Federal Communications Commission think about this case?
The FCC isn’t reviewing the merger because it doesn’t involve the sale of government-issued licenses. Time Warner owned only one TV broadcast station in Atlanta, and it sold that station last year for $70 million to Meredith Corp.
What’s this mean for the media industry?
If the court rules against the acquisition, it could put the kibosh on other deals already in the works, such as Disney’s plans to buy Fox’s entertainment business and CBS’s rumored plan to merge with Viacom. (CBS is the parent company of CBS Interactive, which owns CNET.)
Those deals are known as horizontal mergers, because they combine two businesses in the same field. These are the kinds of deals the Justice Department has historically had issues with.
By contrast, the AT&T-Time Warner deal is a vertical merger, which means that AT&T and Time Warner don’t actually overlap with similar businesses. AT&T owns a tiny bit of content, and Time Warner doesn’t operate any networks. The Justice Department has typically had fewer issues with these kinds of deals.
So a tougher stance on AT&T and Time Warner could signal to these other companies that their mergers may not fare so well either.
OK, but why should I care?
The media industry is going through a massive change as fewer people subscribe to paid TV service and instead stream content via the internet. Online companies like Amazon, Google and Netflix have emerged as alternatives to the cable industry both distributing and creating their own content.
Critics have hailed this era as the golden age of television because of the sheer breadth of shows on different platforms, from the blockbuster “Stranger Things” on Netflix to the Emmy-winning “The Handmaid’s Tale” on Hulu. These are all programs vying for your time over traditional media companies and networks.
Then there’s the telecom industry, where wireless price wars are leading to players like AT&T looking to serving you entertainment as a new growth area.
All of this competition among network providers and content creators has been great for consumers. But what happens next? That’s the question that will likely be answered with the outcome of this case. And that could determine what content you’ll be watching in the future and which platform you’ll be watching it on.
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