A Telecom/Broadband/TV/Wireless/(and now) Entertainment Behemoth: AT&T Buys Time Warner

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Robbie's Round-Up: Special Merger Edition!
"You get up on your little twenty-one inch screen and howl about America and democracy. There is no America. There is no democracy. There is only IBM and ITT and AT&T...Those are the nations of the world today." --Ned Beatty as Arthur Jensen in the film "Network"

On October 22, 2016, AT&T and Time Warner announced a definitive agreement under which AT&T will acquire Time Warner for $85.4 billion. If the deal is approved, AT&T would become the second-largest wireless carrier, the largest pay-TV provider, and the largest U.S. entertainment company. This blockbuster deal has huge implications for telecommunication, broadband, television, wireless, and the entertainment marketplaces. Concerns over market consolidation, vertical integration, and privacy will all be discussed in the months ahead. Below, we give an overview of the deal and what to expect going forward.

What is Time Warner?

Time Warner primarily consists of HBO, Warner Bros. movie studios (Hollywood’s largest film and television studio), and cable channels that include Cartoon Network, TNT, TBS, and CNN. You may recall Time Warner was involved in what is regarded as one of the worst mergers of all time, 2000's deal with America Online (AOL). Over the last decade, Time Warner has spent significant time selling or spinning off AOL (now a subsidiary of Verizon) and many of the Time Inc. stable of publications. Time Warner Cable, which was spun off in 2009, was recently purchased by Charter Communications.)

Already a dominant telecommunications provider as well as a pay TV provider, with this deal AT&T would become the largest entertainment company in the country, surpassing Walt Disney Co. and Comcast (owner of NBCUniversal). In 2015, AT&T bought DirecTV for $48.5 billion, adding satellite TV subscriptions as an additional source of negotiating leverage with content providers, along with the satellite company’s steady stream of cash. With that move, AT&T became the nation’s largest pay-TV provider. Adding the content of Time Warner means that for millions of Americans, AT&T will control both the pipes of distribution and many of the shows, movies, and other content that travels through the pipes.

A note on the sale: Time Warner CEO Jeff Bewkes faced tough questions two years ago when he turned down 21st Century Fox’s bid of $85/share. AT&T offered $107.50/share in cash and stock, representing a 25 percent increase and a 35 percent premium to where Time Warner’s stock was trading before news reports of the merger talks emerged.

Why the Mergers and Acquisitions?

As the Washington Post notes, telecom titans like AT&T and Comcast were once content to run their businesses like utilities, providing basic services to a steady clientele and leaving the creative costs and risk-taking to content providers like producers, filmmakers, and studios. But the financial bedrock of traditional TV and wireless service looks shakier than ever. Traditional money makers, such as cable and wireless subscriptions, are being reshaped in this new Internet era. The core business for companies such as AT&T now mostly involves fighting over a shrinking household base for TV packages and subscribers for mobile and Internet service. The Post writes, “Owning media that keeps people engaged through the life of a weekly TV series, or every day through a video game, would give a company such as AT&T an exclusive hook to ensure subscribers keep coming back.”

General Pros/Cons for Consumers

Although much of the coverage of the deal examines what it will mean for the two companies and many industries involved, we just gotta ask: what will it mean for consumers?

Potential Pros:

  • Video/Mobile Innovation & Bundling: AT&T forecasts a new phase of video innovation by creating premium content for mobile devices -- and to deliver that content wirelessly.
  • Cable Competition: AT&T argues that, in the future, when mobile networks reach super-fast 5G speeds, the carrier’s nationwide reach combined with Time Warner’s content would offer an alternative to existing choices in pay-TV. However, a Center for Public Integrity article noted that the deal most likely won’t bring about cheaper price for television, and it just may increase the price for in-home Internet.
  • Advertising: The merger could revolutionize advertising. We might see advertising covering some of the costs of premium programming to lower prices for consumers. In other words, AT&T is counting on the new company being able to shift the costs of operating an Internet and video company from paying customers to advertisers. Additionally, the idea is that AT&T could use the massive amounts of data it has on subscribers to better target them with more relevant ads. AT&T’s main wireless competitor, Verizon, has also made large transactions with AOL and Awesomeness TV in hopes of using its vast mobile network to compete in the digital ad space with Facebook and Google. Time Warner CEO Jeff Bewkes said, "There's going to be basically more effective advertising, so it won't be as disruptive. You'll have more efficiency there. And that means that more of the cost of all the great programming that's on TV can be borne by advertising and it can be advertising that's useful to you, rather than something you're not interested in."

Potential Cons:

  • Exclusivity/Restricted Content (Walled Gardens): As Public Knowledge’s John Bergmayer noted, “DirecTV … might favor Time Warner content, crowding out or refusing to carry alternative and independent programming that viewers might prefer." Additionally, AT&T might exclude Time Warner content from data caps on its broadband networks.
  • Consolidation and Higher Prices: Nowhere in the announcement did AT&T specifically mention how the proposed transaction could lower costs for consumers. "The sorry history of megamergers shows they run roughshod over the public interest," says former FCC commissioner and consumer interest advocate Michael Copps. "Further entrenching monopoly harms innovation and drives up prices for consumers."
  • Privacy: Utilizing data from consumers through their Internet, television, and mobile use for advertising purposes raises privacy concerns. “This is all about tracking and targeting us regardless of whether we use a mobile device, PC or TV,” said Jeff Chester, executive director of the Center for Digital Democracy. Chester continued, “We need strong consumer privacy rules — something Internet service providers like AT&T are fighting.” Bergmayer noted, "[P]otential industry consolidation highlights why the FCC must move expeditiously to develop thorough privacy protections for consumers so that major industry players do not abuse the sensitive information they collect from the customers, and emphasizes the need for the FCC to vigorously enforce its Open Internet rules."

Public Interest Reaction

Former FCC Chairman and Special Advisor to Common Cause Michael Copps: "The sorry history of mega mergers shows they run roughshod over the public interest...Further entrenching monopoly harms innovation and drives up prices for consumers. The answer is clear: regulators must say no."

Public Knowledge Senior Counsel John Bergmayer: “...[T]here are good reasons to be skeptical that further consolidation in the communications industry could be good for consumers. Vertical integration between programming and distribution in particular raises a number of issues...Increased vertical integration could also increase AT&T's opportunities for data collection, which has relevance to FCC privacy initiatives. Similar sorts of self-dealing and discrimination issues have been at the center of the review of similar deals in the past, such as Comcast's acquisition of NBC Universal.”

Demand Progress Executive Director David Segal said the deal would be "disastrous' for the public. "This takeover would result in a dangerous concentration of economic and political power that could lead to higher costs, curtail consumer choice, and potentially constrain speech and information access," he said.

Campaign Director for Free Press Candace Clement: “Deals like this don’t benefit ordinary people: They just line the pockets of overpaid media executives (the Time Warner CEO could walk away with as much as $400 million) and lead to job losses for working people. These kinds of mergers hike prices for Internet access and put up bigger barriers to entry for content creators — shutting out independent voices and people of color who have been locked out of the traditional media system. This merger would create a media powerhouse unlike anything we’ve ever seen before. AT&T would control mobile and wired internet access, cable channels, movie franchises, a film studio and more. That means AT&T would control Internet access for hundreds of millions of people and the content they view, enabling it to prioritize its own offerings and use sneaky tricks to undermine Net Neutrality. This merger would give one bad company way too much power.”

The Parents Television Council: "AT&T’s purchase of Time Warner will create an entertainment behemoth, and no doubt the corporate spin-masters will emphasize benefits to consumers. But if history is our guide, this merger should be of great concern to families."

Victor Pickard, author and professor at the Annenberg School of Communication at the University of Pennsylvania, said the deal would create "a media behemoth with dangerous concentrations of political and economic power.” “With one corporation controlling so much production and distribution of news and entertainment media, this vertical integration poses significant potential hazards for millions of consumers and could harm the health of our democratic discourse," Pickard said.

How it will be Reviewed

Andy Schwartzman's How the Department of Justice, Federal Trade Commission and Federal Communications Commission Regulate Media Company Acquisitions should be the starting point for anyone wondering what to expect in the months ahead for this merger. Based on his analysis, the Department of Justice will determine if the transaction might substantially lessen competition. As for the FCC, Schwartzman writes, “The FCC’s consideration of media ownership is quite different. Unlike the DOJ and FTC, the FCC’s jurisdiction is limited to companies which hold FCC licenses, i.e., traditional broadcasters, cable operators and satellite radio and TV broadcasters, traditional 'wireline' telephone companies and wireless carriers.”

AT&T said that the FCC will be involved only if any FCC licenses are transferred to AT&T. Currently, AT&T and Time Warner are determining which FCC licenses, if any, will be transferred to AT&T in connection with the transaction. Despite its big media footprint, Time Warner has only one FCC-regulated broadcast station, WPCH-TV in Atlanta (which, if you're scoring at home, was the first "superstation" that eventually morphed into TBS). Time Warner could sell the license separately to try to avoid a formal FCC review.

Senate Judiciary Committee Chairman Chuck Grassley (R-IA) said, “This is the biggest deal of the year, combining one of the nation’s largest telecommunications providers with a media and entertainment giant. It’s imperative that the antitrust regulators conduct a robust review of the proposed acquisition. As the process moves forward, the Senate, and the Judiciary Committee, can and will conduct oversight and ask questions about the transaction, including a hearing to examine the impact on competition and consumers.”

Senate Antitrust Subcommittee Chairman Mike Lee (R-UT) and Ranking Member Amy Klobuchar (D-MN) said they would hold a hearing on the tie-up in November.

Additionally, Sen Al Franken (D-MN) wrote a letter to FCC Chairman Tom Wheeler and Attorney General Loretta Lynch saying he wants the “highest level of scrutiny” of the deal. "Combining these behemoths would create a mega media conglomerate with both the incentive and ability to use its platform to harm consumers and competitors alike," he said.

Affecting the Telecom Policy Agenda Going Forward

New Antitrust Climate?
Experts expect tougher regulatory, political and consumer scrutiny of the deal compared to Comcast's purchase of NBCUniversal. The Wall Street Journal noted that the deal, “sails toward two cresting waves of opposition: resurgent antitrust enforcement in Washington and politicians fired by a new bipartisan populist rage.” A New York Times article referenced this resurgent antitrust enforcement, and said that a younger generation of antitrust scholars may work to block the merger:

A younger generation of antitrust scholars who are rethinking the nation’s fundamental approach to antitrust law may prove even more influential. "Over the last 40 to 50 years, antitrust law has evolved to be almost completely indifferent to vertical mergers," said Tim Wu, an antitrust and Internet expert at Columbia Law School who coined the phrase "net neutrality". In vertical mergers, a company buys a supplier; in horizontal mergers, direct competitors combine. But the new generation harks back to the original trustbusters of the early 20th century, who were most concerned about preventing corporations from gaining too much power. "The antitrust system as it stands is focused on prices to consumers, innovation and efficiencies," Wu said. "That reflects the triumph of the University of Chicago school of economics. But there’s an older tradition, embodied by Supreme Court Justice Louis Brandeis, that says a concentration of too much power in too few hands is bad for democracy and bad for consumers."

The New York Times wrote that in addition to its billions of dollars of capital, AT&T has another arsenal at its disposal: “one of the most formidable lobbying operations in Washington.” AT&T has nearly 100 registered lobbyists already on retainer, which includes former members of Congress. AT&T is the biggest donor to federal lawmakers and their causes among cable and cellular telecommunications firms, with its employees and political action committee sending money to 374 of the House’s 435 members and 85 of the Senate’s 100 members this election cycle. That adds up to more than $11.3 million in donations since 2015, four times as much as Verizon.

AT&T Not In Incentive Auction?
AT&T may no longer be looking to spend much in the incentive auction of 600 MHz spectrum now that it has agreed to fork over $85 billion to acquire Time Warner. And that would likely mean that the auction won’t raise nearly as much money as had been expected. Interestingly, the merger announcement came just a few days after Stage 2 of the incentive auction of TV broadcasters’ airwaves ended abruptly after a single round, surprising analysts and other onlookers who expected the second stage to last two weeks or more. Stage 2 generated only $21.5 billion in bids, falling far short of the $54.6 billion that would have ended the event.

“It was very interesting to us to see the broadcast auction end stage two after only one round. We had a chance to catch up with our spectrum experts and their view is one of the ‘big guys’ was out,” Jennifer Fritzsche of Wells Fargo Securities wrote. “The million-dollar question is which ‘big guy’ – Verizon, T-Mobile or Comcast. If this is true, and it is AT&T, then the check-writing event many expected for the auction won’t happen (and most thought would be in the realm of $10 billion). While we don’t know this at all to be the case, it is something that should be considered in light of this Time Warner/AT&T speculation.”

AT&T, Time Warner, and the 2016 Election

The deal will be scrutinized by the next Administration. Donald Trump released a statement indicating his opposition to the merger. The statement reads, "AT&T, the original and abusive 'Ma Bell' telephone monopoly, is now trying to buy Time Warner and thus the wildly anti-Trump CNN. Donald Trump would never approve such a deal because it concentrates too much power in the hands of the too and powerful few." Donald Trump has said he would not only fight the AT&T deal, but would also try to unwind a major media merger previously approved by the Obama team: Comcast’s 2011 acquisition of NBCUniversal.

Hillary Clinton has not issued a statement, but as Vice noted, “Such a merger would pose an early challenge for the next administration, especially if Hillary Clinton wins the presidency. In July, the Democratic party made fighting runaway corporate consolidation a key plank in its election-year platform. An AT&T tie-up with Time Warner would be a key test of Clinton’s willingness to put the brakes on the seemingly inexorable trend toward greater corporate power in the communications and entertainment sectors.” In 2015, Clinton suggested she would be tougher than the Obama Administration in approving such large mergers, and that she would “beef up the antitrust enforcement arms of the Department of Justice and the Federal Trade Commission” if elected. On NBC’s “Meet the Press”, Democratic Vice Presidential nominee Sen Tim Kaine (D-VA) said he shared the “concerns and questions” raised by Sen Franken that the deal could lead to higher costs and fewer choices. “Pro-competition and less concentration, I think, is generally helpful, especially in the media.”

On Oct 26, Sen Bernie Sanders (I-VT) said he would pressure Clinton to oppose the merger, if she won the White House. “If Hillary Clinton is elected president we must do everything possible to make certain that her administration mounts a vigorous anti-trust effort,” he said. “We must reject the AT&T-Time Warner merger. We need more diverse media ownership, not less.”


The AT&T/Time Warner merger would create a behemoth. We could see a future where it would be likely that one company could be responsible for many consumers’ landline, cell phone, Internet service, television, and most of the content they consume, with all activity being monitored for advertising purposes. AT&T promises new innovation in content and advertising, in addition to creating more cable and wireless competition. Public interest advocates worry about market consolidation, vertical integration, and consumer privacy. This merger affects many facets of telecom policy, so you can be sure the Benton Foundation will continue to follow the deal through our Headlines service. And one final note, you can follow along with the developments of the merger on our tracking page: https://www.benton.org/headlines/ATT-time-warner

AT&T, Time Warner, and the 2016 Election

Further Reading

ICYMI From Benton
benton logoHere’s How The Government Handles A Deal Like Comcast/Time Warner Cable, Andy Schwartzman
benton logoHow the Department of Justice, Federal Trade Commission and Federal Communications Commission Regulate Media Company Acquisitions, Andy Schwartzman

By Robbie McBeath.