Well, that was a rout. Federal Judge Richard Leon on Tuesday gave the Justice Department a much-needed kick in the shins by greenlighting AT&T ’s merger with Time Warner without conditions. President Trump’s antitrust chief Makan Delrahim should reflect long and hard on how the government so misjudged the law and the media marketplace.
The Justice Department last November sued to block the $85 billion deal on the dubious theory that the combined company would hinder competition by forcing competitors to pay hundreds of millions of dollars more per year for Time Warner’s “indispensable” programming. If rivals refused, AT&T could supposedly withhold its content and grab rivals’ customers.
The theory ignores the “tectonic changes” in the media and broadband markets, as Judge Leon explained in his 172-page analysis. “Generic statements that vertical integration ‘can’” lead to “‘an unfair advantage over its rivals’ do not come close to answering the question before the Court,” he added.
Lo, video subscriptions are declining while TV ad revenues have plateaued. Consumers are “cutting the cord” from cable and buying cheaper alternatives over the web. Facebook and Google’s digital ad platforms have surpassed TV advertising in revenue. Google’s YouTube boasts 1.8 billion registered monthly viewers, which is 72 times as many as AT&T’s TV subscribers.
The last time Justice went to court to stop a vertical merger was 1977, and it lost. Unlike with horizontal mergers between direct competitors, the government must prove that a vertical deal would reduce choice and harm consumers. Yet Justice couldn’t show how a combined AT&T-Time Warner would pose any more of a threat to competition than these other vertically integrated companies.
Government lawyers relied heavily on testimony by a University of California, Berkeley professor, but several economists disputed his models and Judge Leon said he largely agreed with their critiques.
The government also cited expert testimony from AT&T competitors. But “in the final analysis, the bulk of the third-party competitor testimony proferred by the Government was speculative, based on unproven assumptions or unsupported—or even contradicted—by the Government’s own evidence,” Judge Leon noted.
To significantly increase market share, AT&T would have to withhold content from most competitors, which would reduce Time Warner’s $31 billion in annual advertising and subscription revenue. This would be self-defeating. A major goal of the merger is to monetize customer data as YouTube and Facebook do.
Judge Leon also pointed out that Comcast ’s acquisition of NBCUniversal in 2011 did not cause content prices to increase. And Justice couldn’t explain why or how conditions imposed on that merger failed to prevent anti-competitive conduct. Thus, the government “failed to meet its burden to show that the proposed merger is likely to substantially lessen competition,” Judge Leon concluded.
Justice could have accepted AT&T’s offer to arbitrate content fees, yet it refused to settle for anything short of divestiture of Turner Broadcasting. Bad call. President Trump famously opposed the merger during the 2016 campaign, but hostility to CNN isn’t a legal argument.
Judge Leon has wisely refused to stay his ruling if the government appeals since Justice has already delayed the deal’s closing by 18 months. Mr. Delrahim should avoid another humiliation by conceding defeat and walking away.
Appeared in the June 13, 2018, print edition.