This week, Time Warner’s share prices experienced a major decline after concerns surfaced about the entertainment giant’s potential $85 billion acquisition by AT&T.
The acquisition itself is no news: AT&T first announced its plans back in October 2016 with hopes of expanding its content ownership. However, the Justice Department has taken interest in the deal before its finalization.
Justice Department officials met with the chief executive officer of AT&T, Randall Stephenson, to discuss the implications of such an acquisition. Officials have said that they consider the deal to be in violation of antitrust laws.
Antitrust law regulators warned that they would block the deal under consensus that monopolization is taking place. Regulators also stated that they would approve the acquisition if AT&T agrees to sell off Time Warner’s Turner Broadcasting division.
Controversy abounded over whether the Justice Department is truly trying to protect fair competition by asking AT&T to sell Turner Broadcasting.
Because Turner Broadcasting owns CNN, the news network consistently derided as stating “fake news” by President Donald Trump, the pressure to sell it appears to be somewhat politically motivated.
Alternative options for AT&T include selling off its DirectTV service or other assets of Turner Broadcasting such as TBS, Cartoon Network and HLN.
As a conglomerate, AT&T puts a major emphasis on purchasing a diverse set of assets as part of its growth strategy. Because of this, AT&T is very reluctant to give up such major units of the organization.
In a statement, Stephenson recently said that AT&T has no intention of giving up CNN. The Justice Department, however, declined to respond to this comment.
When the Time Warner and AT&T deal was first made public, Trump referred to it as “a deal we will not approve in my administration because it’s too much concentration of power in the hands of too few.”
One of Trump’s most viewed tweets concerning CNN is an edited video of him in a boxing ring punching an opponent with the network’s logo in place of a human face.
AT&T claims that the Justice Department is not concerned with carrying out justice, but rather acting in service of Trump who is personally biased against CNN.
Analysts argue that because the deal is a vertical merger, customers will benefit from it.
When a vertical merger occurs, a firm purchases a different stage of production that assists in its end goal.
By contrast, a horizontal merger works when a firm buys out its competition, creating one large firm with competitive advantage over smaller firms.
The firm benefits by reducing production costs and the consumers benefit because competitors will also find ways of improving their product costs.
In this case, Time Warner provides content, and AT&T is focused on distribution, so a vertical merger such as this is unlikely to be successfully opposed in court.
The goal of AT&T’s acquisition is give consumers the option of “TV-everywhere,” a concept in the industry of being able to stream television on all of one’s devices. While this concept has been around for years, there is no company that has provided such an appealing bundle deal to consumers.
AT&T hopes to reduce costs and other difficulties of its bundle program, thus sparking interest in other companies to create similar deals in order to level with AT&T.
Some question AT&T’s persistence towards keeping CNN. Critics believe it would be better for the company to avoid tension with the Trump administration. According to Stephenson, this would contradict the most attractive aspects of the deal.
In an interview, Stephenson described CNN as a sizable inventory provider that would complement AT&T’s large data provider. Together, they could bring great advertising capabilities to a wide demographic. He also emphasized that AT&T was prepared to litigate this deal ever since the plan arose.
The main argument is that there is no overlap in competition because it is a vertical merger, and similar cases have not lost in court for over forty years.
AT&T has a lot of evidence against the Justice Department that supports the legitimacy of the potential deal. However, the Justice Department has had some successes blocking mergers in recent years.
According to CNBC, the Justice Department, under former President Barack Obama’s administration teamed up with 11 states to challenge Anthem’s $54 billion acquisition of Cigna, and with eight states to block Aetna’s $37 billion deal for Humana. These deals were both canceled earlier this year.
If it is able to go through, the acquisition could cause a revolution in how consumers purchase and watch their programming.
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