Tomorrow, Judge Richard Leon is expected to render his
decision in the AT&T-Time Warner merger case. Seven months earlier, when the Justice
Department filed its complaint to block the proposed $85 billion deal, they
laid out the expected arguments to contest a vertical combination “whose effect
may be substantially to lessen competition in violation of Section 7 of the
Clayton Act.”[1] They argued that AT&T, the multichannel
video programming distributor (MVPD) with popular programming would look a lot like
Comcast and have the incentive and ability to harm competitors. Specifically, they argued that AT&T/DirecTV
could 1) extract hundreds of millions of dollars more per year from rival MVPDs
for Time Warner’s networks; 2) use its increased power in coordination with
Comcast to slow the industry’s transition to alternative video distribution
models; 3) block innovation; and 4) result in higher consumer bills.[2]
It is true that customers have limited choice when it comes
to getting Pay-TV from a traditional MVPD.
At most, there are three or four offerings (one cable provider, two
satellite providers, and maybe one Telco) in local communities for consumers to
choose from. It is true that nationwide the
top five firms control more than 80% of the market, each with significant
bargaining power when it comes to negotiating carriage terms with unaffiliated programmers.
|
Firm
|
EOY17
Pay-TV
Subscribers
(000)
|
Market Share (%)
|
EOY17 Broadband
Subscribers (000)
|
Market Share (%)
|
||
|
AT&T U-Verse/DirecTV (incl. DirecTV NOW)
|
25,270
|
26.1
|
15,719
|
15.7
|
||
|
Comcast
|
22,357
|
23.0
|
25,869
|
25.9
|
||
|
Charter
|
16,997
|
17.5
|
23,903
|
23.9
|
||
|
Dish TV (incl. Sling TV)
|
13,242
|
13.7
|
|
|||
|
Verizon FiOS
|
4,619
|
4.8
|
6,959
|
7.0
|
||
|
Market Share of Top 4
|
80.3
|
72.5
|
||||
Source of information:
Leichtman Research Group[3]
It is true that Time Warner is an “anchor tenant” for traditional
and virtual MVPDS as it creates and owns valuable content through Warner
Brothers, the largest television and film studio in the world, TBS, TNT, and
Adult Swim--three of the top five cable networks among 18-49 year-olds--, the
cable news service CNN which reaches over 91 million households, and Turner
Sports with highly valued licensing agreements with such sports franchises as the
MLB, NBA, and NCAA March Madness. And,
it is true that, as of now, consumers of live events – news and sports – still
need to pay for a MVPD or broadband subscription.
But, it is also true that since 2013, subscribership to traditional
MVPDs has declined by more than 3 million, partly because of frustration with
rising bills and partly because there are now alternative ways to consume video. It is also true that while there were 487
original scripted programs aired on television last year, 117 were from Netflix,
the largest subscription video on demand service (SVOD) with over 55 million
domestic subscribers (and 118 million globally).[4] It is also true that Netflix with over half
of all U.S. broadband households subscribing to its service, spent $6.3 billion
on programming last year, placing it in fifth place behind NBC, FOX, Time
Warner, and Disney.[5] Amazon, the second largest SVOD, spent an
estimate $4.5 billion on original non-sports programming.[6] It is also true that most content owners,
like Disney, Time Warner’s HBO, CBS, are going or planning to go direct to
consumer, not abandoning, but relying less on the traditional relationships
with MVPDs.
I would argue that had this merger been announced 3 years
earlier, DOJ’s case against it would have been stronger. But, the media landscape has changed
dramatically and will continue to do so.
Consumers may not be any better off, in fact, they may end up paying
more when they pay for broadband and cobble together program options from SVODs
and virtual MVPDs. But, the welfare
change is not the fault of this merger and the others that are likely to follow
as legacy distributors (e.g. DISH, Verizon) and programmers (Disney, CBS, FOX, Viacom)
find themselves playing catch up to the “here to stay” technology disruptors –
Facebook, Amazon, Apple, Google, and Netflix that expanded organically (rather
than through M&A). I expect that the
government will lose this case. Prior to
challenging the other mergers that are likely to follow, let’s hope they fully
consider the [taxpayer] cost of doing so.
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