Morris Esformes Breaks Down the AT&T Time Warner Merger

Morris Esformes Breaks Down the AT&T Time Warner Merger

Back in 2016 AT&T announced that it was buying Time Warner Media and its affiliate networks, CNN, HBO and TNT, however, the process has been a long road (that’s still continuing today), including a failed U.S. Appeal and backlash from many political figures. The deal was suggested to be approximately $85.4 billion and bring large changes to the entertainment, information, and telecom economies, but where does the merger stand today?

As the nation’s second-largest wireless carrier, AT&T in an unprecedented measure announced that it would engage in a vertical merger with TimeWarner to enhance its services and remain competitive in the current climate of the industry. The deal would combine a large telecom provider and a media giant under one roof, meaning AT&T would not only own content distribution, but the content itself.

While the idea was intended for a bright future for both companies, it wasn’t met with the same optimism from political leaders and the rest of the media industry.

Backlash Over the Deal

AT&T and TimeWarner’s vertical merger spurred tons of backlash from political figures of both parties and industry competitors. At a time where discussions of inequality are at an all time high, the merger garnered a lot of press and debate. While U.S. Senator Amy Klobuchar called for the company to shed light as to how this would affect consumers, and Senator Elizabeth Warren has already taken the merger to the campaign trail, business analysts agreed that the purchasing of media companies was a “natural next step” for telecommunications companies, and that it would allow both companies to remain competitive. The merger also has since been influenced by the Department of Justice, which sued AT&T just shortly after its announcement.

The Justice Department, in an attempt to stop the merger from happening, sued the company just after a year of announcing the merger on “antitrust” grounds. The Justice Department feared that by merging with TimeWarner, AT&T would have the ability to raise competitor rates and industry rates as a whole, ultimately stifling industry growth and innovation and promoting inequality. The debate was taken to court, where both AT&T and TimeWarner argued the DOJ’s allegations and promoted the future of both companies.

The U.S. Judiciary System Gets Involved

Earlier this year, an appeals court rejected the Justice Department’s bid to stop an AT&T and Time Warner merger from happening. The Justice Department stepped in to stop the merger after arguing that with the size of the company it would have greater bargaining leverage and could potentially use this against consumers to switch them over from DirecTV. The Justice Department claimed that if the merger went through AT&T could raise prices, causing a full industry to price out lower income homes.

AT&T argued against the Justice Department, claiming that it had no intention of raising industry rates or pricing out competitors with the merger. Because both TimeWarner and AT&T rely on subscriptions from consumers, as well as advertising fees, dropping a distributor or “blacking out” competitors would create too much financial harm to the company. Both companies also claimed that with increasing subscription rates to various streaming services, such as industry leader Netflix, as well as Google and Facebook, that they needed to merge to become competitive and not dissolve completely. Increasing subscriber counts to streaming services such as Netflix, HBO Go, Hulu and more have caused harm to many media companies, forcing them to be innovative to compete; this is a topic I discuss heavily in my recent blog, “Morris Esformes Discusses Netflix and Its Role in Advancing the Film Industry,” which you can find at the Morris Esformes Blog at www.morris-esformes.com.

However, at the end of the day, AT&T walked away with the win. The decision was made by a three-judge panel in the DC circuit from a U.S. Court of Appeals, quickly following the decision TimeWarner transitioned its name to WarnerMedia. The merger is seen to be a “vertical merger” due to AT&T being a content distributor and TimeWarner being a content producer, the two companies go hand-in-hand. The pushback from the Justice Department is unprecedented in a vertical merger, like the one at hand, as a competitor isn’t being taken off the market like it would be in a “horizontal merger.” Typically, vertical mergers receive much less scrutiny due to the merging making sense for both companies financially and within the industry. It’s clear that most of the backlash received from this merger was based on company size and industry influence.

Now, AT&T and TimeWarner, now WarnerMedia, continue on as “separate businesses,” a sentiment noted by AT&T to the Justice Department following the ruling. Although, it seems as if it’s back to the courts for this merger, as the DOJ appealed the ruling. Currently, we’re still waiting to see how this merger plays out and how the industry may change accordingly, but it’s clear that this merger will be used as fuel during upcoming elections, as senator Elizabeth Warren has already discussed its proceedings on the campaign trail.

Morris Esformes
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