Hillary Clinton Will Have a Big Choice to Make on the AT&T-Time Warner Deal
Opinion

Hillary Clinton Will Have a Big Choice to Make on the AT&T-Time Warner Deal

REUTERS/Brendan McDermid

AT&T’s proposed acquisition of media titan Time Warner for $85.4 billion offers a clear test for Hillary Clinton’s position that she will challenge concentrated corporate power. It will provide an early signal for whether or not she will break with nearly four decades of stale thinking about antitrust. And it will show whether monopolies have truly emerged as a signature political issue.

The deal would bolster AT&T’s telecommunications network, which includes phone, wireless, broadband, cable television (with AT&T U-verse) and satellite television (through its recent purchase of DirecTV). Time Warner owns pay TV channel HBO, cable channels like TNT, TBS, and CNN and the Warner Bros. movie studios, giving AT&T premium content to distribute.

Related: For AT&T, Time Warner Was Always on the Menu

That makes this not a horizontal deal, where two companies selling the same product or service combine, but a vertical deal, with one company acquiring multiple links in a supply chain. Other telecoms have similarly snapped up media companies, building video libraries to offer through wireless and broadband. Comcast bought NBCUniversal five years ago, while Verizon picked up AOL and is in the midst of acquiring Yahoo.

Vertical deals have been generally resistant to antitrust concerns since the Reagan administration, when the theory came into vogue that mergers should only be judged based on consumer welfare. Executives of both companies pitch the deal as allowing people to watch what they want, where they want. But that’s not the only way to look at it.

First, the deal is not entirely vertical. HBO distributes its own video to non-TV subscribers through its HBO Now online app. That success threatens DirecTV and other distributors, as HBO fans don’t need to purchase dozens of unwanted channels to get shows like Game of Thrones and Veep. Stunting HBO Now’s growth can be seen as critical to DirecTV’s survival. (Just stopping HBO Now from innovating during the pending merger could be a win in itself; AT&T only has to pay $500 million to Time Warner if regulators block the deal, a small price to pay for kneecapping a competitor.)

Related: AT&T-Time Warner May Signal New Media Industry Consolidation

Plus, AT&T is rolling out its own online video distribution service, which they may combine with HBO. In fact, that’s their stated reason for the acquisition, to “push the boundaries on mobile content availability for the benefit of customers.” Time Warner also has a 10 percent stake in Hulu, a direct competitor in online video distribution, which the combined company will likely have to divest.

Even if it does, this might be problematic. The new company could decline to license video from its programming stable to rival online or cable distributors, or raise the price of carriage, or bundle it exclusively itself. This not only protects its video service but fire-hose options like DirecTV that offer all channels. DirecTV could also change the channel placement of competitors to privilege AT&T-owned networks. Moreover, viewing data could be used to push AT&T products inside AT&T-owned programming. These aren’t theories, but scenarios experts have outlined for other proposed media mergers.

There are also inherent concerns about media consolidation and content carriers becoming content producers, able to favor their own content and disfavor alternatives. While net neutrality is explicitly designed to prevent this, telecoms have aggressively tested workarounds. For example, many wireless companies offer “zero rating” services, where using a particular app won’t count against a consumer’s data plan. You can easily envision AT&T putting HBO Now or their new online video service on a zero rating app; they already have DirecTV on one.

Related: How Success Could Ruin ‘Peak TV’

A related fear is the impact on writers, directors and producers trying to sell shows in a more concentrated marketplace. While everyone has multiple entertainment outlets these days, big television networks still reach the greatest audience. And increasing the political and economic power of the conglomerates that control those networks can translate into safer programming and tighter budgets. That includes news: Would CNN run a story about an AT&T labor dispute if the company becomes its corporate parent?

Hillary Clinton has repeatedly promised to look skeptically on big business consolidation; if she wins, this will be her first showcase. Her appointees at the Department of Justice’s antitrust division (and possibly the Federal Communications Commission) will decide whether to block the deal or wave it through with conditions, like the Obama Justice Department did with the Comcast-NBCUniversal acquisition.

Related: How AT&T Might Skirt an FCC Review of Time Warner Deal

Incidentally, accusers allege that Comcast consistently violated those conditions by failing to increase local news programming, blocking rival channels from distribution and exempting its streaming service from data restrictions (another form of “zero rating”). AT&T shows similarly monopolistic proclivities; after it bought DirecTV, it immediately jacked up prices.

Clinton is already facing pressure on this. Bernie Sanders tweeted that the deal “would mean higher prices and fewer choices.” Donald Trump, motivated mostly by perceived bias from CNN, vowed to block it “because it's too much concentration of power in the hands of too few.” Sen. Al Franken, a leader in Washington against media consolidation, said in a letter that the deal “could have a lasting effect on the quality and affordability of programming.” Leaders of both parties on the Senate Judiciary’s antitrust subcommittee promised close scrutiny and hearings.

Related: 3 Reasons Clinton Needs to Start From Scratch if She’s Elected

On Meet the Press on Sunday, Clinton’s vice presidential running mate, Tim Kaine, expressed wariness: “Less concentration, I think, is generally helpful, especially in the media.” Her campaign spokespeople echoed these concerns.

Behind the scenes, however, emails hacked by Wikileaks show Clinton aide Sara Salow accepting the cable industry’s frame on the Charter Communications purchase of Time Warner Cable (a cable distributor and different company than Time Warner), declining to make an issue of it. Others emails seem to show Clinton’s ambivalence in expressing support for net neutrality. And AT&T, an official sponsor of the Democratic National Convention, will surely try to cultivate support for its plans from Democratic insiders.

So, if Clinton wins in two weeks as expected, she has a big choice to make. Those who have reinvigorated interest in antitrust policy after decades of dormancy will demand rejection of this deal. It consolidates economic and political power, threatens rising prices and regulatory rollback, and further concentrates a media/telecommunications landscape with just a few behemoths. Even economists now admit that the assumption that mergers make companies more efficient was wrong.

Related: Washington Is Rejecting Merger Deals at a Record Rate

After initial disappointments on antitrust, President Obama has made competition a top priority, bringing new energy to the subject. Building on that by rejecting a vertical deal would expand the scope of antitrust beyond consumer prices, and send a message that big business’ merger frenzy must end. Will president-elect Clinton appoint subordinates with the courage to stuff this deal?

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