Tuesday, 11 Dec 2018

The United States can not stop AT & T Deal or the balkanization of television

The changing competitive dynamics of the television entertainment industry are already causing consumer frustration with blackouts and the general difficulty of finding content. The US Department of Justice has focused on the role played by the massive merger of AT & T Inc.-Time Warner Inc., but its attempt by Hail Mary to cancel the deal seems doomed to failure.

In June, AT & T won a highly contested litigation over the acquisition, a deal valued at $ 102 billion, largely including debt. The Department of Justice appealed the decision despite the trial judge's strong urges, US District Judge Richard Leon, not to do so. On Thursday, three appellate judges heard the lawyers on both sides and were clearly skeptical of the government's case. They questioned the claim that Leon had used "a clearly erroneous logic" and "rejected the economics of negotiation". They did not seem convinced.

It has been said that the Department of Justice could not have asked for a better panel, since the judges are appointed by Presidents Obama, Clinton and Reagan. They have not announced the timing of their decision, but I imagine that the AT & T team is already distributing over five years.

What is interesting is that while the lawyers were arguing in the abstract of the future, pay-TV customers were already suffering harm. The question is no longer whether it happens, but who provoked it. AT & T plays a role, of course, but it is not alone.

The HBO network, one of the assets that AT & T inherited in this transaction, has been overshadowed by Dish Network Corp.'s satellite and television subscribers. Dish argues that AT & T wanted to pay a minimum number of subscribers to HBO right off the bat, even though these subscribers never materialized and, without going into details, that requests were moving away. past contracts with HBO prior to AT & T's staging. But Dish's opposition to the Time Warner deal and President Charlie Ergen's reputation as industry hooligans , some might view the HBO impasse as a ploy to help the government's argument about competitive harm. When I asked Ergen about it during a talk on Thursday, he said the power outage had "nothing to do with the call" and that 39, there was in fact "no value of public relations", since the Ministry of Justice could not present new evidence and is not likely to win.

In any case, who is most likely to earn more in a power outage of HBO? Probably AT & T, if it compensates for Dish's lost money through subscriber wins for its own HBO Now app, DirecTV services or the new multi-level broadcast service it will launch next year, which should be anchored in HBO content.

Nevertheless, the situation must be considered in the context of the whole sector. Most major media companies are expected to launch a form of service directly to the consumer and therefore begin to refuse to broadcast their best content to their competitors' products. For example, Walt Disney Co. pulls its content out of Netflix Inc. when it introduces the Disney + app in 2019. There was also this week's hoopla on "Friends," for which Netflix paid out $ 100 million for continue to offer his services. next year. AT & T owns the rights to the show and may decide to share it with Netflix after that time or reserve it for its own products.

What this means for consumers is that not only does it become harder to know which apps and TV packages offer their favorite shows and movies, but it's also expensive to put together all the products you need to watch them. Power outages such as HBO / Dish are attracting attention, but this is only a symptom of the new media landscape. Netflix has changed consumers' expectations for the pricing of pay-TV services and commercial viewing. The only way for media giants – who traditionally rely on significant sources of advertising revenue and cable costs – to try to match Netflix's offerings while realizing the benefits they have always enjoyed is to present their own apps with their own content and start cutting off rivals supply.

AT & T's Time Warner merger contributes to this broader trend and it seems like nothing stops it now.

To contact the author of this story: Tara Lachapelle at tlachapelle@bloomberg.net

To contact the editor responsible for this story: Daniel Niemi at dniemi1@bloomberg.net

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

Tara Lachapelle is a columnist for Bloomberg Opinion in charge of markets, Berkshire Hathaway Inc., media and telecommunications. She previously wrote a column on mergers and acquisitions for Bloomberg News.

© 2018 Bloomberg L.P.


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