AT&T’s WarnerMedia and Discovery Deal Unlikely to Have Smooth Sailing

May 21, 2021 by Victoria Turner
AT&T’s WarnerMedia and Discovery Deal Unlikely to Have Smooth Sailing
People pass an AT&T store in New York's Times Square. (AP Photo/Richard Drew, File)

Telecom giant AT&T may expect smooth sailing through the federal review of its deal spinning off WarnerMedia to Discovery, but four antitrust experts disagree that it is such a clear-cut case. And the deal is likely to get scrutinized by the Justice Department’s Antitrust Division, they said. 

The mere size of the merging entities involved in the $43 billion transaction will warrant a deeper look by the agency, said Jeffrey Jacobovitz, partner at Arnall Golden Gregory and former Federal Trade Commission attorney. He was referring to the size, the number of potential markets for the DOJ to review – particularly that of media content, video streaming and sports programming content – and AT&T’s “long history” with the division starting with its 1984 breakup of AT&T’s monopoly, up to the division’s legal challenge to the AT&T/TimeWarner merger in 2018. 

All four experts said the deal, which would create the second-largest nationwide media company behind Disney, is likely to receive a second request for information from the agency. This in and of itself could extend the federal review, likely pushing the deal out from its expected mid-2022 close date. And the current administration and Congress have been vocal about heftier antitrust enforcement.

A challenge – an attempt to stop the deal, known as a “block” – by the division would add another six months, Jacobovitz said. Nevertheless, there is still a chance that it could close in a year, depending on how much pre-transaction work and information the merging parties may have already provided. For example, whether they have already identified areas of overlap that would produce excessive market power, control over relevant products or geographical markets that would lessen competition, as well as the companies’ willingness to consider concessions like spinning off a business unit to be independently run.

According to a second antitrust attorney, the first area of overlap that “jumps out” falls in the direct-to-consumer streaming services resulting from the combination of WarnerMedia’s HBO Max with Discovery+, Food Network Kitchen and MotorTrend OnDemand offerings. The combined entity would then be larger than Netflix. 

Both Jacobovitz and the attorney also pointed to both media companies’ sports offerings as another potential overlap. Aside from WarnerMedia owning CNN, HBO, and Warner Bros. film studio, the media entertainment company has rights to the National Basketball Association, college basketball, the National Hockey League and some baseball. 

In addition to its market-leading non-fiction-focused programming, Discovery has a strategic alliance with the Professional Golf Association Tour, its overseas premium sports provider Eurosport, and the rights to the Olympics. Another international component is the recently launched AT&T Latin America pay-TV services and Discovery Kids in Latin America, but it is uncertain what regulatory cross-border approvals from overseas competition authorities, if any, the companies would need to receive.

Announced on Monday, the proposal comes just three years after AT&T fought tooth-and-nail in court to merge with the then-Time Warner media company. The division at that time argued against the merger saying further consolidation in the media market would lessen competition, leading to fewer choices for consumers, higher prices and a loss of quality and innovation. AT&T, however, won the case by claiming efficiencies of cost benefits, enhancement of quality and choices in their offerings to consumers. 

“Clearly, it’s a failed merger,” charged the attorney, noting that all the claims AT&T’s then-CEO Randall Stephenson had made in court are now “totally repudiated” with this spinoff. 

But that’s where it gets complicated, said John Bergmayer, legal director of Public Knowledge. If the division wants to stop the deal, it would essentially be making AT&T keep a failing subsidiary, directly contrary to the division’s position in the 2018 trial. And these “cross-currents where it’s simultaneously fixing a problem but creating another” by merging the media companies, could lead to more media consolidation, give them potentially harmful leverage when negotiating with cable companies and bring higher prices for their “must-have programming.” This buyer power leverage is known as monopsony and will be something the division will review, Bergmayer and the attorney said.

And this monopsony issue could trickle down to the content creators, said Diana Moss, president of the American Antitrust Institute, putting writers and other content creators “in a bad position because they will lose even more bargaining power vis-a-vis content producers.” 

Bergmayer, Moss and the attorney pointed out this potential monopsony issue could force content creators to accept inferior contract terms since there would be fewer buyers for their work. Thus, also impeding media diversification, Bergmayer and Moss added.

On top of the typical antitrust concerns over the “price effects on the consumer side,” the monopsony issues are “not just about the prices paid for content through subscription services,” she said, but also about quality, innovation and diversity in content.

Nevertheless, the companies remain optimistic for a positive outcome since, “given the complementary nature of these businesses, we don’t anticipate any significant regulatory hurdles,” an AT&T spokesperson told TWN.

But organizations representing content creators, such as the Writers Guild, might have an opposing view, Moss and the attorney cautioned. 

Discovery declined to comment. The DOJ and Writers Guild did not respond to requests for comment. 

A+
a-
  • AT&T
  • Discovery
  • Justice Department
  • regulators
  • WarnerMedia
  • In The News

    Health

    Voting

    Telecom

    March 21, 2024
    by Dan McCue
    DOJ, 16 States Sue Apple Over Alleged Smartphone Monopoly

    WASHINGTON — The Justice Department and 16 state attorneys general sued Apple on Thursday accusing the Cupertino, California-based tech giant... Read More

    WASHINGTON — The Justice Department and 16 state attorneys general sued Apple on Thursday accusing the Cupertino, California-based tech giant of operating an illegal monopoly in the smartphone market. According to the lawsuit, which was filed in federal court in New Jersey, Apple has used the... Read More

    House Passes Bill That Would Lead to TikTok Ban if Chinese Owner Doesn't Sell. Senate Path Unclear

    WASHINGTON (AP) — The House on Wednesday passed a bill that would lead to a nationwide ban of the popular video app... Read More

    WASHINGTON (AP) — The House on Wednesday passed a bill that would lead to a nationwide ban of the popular video app TikTok if its China-based owner doesn't sell, as lawmakers acted on concerns that the company's current ownership structure is a national security threat. The bill, passed by... Read More

    Fake Images Made to Show Trump With Black Supporters Highlight Concerns Around AI and Elections

    WASHINGTON (AP) — At first glance, images circulating online showing former President Donald Trump surrounded by groups of Black people... Read More

    WASHINGTON (AP) — At first glance, images circulating online showing former President Donald Trump surrounded by groups of Black people smiling and laughing seem nothing out of the ordinary, but a look closer is telling. Odd lighting and too-perfect details provide clues to the fact they... Read More

    Americans Reporting Nationwide Cellular Outages From AT&T, Cricket Wireless and Others

    A number of Americans are dealing with cellular outages on AT&T, Cricket Wireless, Verizon, T-Mobile and other service providers, according... Read More

    A number of Americans are dealing with cellular outages on AT&T, Cricket Wireless, Verizon, T-Mobile and other service providers, according to data from Downdetector. AT&T had more than 73,000 outages around 9:30 a.m. ET, in locations including Houston, Atlanta and Chicago. The outages began at approximately... Read More

    Google Ups Stakes in AI Race With Gemini, Technology Trained to Act More Like Humans

    Google took its next leap in artificial intelligence Wednesday with the launch of project Gemini, an AI model trained to behave in... Read More

    Google took its next leap in artificial intelligence Wednesday with the launch of project Gemini, an AI model trained to behave in human-like ways that's likely to intensify the debate about the technology’s potential promise and perils. The rollout will unfold in phases, with less sophisticated versions of... Read More

    Broadcom Planning to Complete Deal for $69B Acquisition of VMWare After Regulators Give OK

    SAN JOSE, California (AP) — Computer chip and software maker Broadcom has announced it has cleared all regulatory hurdles and... Read More

    SAN JOSE, California (AP) — Computer chip and software maker Broadcom has announced it has cleared all regulatory hurdles and plans to complete its $69 billion acquisition of cloud technology company VMware on Wednesday. The company, based in San Jose, California, announced it planned to move... Read More

    News From The Well
    scroll top