ICLE Senior Scholar Julian Morris Explains AT&T/Time Warner Merger in Reason Article - International Center for Law & Economics

ICLE Senior Scholar Julian Morris Explains AT&T/Time Warner Merger in Reason Article

ICLE Senior Scholar and Reason Foundation Vice President of Research Julian Morris quotes ICLE Executive Director Geoffrey Manne in explaining that blocking the AT&T/Time Warner merger would actually hurt competition:

Consumers are shifting away from the kinds of access and content bundles that so concern the DOJ. And they are doing so because such bundles poorly match their preferences. AT&T recognizes the trend of falling subscription rates for its traditional TV bundles. That’s why it wants to expand into content. It could have done that by licensing legacy content from others, arranging syndication deals for new content, and building its own studio, as Netflix and Amazon have done. It chose instead to merge with Time Warner.

At the heart of the DOJ’s complaint is an assumption that the merged entity would use its market power to raise the price of content currently owned by Time Warner, or threaten to withhold programming, including hit shows such as Game of Thrones and NCAA March Madness. Time Warner could already make such threats, but the DOJ claims it would have greater incentive because it could benefit from some subscribers switching over to AT&T’s networks (DirecTV, U-verse and DirecTV Now).

A merged AT&T-Time Warner could, in principle, refuse to supply content to some distributors in order to drive consumers to purchase its own access and content bundles, but it would not be in the merged company’s financial interest to do so. As Geoff Manne notes in the WSJ:

“More than half of Time Warner’s revenue, $6 billion last year, comes from fees that distributors pay to carry its content. Because fewer than 15% of home-video subscriptions are on networks owned by AT&T … the bulk of that revenue comes from other providers. In other words: Calculated using expected revenue, AT&T is paying $36 billion for the portion of Time Warner’s business that comes from AT&T’s competitors. The theory seems to be that the merged company would simply forgo this revenue in a speculative hope that withholding Time Warner content from distributors would induce masses of viewers to switch to AT&T—and maybe, one day, put competitors out of business. That this strategy would actually work is unfathomable. Game of Thrones is good, but it isn’t that good.”

Click here to read the full Reason article.