The top TV networks, including TBS, CNN, HBO, and TNT, are owned by Time Warner, the second-largest distributor, which AT&T sought to buy. The deal, which was one of the biggest acquisitions in recent memory, was believed to be worth $107 billion. AT&T would want to acquire Time Warner in its entirety, including all of its well-known TV networks. When this deal closes, AT&T will demand millions from competitors for Time Warner broadcasts, and this takeover would also delay the adoption of new video distribution methods that would give consumers more options. ("Why AT&T and Time Warner May Have a Strong Case to Merge", 2017). The meager was criticized for slowing down innovation and many consumer-friendly products that would be guaranteed when the TV programs are not put under one meager. This is the reason the government of the United States bought forward a civil suit on AT&T to stop the meager for lessening innovation due to reduced competition against the provision of Section 7 of the Clayton Act.
In America, there are few options for TV subscription. Already there are few providers of the traditional channels provided through cable Television, Satellite and Telephone in which billions of Americans, having fewer video distributors means that consumers will pay higher and higher prices for video streaming yet the customer care is deteriorating. Lack of competition means abnormal profits for the few firms that remain in the market to the detriment of the consumers (Merced, 2017). For example for AT&T, video streaming is a cash cow in their business strategy. Despite online video streaming allowing video allows small firms to enter the market, they are virtually taken over by large firms like AT&T. Many video models are welcome, and this cannot happen when the firms are being swallowed up by large firms.
Many subscribers access Amazon Prime or Netflix on top of their satellite subscriptions. Of late many people have been replacing their cable subscriptions with services such as Sling TV which offer fewer channels than a typical satellite and cable subscriptions which are affordable prices with long-term commitments. These online services which are expanded and have increased competition to the video distributors which will be adversely affected by the takeover and reduce the margins of various.
The merger will harm consumers by lessening any competition among other distributors, and it would also slow down the new technologies of online streaming. The court nullified the merger as it will result in higher prices as the company will have monopoly in the market and give AT&T bigger market share that will result in power to control prices at will. At the same time, HBO is the most selling network in the United States in both news and cable network. With world's leading TV series game of thrones, and sports programming which also includes NCAA March Madness and many leagues such as PGA Championships and NBA, the reason for the merger is that Time Warner networks have the large audience to sustain large audience due to popular and highly networks that attract and retain customers. According to statistics, the most popular network has a wide coverage of 90 million households (Merced, 2017). There is a limit to what the distributors will pay for the Turner networks. Turner Networks are in a fix because without the deal they will lose a lot of advertising deals hence reduced revenues. Should the merger be allowed, revenues will be higher, and the merged company will eliminate competitions and customers will have nothing to lose because they can sign up with DirectTV, which will bring them new profits. The deal will give the two companies the best alternatives in dealing with the merger hence the company will be able to charge higher prices.
Based on the accepted industry standards, the merger will reduce competition by giving the bigger merged company leverage to charge high prices to the rival companies which distribute the rival videos and reduce the competition of the rival networks which will be merged within the company. The Congress in the United States recognized that "vertical integration of suppliers have added advantage to the affiliated cable TV operators and other programming using other technologies." This is because the programming costs have been increased by raising the prices and overcharging their customers. When this is allowed to happen, it means that Americans will pay more for the cable and other traditional Television networks. The merger will also give the company leverage to have direct control of HBO, which have been used by many networks to attract customers thus lessen the competition among the rivals. DirectTV explained that integration of programming could give the entities incentives in gaining unfair competitive advantages over the rival firms. Another argument against the merger is that it will diminish the competition from online video streaming companies. AT&T listed the traditional Pay-TV s the cash cow for many years, although the company fears disruption from emerging competitors from internet video streaming.
Time Warner Network is very important for any distributor who might emerge in the market. They are only 2nd behind the TV channel Disney. Their importance is because of their ability to attract customers to their new various platforms of video distribution. Turner has benefited a lot from, and the need for the merger is simply to host all tenants of Video to a single TV channel. Clayton Act protects mergers which re harmful to consumers and this merger will violate this act by lessening competition. The acts categorize harmful mergers as those in which the merging parties use their control to lessen competition by raising the price of that input or just withholding the prices. Traditional video distributors need to compete effectively, and this has been effective in price controls. AT&T argues that the main motive behind the merger is to promote diversity in the content of the video and competition in video programming. The effect of the merger is to bring all AT&T internet, wireless and video distribution under one roof. This means that the MVDP will lose a good number of customers and sign for a rival who offers the larger number of products due to the merger ("Why Mergers Like the AT&T-Time Warner Deal Should Go Through," 2017).
Another example is that if other video networks such as virtual MVPD does not have the most popular networks in video content, the customers re likely to look for the contents elsewhere (Merced, 2017). As one plaintiff put it, the merger would substantially threaten to withhold Turner Warner networks from distributing competitors. The merged company competitive advantage would increase, this has nothing to do with pricing, but it has all to do with locking out potential competitors in distribution. When the merger could go through, the merger would create an environment where the more significant company would have the ability to charge higher rates for shipping and even lock out potential distributors (Littleton & Littleton, 2017) The effect could be summarized in the following questions: what percentage of customers would depart the rival networks who were distributing for Time Warner Networks who will not have access to the channels which will be exclusive for AT&T/Direct-TV? What percentage of the departed customers will come back even if these competitors secure better contents elsewhere? How many of the departed customers will be permanent members of AT&T/DirectTV and how much profit will T&T make from their new customers?
Another feature that may arise from the merger is that it may exude characteristics of oligopolistic coordination. This is especially among the vertically integrated MVPD's. The result is that the merged company, plus other three companies which are in the market would have absolute control over the market and there is a possibility of collusion in price control in almost all aspect of video streaming from studio revenue, distribution revenue, and network revenue. The merger will also generate merger-specific efficiency in the company that will be relevant to the markets and outweighs the other competitive effects that may occur. Any entry will become unlikely to have any effects on the anti-competitive effects of the merger. According to the plaintiff, the defendants would violate the Clayton Act and lessen interstate competition. AT&T and Direct TV's main line of business are to buy and distribute video, Time Warner Sells and distributes and therefor the requested merger was rejected by a court ("Why AT&T and Time Warner May Have a Strong Case to Merge," 2017).
References
Forden, M., McLaughlin, M., & Moritz, M. (2017). AT&T, U.S. Prepare to Battle in Court Over Time Warner Merger. Bloomberg.com. Retrieved 30 November 2017, from https://www.bloomberg.com/news/articles/2017-11-20/at-t-is-said-to-face-u-s-antitrust-lawsuit-over-time-warner
Littleton, C., & Littleton, C. (2017). Judge Sets First Hearing Date in AT&T-Time Warner Merger Lawsuit. Variety. Retrieved 30 November 2017, from http://variety.com/2017/tv/news/att-time-warner-merger-lawsuit-1202626286/
Merced, C. (2017). Justice Department Sues to Block AT&T-Time Warner Merger. Nytimes.com. Retrieved 30 November 2017, from https://www.nytimes.com/2017/11/20/business/dealbook/att-time-warner-merger.html
Why AT&T and Time Warner May Have a Strong Case to Merge. (2017). Fortune. Retrieved 30 November 2017, from http://fortune.com/2017/11/20/why-att-time-warner-antitrust/
Why Mergers Like the AT&T-Time Warner Deal Should Go Through. (2017). Harvard Business Review. Retrieved 30 November 2017, from https://hbr.org/2017/11/why-mergers-like-the-att-time-warner-deal-should-go-through.
