The biggest antitrust case in the nation began Thursday in a federal courtroom in Washington, D.C. Two of the nation’s biggest media companies, Time Warner Cable and AT&T, are in the process of battling a lawsuit with the Department of Justice over their proposed $8.5 billion merger, an idea first conceived in 2016.
“I worry that people aren’t recognizing the importance of this case for the future of the entertainment industry,” said Carnegie-Mellon media Professor Michael Smith in an interview.
This is a landmark case both because of its politics and implications for future mergers. But the depth of the details make it a complex issue. The final decision on the merger will shape the media, technology and business industries for decades to come. Here’s what you need to know:
Background
This isn’t the first time the DOJ has sued in order to prevent a merger from happening. Last year, the DOJ blocked health insurance giants Aetna, Humana, Cigna and Anthem from creating two separate mergers, Aetna-Humana for $54 billion and Cigna-Anthem for $34 billion. However, these were horizontal mergers, or a merge between two companies of similar nature.
If AT&T and Time Warner are to merge, it would be a “vertical merge,” where a company involved in one business (in this case, telecommunications), purchases another company in an unrelated business (media and television). The court hasn’t blocked a vertical merge since The United States vs. Hammermill Paper Company in 1977, where the DOJ requested the paper manufacture divest into two separate companies. The DOJ lost.
In November, The New York Times reported that the DOJ insisted AT&T sell CNN’s parent company, Turner Broadcasting, in order to gain government approval for the merger. AT&T retaliated.
DOJ Defense
The DOJ argues that the merger will harm consumers by ultimately increasing the price of cable subscriptions. In order for the DOJ to win, it must prove that the merger will cause probable and substantial harm to both competition and the consumer.
Lawyers for the government and AT&T made opening statements in the trial that will determine whether AT&T will be allowed to purchase Time Warner https://t.co/68nY2kTDvU pic.twitter.com/55w3a2zQYg
— CNNMoney (@CNNMoney) March 22, 2018
According to the DOJ pretrial brief, “the evidence at trial will establish that AT&T’s proposed acquisition of Time Warner threatens significant harm to competition and consumers in markets across the country.”
Originally reported by CNN, government defense lawyer Craig Conrath said in his opening statement, “This merger will take a tool [AT&T’s rivals] need to compete, and turn it into a weapon.”
AT&T Defense
In the AT&T pretrial brief, the company defends its decision as the opposite of probable cause for harm. Instead, it backs the merge as “about making Time Warner and AT&T more competitive during a revolutionary transformation that is occurring in the video programming marketplace.”
AT&T argues its current competition from companies such as Google, YouTube and Netflix–who each offer exclusive, premium channels–is a valid reason for the vertical merge.
Going Forward
The case is estimated to last a few weeks, and the results have the potential to transform the media industry.
“I really think the future of the entertainment industry is going to be streaming platforms, it’s not going to be cable companies,” said Smith.
Depending on who wins the case, the possibility for future mergers such as the anticipated merge between Fox and Disney is at stake.