In an appalling development for the future of media, telecommunications, and America, Judge Richard Leon approved the $85.4 billion merger between AT&T and Time Warner in full, without conditions, completely rebuking the Justice Department’s effort to overturn it. In a stark display of judicial activism, Judge Leon even told DoJ not to appeal the case, thus allowing the deal to close by a self-imposed June 21 deadline, which otherwise would trigger a $500 million “break-up” fee. I guess the judge wouldn’t want any executives to lose money.
It’s hard to over-emphasize the impact of this ruling. First, the deal itself brings together one of America’s largest telecom and cable companies with a suite of valuable programming to distribute on those networks. HBO, TNT, CNN, Cartoon Network, Warner Brothers Studios, a stake in Hulu and much more will now be held by the owners of DirecTV, U-verse, AT&T mobile and broadband, Cricket wireless, and more. AT&T has already started bundling HBO for free for wireless users; the entire idea is to leverage things people want to watch by forcing them to watch it on AT&T services.
The Justice Department argued this would allow AT&T to raise the cost of Time Warner programming, whether for rival cable companies, online pay-TV services, or consumers. The trial mostly didn’t address other concerns, like narrowing the channels for artists to get their work out, concentrating the power to distribute news and information in too few self-interested hands, or stunting innovation by creating a barrier to competition. That’s because modern antitrust jurisprudence operates under the consumer welfare standard, a constrained method that only looks at costs to consumers to determine whether a merger should be granted.
In other words, the Justice Department needed to make its case while bound in a straitjacket. Derived during the Reagan administration and now infecting virtually the entire judiciary, the consumer welfare standard puts antitrust law in the province of economists and models and dueling sets of numbers, when common sense clearly demonstrates the dangers of concentration. UC Berkeley economics professor and Obama administration veteran Carl Shapiro put together a model for the government to prove consumer harm; it ended up showing less than a dollar a month for the average customer, and AT&T’s attorneys poked numerous holes in it (predictably so, as it was an inherently complex rendering of an uncertain future).
But we know that monopoly is the entire point of this merger. During the trial, the Justice Department revealed an internal document where an executive from Turner Broadcasting, now part of AT&T, stated outright that “Time Warner would be a weapon for AT&T because AT&T’s competitors need Time Warner programming.” But instead of recognizing that this desire to screw rivals obviously may “substantially lessen competition,” as the antitrust statute states, judges require economists to act as wizards and predict precise percentages of the market and markups in price.
So the courts can overlook very clear statements from executives running these companies that they need this merger to secure market power. The desire to monopolize is crystal clear, but as long as you can spin a theoretical model showing a pretense of consumer benefits, then market power is no hurdle.
I wish the only outcome of this were a much bigger and more dominant AT&T. But the roar you heard after the verdict was announced came from high-rises across Manhattan, filled with merger and acquisition lawyers counting their money from all the dealmaking to come. Just as the AT&T deal was a reaction to Comcast combining with NBCUniversal to marry content and distribution, practically every media and telecom company out there is poised to play their cards to catch up.
Comcast will announce a bidding war for coveted Fox TV and movie assets, already pledged to Disney, as early as Wednesday. That’s just the first domino in a likely rush to close deals. Amazon could buy a movie studio like Lion’s Gate. Apple, Facebook and Google are dipping into producing video and can acquire more assets for that endeavor. Sprint has already announced a deal with T-Mobile, which has a partnership with Netflix. Sinclair Broadcasting, with an assist from the FCC, is morphing into an indomitable giant at the local news level. Verizon, the other big distribution network, waits in the wings. The media business is already deeply consolidated, and this merger will ramp that up.
The entire point of these mergers—indeed, a stated goal of AT&T’s deal—is to compete with the tech platforms in a war for your attention, enabling the sale of targeted ads using your personal data. Time Warner wants more of your information so they can keep your eyeballs glued to your screen as they serve up more ads. This is nothing less than a surveillance tax on every man, woman, and child: an endless sea of using your every waking thought to bombard you with corporate pitches. Targeted advertising serves no useful purpose, facilitates monopoly and magnifies the potential for abuse of consumers and our democracy. It ought to be banned; instead it will further entrench itself.
The ruling will also give a green light for more vertical deals—those between companies that don’t technically compete with one another. That was never actually true in this case; HBO had a distribution network for its programming that will now almost certainly be folded into AT&T’s offerings. But modern antitrust law has taken a hands-off approach to vertical mergers, despite the ability to use leverage in one market to stifle competition further down the supply chain (like using Time Warner content as a weapon against AT&T’s rival distributors, you know, like Time Warner executives said explicitly that AT&T would do). Judge Leon so thoroughly smacked down the government in this case, that vertical deals will likely be too hot to handle for a few years.
That means that vertical deals that have nothing to do with media—like health insurer Aetna’s bid to join with CVS, or Cigna’s proposed deal with pharmacy benefit manager Express Scripts—face brighter prospects ahead. In fact, DoJ’s defeat was so humiliating, this could prove to be the last big antitrust case of Trump’s first term. While Judge Leon took pains to say in his ruling that “the temptation by some to view this decision as being something more than a resolution of this specific case should be resisted by one and all,” it’s hard to disassociate this smackdown from the cases to come. Any companies looking to merge can likely be confident that, even if they don’t intimidate the antitrust agencies out of challenging them, the courts will have their back. The champagne must be flowing in boardrooms tonight.
This is why top lobbyists in Washington paid the equivalent of floor seats at an NBA playoff game to see Judge Leon read his verdict live. This is a lightning bolt on behalf of corporate America, announcing that it can rule over the world without constraint from piddling laws or citizens. Big business has encouraged the courts to so distort the century-old law preventing corporate power that it cannot be recognized. The Second Gilded Age just got a another layer of gold today.