The AT&T/Time Warner Deal Is Good for Consumers and Innovation

The AT&T/Time Warner Deal Is Good for Consumers and Innovation
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Mergers often raise antitrust concerns. This is particularly the case when direct competitors combine to form a much larger company – referred to as a horizontal merger. Because these sorts of mergers eliminate competitors and consumer choice, they can lead to a significant increase in market concentration and pose anticompetitive risks. At its core, regulatory policy on mergers often seeks to avoid a reduction in consumer choice, and to avoid market restructuring that weakens competition.

The announced AT&T and Time Warner Inc. deal does not create any of these risks. For starters, AT&T is primarily a network company, providing telecommunications and broadband services, both wired and wireless. Time Warner is a media and entertainment company, providing content for television, cable and other platforms. Because the companies currently operate at different levels of the distribution chain, this “vertical merger” does not result in a reduction in the number of competitors. The expectation is that the integration of operations between the companies will create efficiencies and synergies that will add value and savings for the company and consumers, as well as foster innovation.

Let’s examine the market a little more closely.

Time Warner is a media company that operates HBO, CNN and TBS, and it licenses their TV shows, movies and news coverage to distributors. Time Warner does not own a telecommunications business. Among the market’s many large traditional competitors are Twenty-First Century Fox, Viacom, NBCUniversal (now owned by Comcast) and Disney, the largest media and entertainment company.

On the other side of the merger, AT&T provides wireless, landline, broadband Internet service, and DirecTV, a satellite cable service. DirecTV produces almost none of the programing it distributes. There is no product line in which AT&T competes against Time Warner. In evaluating the merits of this merger, regulators should conclude that the combination would not eliminate a competitor of either market. Therefore, the merger does not concentrate the market and poses no obvious anticompetitive risks.

However, a few of AT&T’s direct competitors do compete against Time Warner. One large competitor to AT&T is Comcast, which owns a number of media content providers, including (as noted earlier) NBCUniversal. HULU’s streaming service, which is partially owned by Comcast, and is set to offer 35 channels through deals with ABC, ESPN, Disney Channel, Fox and of course the NBC channels. Comcast offers Time Warner’s CNN and TBS to its cable customers along with HBO as a subscription. Of course, streaming CNN, TBS and HBO subscriptions are available through Comcast’s broadband service.

AT&T, Comcast, Verizon, Charter and many others offer cable and broadband services that give access to CNN, TBS, HBO, HULU, Netflix, Amazon and many more video bundles. Of course, with suitable bandwidth and a subscription, any Internet consumer can watch streaming video from any source. To that end, mobile service providers are offering access to content – including HBO and ESPN – sometimes exempt from data caps.

Amazon Prime Video offers HBO as a subscription option. Amazon is the main streaming competitor to market leader Netflix and to HULU. Neither HULU nor Netflix offer Time Warner’s wares.

As to future competition, most observers are convinced that Apple and Facebook intend to compete directly against Netflix in producing content. To do that, they will need to invest in content creation, and that will force the merged AT&T/Time Warner company to increase their investment ante, if they hope to survive in the content production business against Netflix, HULU, Amazon, Comcast and others. All of this investment is great for consumers and innovation.

Today’s 800-pound gorilla in streaming competition is YouTube, owned by Google. Google is the dominant competitor for advertising revenues – from targeted ad placements all over the Internet and from concentrated advertising on YouTube. YouTube attracts more than a billion viewers monthly and earns $4 billion per year in net profit. Google’s YouTube content is currently refreshed at low costs through videos submitted by the public, but Google could at any time invest in conventional movies and TV series. They would unquestionably become a fierce competitor against Netflix, HBO, Amazon, HULU and, of course, cable and video TV services.

The content market is very competitive and expanding.

When it comes to meeting antitrust concerns, the AT&T merger with Time Warner satisfies important policy targets. The proposed merger makes no structural change that would reduce competition against AT&T landlines, mobile wireless, Internet bandwidth or DirecTV. Positioning Time Warner inside AT&T would not reduce the number of places that consumers could access Time Warner’s wares, nor would it have a material impact on the current streaming leaders – Netflix, Amazon and HULU. In sum, the deal poses no anticompetitive risks and, because of heightened market competition, it will benefit consumers and innovatio

Steve Pociask is president of the American Consumer Institute, a non-profit educational and research association.  He is a member of the FCC's Consumer Advisory Committee, but the views expressed here are solely his own. 

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