You will be redirected back to your article in seconds

AT&T-Time Warner Analysis: Judge Puts Legal Framework on Forces of Disruption in Media

The 172-page opinion in the AT&T-Time Warner anti-trust case makes it clear that U.S. District Court Judge Richard Leon did his homework to understand the seismic shifts that have rocked the pay TV marketplace during the past decade.

The trial in D.C. federal court wasn’t just about whether the union of AT&T and Time Warner would be bad for consumers. The proceedings wound up putting a legal framework for examining how traditional media giants are responding to the forces of disruption: the rise of SVOD giants, the Peak TV phenomenon and the steady drumbeat of cord cutting and its impact on the bottom line of TV programmers and distributors alike.

“It is inescapable that SVODs have played a large role in causing the demand for and continued purchase of traditional MVPD subscriptions to “declin[e] at a rapid pace,” Leon wrote, citing a quote from AT&T chairman-CEO Randall Stephenson. “To ignore those industry trends — trends that are transforming how consumers view video content and blurring the lines between programming, distribution, and web-based competitors — would be to ignore the Supreme Court’s direction to examine this case with an eye toward the ‘structure, history, and probable future’ of this fast-changing industry. I, of course, cannot do that!”

Leon’s opinion repeatedly cites the challenges facing traditional media conglomerates amid the rise of Netflix, Amazon, Facebook, and other hugely capitalized digital behemoths. The judge offers lengthy discourse on how the digital heavyweights are advantaged by the Big Data they cull from the viewing activity on their platforms. He also discusses the unique structure of the SVOD giants in serving as both a distributor with direct customer relationships and a programming service offering exclusive original series. Even in a vertically integrated media conglomerate such as Comcast, the cable service and programming operations are usually separated by distinct divisions. Netflix, on the other hand, is an all-in-one service that has direct relationships with subscribers but at a much lower cost than traditional MVPD service.

Leon notes the hyper-competitive impact of Netflix barreling into the programming arena with as much as $8 billion to spend on original and acquired content, which as he cites in the opinion “is more than twice the size of HBO’s” programming budget. He also points to the shift in consumer behavior toward preferring ad-free platforms.

“After all, as Nobel Laureate Bob Dylan correctly observed: You don’t need a weatherman to know which way the wind blows,” Leon wrote, quoting a lyric from Dylan’s 1965 anthem “Subterranean Homesick Blues.” Moreover, he rejects the government’s rationale that the market power of a combined AT&T-Time Warner needed to be considered outside of the context of the larger pay-TV market, echoing the assertions of CEOs and moguls for more than a decade. Leon’s legal reasoning will undoubtedly be cited by companies in future regulatory proceedings at the FCC and Justice Department.

“Although the government is of course correct that the refrain ‘we are getting killed in by new competition in different markets’ is no ‘defense to an illegal merger,’ I simply cannot evaluate the government’s theories and predictions of harm, as presented by the Government at trial, without factoring in the dramatic changes that are transforming how consumers view video content.”

The judge’s opinion was so strongly in favor of AT&T that he went so far as to endorse the telco giant’s projection of realizing $1.5 billion in cost savings by 2021 from the consolidation of overlapping administrative departments. “I have a high degree of confidence that the defendants will generate most, if not all, of the predicted $1.5 billion in annual cost savings,” he wrote.

Leon’s opinion took an exhaustive look at the facts and theories traded in the AT&T case no doubt because he is aware of its impact on future media M&A activity at this tumultuous time of disruption and reinvention. He notes that the trial generated some 3,000 pages of documents, and that the transcript of the court proceedings over the six-week trial runs some 4,300-pages.

He concluded his opus opinion with a warning that the government should not take any more steps to block the completion of AT&T and Time Warner deal, now scheduled for June 20. For the government to seek a stay of his order pending their appeal would do far more harm than good, even for those in the Justice Department who strongly believe that the deal is bad for competition.

“To use a stay to accomplish indirectly what could not be done directly — especially when it would cause certain irreparable harm to the defendants — simply would be unjust. I hope and trust that the government will have the good judgment, wisdom, and courage to avoid such a manifest injustice,” Leon wrote. “To do otherwise, I fear, would undermine the faith in our system of justice of not only the defendants, but their millions of shareholders and the business community at large.”

Read the full ruling below:

AT&T Decision by gmaddaus on Scribd

More Biz

  • David Glasser

    David Glasser to Launch $300 Million Shingle With Ron Burkle's Backing (EXCLUSIVE)

    David Glasser, the former chief operating officer of the Weinstein Co., is launching a $300 million film and TV company with the backing of billionaire investor Ron Burkle, Variety has learned. The formation of the production outfit, named 101 Studios, marks a fresh start for Glasser, who was in line to become CEO of the [...]

  • Harvey Weinstein arrives at New York

    Judge Refuses to Pause Weinstein Class Action Case

    A judge on Tuesday denied Harvey Weinstein’s request to put a class action lawsuit on hold pending the outcome of his criminal trial. Ten women have sued Weinstein in federal court in the Southern District of New York, accusing him of violating the federal sex trafficking statute. The suit also alleges that an array of [...]

  • Andrea Ganis Promoted to President of

    Atlantic Records Elevates Andrea Ganis to President of Promotion

    Andrea Ganis has been promoted to the newly created position of president of promotion for Atlantic Records, it was announced today by Atlantic Chairman & COO Julie Greenwald and Chairman & CEO Craig Kallman. In her new role, she will continue to oversee all promotion activities for Atlantic and its subsidiary labels while serving on [...]

  • Roma

    Netflix Joins the Motion Picture Association of America

    UPDATED WASHINGTON — Netflix has joined the Motion Picture Association of America, a move that reflects its evolution as a major player in the movie business. The MPAA currently has six major studios as members, and it collected about $38 million in membership dues in 2017, according to its most recent filing with the IRS. [...]

  • Fate of 'Simpsons' Up in Air

    What Will Happen to 'The Simpsons’ as Disney Takes Over Fox?

    When “The Simpsons” ends its 30th and current season this spring, it will have racked up 663 original episodes — having a season ago passed “Gunsmoke” (635) as the longest-running scripted program in television history. But with the Walt Disney Co.’s acquisition of 21st Century Fox pending, one of TV’s least likely institutions could prove more [...]

  • Best Worst Performances Pink

    Pink, Muse, Chris Stapleton to Headline Citi Sound Vault During Grammy Week

    Pink, Muse and Chris Stapleton will headline Citi Sound Vault, the three-night live-music platform taking place at the Hollywood Palladium during Grammy week. Pink will kick off the Live Nation-produced series on Feb. 7, followed by Muse on Feb. 9 and Stapleton on Grammy night, the 10th. “This will be my first time performing at the [...]

  • China’s Maoyan Tweaks Terms for $350

    China’s Maoyan Tweaks Terms of $350 Million IPO

    Maoyan Entertainment, the Chinese ticketing giant, has updated the terms of its share offer in order to keep its IPO on course. It aims to raise up to $350 million of new cash by floating on the Hong Kong stock market. In a new draft prospectus published Tuesday, the company revealed that it had brought [...]

More From Our Brands

Access exclusive content