WarnerMedia and Discovery Are Creating a Media Giant. Do Regulators Care?

David Zaslav
Courtesy of Discovery Communication

The merger of AT&T’s WarnerMedia division with Discovery is the first major media combination of the Biden era, and could give an indication of where the new administration is headed on antitrust issues.

The Department of Justice will have to consider whether the horizontal merger of streaming and cable assets is bad for consumers. Though a Democratic administration is likely to take a slightly dimmer view of market consolidation, several experts consulted by Variety on Monday said they expected the administration will ultimately approve the deal.

“I think this is unlikely to undergo any kind of a serious challenge,” said Sonny Allison, a partner at Perkins Coie. “You have a number of other large streaming services. I just would be surprised if this consolidation triggered a significant review.”

President Biden has yet to appoint a new head of the DOJ’s antitrust division. Whoever that person is will be under pressure to scrutinize tech firms. Some advocates would also like the administration to roll back Trump-era guidelines on vertical mergers, which gave weight to the idea that such mergers tend to create valuable business efficiencies.

Several antitrust experts took Monday’s announcement as a damning verdict on the vertical merger of AT&T and Time Warner, which closed in 2018. The Department of Justice tried to block that deal, arguing in court that the vertical combination of distribution channels and content production would hurt consumers. Time Warner and AT&T pushed back, arguing that consumers would benefit as the company reaped efficiencies from the deal.

“That deal was sold to the Department of Justice and to the public on the basis of an efficiencies claim, which apparently has not panned out,” said Diana Moss, president of the American Antitrust Institute. “Now there’s even more reason to cast a very skeptical eye.”

Eleanor Fox, professor of law at New York University, lamented the massive consumption of public resources — at the DOJ, and in the courts — to make the AT&T-Time Warner deal go through, only to see it fall apart a few years later.

“I think it’s an outrage that companies are so facile in imposing these costs,” she said. “The huge mergers usually don’t work for the companies that do them.”

Fox noted a “misalignment of incentives” — saying that senior executives reaped a windfall while the company cut costs and underwent rounds of layoffs.

“Our system does not have the right incentives built in,” she said.

John Bergmayer, legal director at the consumer advocacy group Public Knowledge, said that Monday’s announcement made it clear that the AT&T-Time Warner merger was a bad idea. But he was reserving judgment on whether spinning off the WarnerMedia assets to Discovery represents a net win for consumers.

“The ideal thing for consumers would be Time Warner remaining an independent company,” he said.

Moss also argued that the apparent abundance of choices hides the fact that a handful of companies control most of the marketplace.

“From a consumer perspective, it looks like, ‘Oh wow, there’s so much competition,'” she said. “But in fact that’s an illusion. We’ve had massive consolidation over time.”

Robert McDowell, a former commissioner of the Federal Communications Commission and now a parter at Cooley LLP, said that he expected the deal to be approved, given the DOJ’s track record on other horizontal mergers.

“There is plenty of recent precedent to support the notion that this deal will be approved by antitrust regulators,” he said, via email. “Look at the Disney/Fox deal, for example.”

McDowell noted that each administration applies its own perspective to antitrust regulation, but said that it would be a challenge for the DOJ to contend that consumers have been harmed by media consolidation.

“(I)t is hard to argue against the reality that there has been significant growth and disruption both in the content creation and content delivery markets,” he said. “Consumers are awash in choices, and we are likely to see more defensive combinations like this one.”