The trial of the future of media

“AT&T Would Use Time Warner as a ‘Weapon,’ Justice Dept. says.

Sarah Rogers, Staffer

AT&T will now face off against the U.S Justice Department in a test of the government’s effort to block its $85 billion takeover of Time Warner Inc., and the company’s giant plan to become a telecom and media powerhouse that can compete in the age of Netflix and Amazon. AT&T also wants to collect usage data about its viewers so that it can build a digital advertising empire to rival tech titans such as Google and Facebook, which dominate the online ad industry.

If AT&T wins it will emerge as an entertainment giant with movies, TV and news to feed its 119 million mobile, Internet and video customers. If the government wins, it will be the second time in seven years that the U.S. has derailed a major deal by Stephenson and will leave the largest U.S. pay-TV provider and phone company with fewer options for growth.

The government said that if the two merged it could charge rival cable and streaming companies more for popular channels. With those increases it would be passed on to consumers. 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.

“If the merger goes forward, consumers all across America will be worse off as a result,” said Craig Conrath, the Justice Department’s lead lawyer. According to the New York Times.

The Justice Department’s economic expert argues that this could lead to $436 million in extra fees annually being passed to cable subscribers. AT&T’s economist says that cable prices would actually be likely to decrease because of the economic efficiencies it could create. Even if the government claims were true, the company says, it would work out to no more than an extra 45 cents per month on customers’ bills.

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. Owning Time Warner content would also help AT&T snuff out innovative new online competitors, like Dish Network Corp.’s Sling TV, by withholding important programming those rivals need to attract subscribers, the government says.

AT&T says it’s promised not to blackout channels during contract negotiations and would allow price disputes and offers that could weaken the government’s argument that price increases are inevitable. The U.S. argues that AT&T’s promises don’t change the structure of the deal.