DOJ submitted an appeal of the AT&T-Time Warner merger approved by Judge Leon of the US District Court for the DC Circuit. The submission asks the appeals court to reverse Judge Leon on the basis that he could not have understood DOJ’s arguments, otherwise he would not have approved the merger. DOJ claims the intellectual high ground for itself while denigrating Judge Leon’s competence. Arrogance of that depth is endemic among politicized senior operatives at the DOJ and FBI.
The DOJ appeal contains two main complaints. First, DOJ claims that AT&T would have the incentive and ability to “raise its rivals’ costs and stifle growth of innovative, next-generation entrants that offer attractive alternatives to AT&T/DirecTV’s legacy pay-TV model.” Never mind that aside from AT&T/Time Warner, Amazon, Charter, Comcast, Disney-Fox-Sky, Facebook, Google, Netflix, Verizon and smaller giants are creating their own “attractive alternatives to the legacy pay-TV model.”
Comcast has 30 million customers, Charter has 16.4 million customers, Facebook has 2.5 billion users, Google has 1.17 billion users, Yahoo (a Verizon subsidiary) has 600 million users, Verizon Wireless has 149 million subscribers, Netflix has 125 million subscribers, and Amazon Prime Video has 40 million subscribers. These are the eight well-heeled video competitors. Any aspiring innovators face competition from all eight.
Some companies are trying to survive in the decaying cable TV model. Others leaped ahead into wireless video models that have earned consumer allegiance. Some of the eight were the “next generation entrants” that DoJ feared would be stifled. Other likely mergers such as Disney-Fox-SkyTV and Viacom-CBS could soon join the crowded market and become collaborative opportunities for network companies and create vigorous competition for everyone.
The eight financial giants compete with AT&T/Time Warner’s video services. AT&T has 159 million wireless subscribers. AT&T’s DirecTV subsidiary has just 1.5 million subscribers. Without the Time Warner’s video inventory, AT&T would be a minor competitor in video, compared to other major competitors. With Time Warner, AT&T will still need to work hard to become a peer among its eight large competitors.
DOJ’s second claim is that “AT&T would have greater bargaining leverage because the company could threaten to “black out” Time Warner content.” That makes as much sense as “stop me before I kill myself.” DOJ fancies that AT&T’s competitors carrying Time Warner programming might suffer customer abandonment. That seems unlikely. Blackout combatants reach agreement before they permanently hurt themselves.
Blackouts are accompanied by harsh words from consumers about pricing, but not by significant loss of customers. When a cable operator refuses to acquiesce on a big price increase for a channel, it protects consumers from cost increases. Rational consumers understand that.
There have been hundreds of instances of cable TV blackouts, usually over fees for retransmission consent for sports programming, a troublesome federal regulation. Ala carte cable channels would probably address the blackout problem, but the industry resists it. DOJ’s hope to always avoid a blackout is tantamount to government granting each channel an entitlement for carriage on the cable system. A blackout is just a fractious tool that rivals use to settle on prices. It’s noisy and messy, but it can serve a purpose and protects consumers in the long run.
DOJ should accept the court’s decision gracefully. We know that DOJ finds it painful to acknowledge its error, but in this case, it is wrong and definitely owes an apology to Judge Leon.