In the nation’s capital this morning, members of the public lined up early to get a prime seat, not at the theater but at the federal courthouse, for one of the most anticipated dramas of the year: the antitrust trial over AT&T’s $85.4 billion bid to acquire Time Warner. The outcome of the trial will have large implications beyond the Beltway, with media companies and other prominent industries watching closely the arguments on both sides, and hints to its possible conclusion, in order to stay ahead of the curve in today’s regulatory environment. Here’s what you need to know about the case:
- Why The Merger Came About: Ironically, AT&T’s efforts to compete against what it sees as an advertising duopoly has gotten it labeled a potential monopoly itself. With data now widely considered the world’s most valuable resource, AT&T’s move to acquire Time Warner is an effort to capture the data of millions of viewers who watch Time Warner’s content on channels like HBO, TBS, CNN, and TNT, as well as its blockbuster movie franchises like DC Comics and Harry Potter. This move could allow the conglomerate to “reinvent itself as one giant advertising network” that could rival tech giants Facebook and Google, who currently dominate the online ad industry and have been attracting dollars from television. The merger was not expected to be controversial because regulators have approved similar vertical mergers in the past.
- How The Merger Ended Up In Court: AT&T CEO Randall Stephenson initially went on a “charm offensive” to not only ease apprehensive executives within the Time Warner empire, but also to lobby the President and help influence easy approval of the merger. But it has not worked out that way. AT&T declined the Department of Justice (DOJ) condition that it sell Time Warner’s Turner unit, and the DOJ filed suit to stop the merger. While there has been speculation that Trump’s disdain of Time Warner’s CNN is responsible for the government’s stance against the merger, the DOJ argues that it would mean less competition for consumers, despite not being head-to-head competitors, and result in potential raised costs of $436 million for consumers.
- What Other Media Companies Are Watching: Earlier this month, the chief executive of the world’s largest advertising agency, WPP’s Martin Sorrell, told CNBC that consolidation is the future of the media industry — largely due to “certain pressures, technological changes in the long-term, and shorter-term pressure” from tech companies disrupting traditional media and consumers shifting to cross- and multi-platform content consumption. To compete with tech companies like Netflix, Amazon, and others, media companies are watching to see whether ambitious vertical integration will gain regulatory approval in this case. If so, Disney’s acquisition of 21st Century Fox and Sinclair Broadcasting’s purchase of Tribune Media will likely face less scrutiny on this front, and even encourage other deals — like a possible recombination of CBS and Viacom — to move forward.
- How The Outcome May Reverberate In Other Regulated Industries: Beyond media, this trial is viewed as a bellwether because mergers are on the rise. For example, one major pending deal before the DOJ includes CVS Health’s $69 billion merger with Aetna. Furthermore, a decision in favor of the DOJ will allow tech to continue to have an upper hand on traditional media, and will also help the tech industry determine regulators’ appetites at a time when policymakers are calling for increased regulation of their activities and business practices.
- How Companies Can Anticipate And Mitigate Similar Challenges: Precedent seemed to suggest that AT&T’s merger with Time Warner would be easily approved, but instead the merger is highlighting the fact that an easy process of regulatory approval cannot be assumed. Engaging an extensive network of lobbyists and unveiling a public relations “charm offensive” are no longer enough for companies thinking about mergers and acquisitions in today’s fluid and uncertain regulatory environment. Instead, companies need to operate from a place of knowing what they don’t know, ensuring that they fully understand the regulatory landscape — key personnel and stakeholders, any opposition, the network of influence whose interest align for and against it — and use that information to build their case and make well-informed business decisions.
A ruling on the AT&T-Time Warner antitrust case is expected sometime before the June 22merger deadline. Until then, companies can only wait, watch closely, and begin anticipating and preparing for whatever comes next.
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