It’s been years in the making, but the mammoth merger of AT&T and Time Warner Inc. is officially going to happen. Judge Richard Leon, a George W. Bush appointee, handed down his decision approving the $85 billion merger with no conditions on Tuesday afternoon, following months of oral arguments and deliberations. The Justice Department sued to block the deal from going through in November of 2017, arguing that it would limit competition and raise prices. It’s unusual for the Justice Department to argue that a vertical merger of two companies that aren’t direct competitors would limit competition, but the effect that the merger will have on the telecoms and entertainment industry is significant.
The judge said that the Department of Justice did not sufficiently meet its burden of proving that the deal would allow AT&T to harm rival TV providers. Now that the merger has been approved, AT&T can fully move ahead with the merger. Short-term effects are likely to be favorable — things like a new skinny streaming service, or perks like free HBO for AT&T wireless customers — but as Time Warner continues to negotiate rates and packages with cable companies and new streaming services, the effects will become more clear.
More importantly, AT&T’s victory in this case sets the stage for a new round of telecoms mergers. T-Mobile’s merger with Sprint is next on the block, and regulators will soon have to decide whether or not they’ll challenge that deal. Comcast is also expected to make a bid for 21 Century Fox’s television division.
The Justice Department’s main argument against the merger was that by owning Time Warner’s content, which includes must-have channels like CNN, AT&T could raise prices for pay-TV rivals and keep costs prohibitive for online streaming services. The transition to streaming services, away from traditional cable, is one that’s costing pay TV companies millions of subscribers and billions in revenue every year.
With control over a significant portion of the content, AT&T is now in a good place to keep prices high among rivals and prevent streaming TV services from offering cut-price cable alternatives. With cheap home internet increasingly becoming a reality, cable companies are faced with the prospect of millions of subscribers cutting the cord over the next decade. AT&T already has a streaming service, DirecTV Now, but industry experts are dubious about whether it’s making any money at all at the $35/month price it currently sells for. The average cable bundle, by comparison, costs $104 per month.
As one carrot to get deal approval, AT&T CEO Randall Stephenson mentioned in court that AT&T will be debuting a new skinny streaming service in the near future. Called AT&T Watch, it will cost $15 per month instead of the $35 that AT&T currently charges for its streaming service, DirecTV Now. It won’t have any sports channels, however. Stephenson said Watch would only be possible if the merger went through. It looks like he got his way.
During the trial, the Justice Department revealed emails from AT&T execs that show the telecoms company wanted to buy Time Warner to help keep the “cash cow” of cable alive. Daniel York, current CCO of the AT&T Entertainment Group and a former top exec at DirecTV, called content providers “shortsided whores” for dealing with other streaming services.