Premium Channels Seen as Maybe Fearing DOJ Not Aggressive Enough in AT&T/TW
Conditions that prohibit discrimination against unaffiliated networks could be in the stars for AT&T's proposed $108.7 billion buy of Time Warner, given signals those unaffiliated networks have concerns, deal watchers told us. But a Starz-commissioned study showing New AT&T likely would benefit TW-owned HBO to the detriment of rival premium networks could be a sign DOJ isn't pushing hard for significant behavioral remedies or that AT&T is being recalcitrant, said antitrust lawyer Mark Ostrau of Fenwick & West.
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NERA Economics Consulting Managing Director Jeff Eisenach and Director Timothy Watts found "a significant likelihood" New AT&T would have incentive and ability to foreclose HBO competitors Starz and Showtime from accessing AT&T customers. They said AT&T -- by reducing Starz subscribership -- would force Starz either to raise prices or cut costs by eliminating programming, opening the door to HBO raising prices without losing customers. It said New AT&T could try to shift Starz subscribers to TW-owned Cinemax.
One in four Starz subscribers gets the premium channel through AT&T, the study said. It also said the vertical concerns raised in this deal are comparable to concerns in prior transactions such as Comcast's buy of NBCUniversal, where regulators required the cable operator to license all its programming to rival MVPDs and online video distributors.
"This conclusion doesn't square with the facts," AT&T said: It expects DOJ "to base its analysis on the facts and the law, as it always does, and not the work of HBO's competitors."
Justice won't accept the study at face value and would want the data set to make conclusions, said University of Pennsylvania Dinan University Professor Herbert Hovenkamp. But if the study is credible and finds danger discrimination is likely, a AT&T/TW consent decree likely would contain nondiscrimination language that opens the door to subsequent complaints to DOJ if competing programmers feel they're being foreclosed against, he said. Hovenkamp said it would be surprising if AT&T would foreclose against such premium channel competitors, given the likely customer outcry.
Behavioral remedies often can solve anti-competitive problems and let a transaction happen, Ostrau said. He said the premium channel anti-competitive issues likely fall into that camp rather than trigger DOJ opposition. He said the issues were almost surely on DOJ's and AT&T's mind from the beginning and have been part of the discussions. "Everybody could see it coming," he said. But the lateness of the study in the DOJ review -- the deal was announced in October -- might indicate content companies are concerned enough to voice their concerns, Ostrau said.
It's "exactly the kind of evidence that the DOJ expects critics of deals -- especially companies -- to provide," Public Knowledge Senior Counsel John Bergmayer emailed, calling it "convincing." He said evidence like the study raises the likelihood of some kind of department action. He said issues are broader than just the effects on premium networks, but the study substantiates the kind of harms that concern PK.