U.S. District Judge Richard J. Leon's decision Tuesday to allow AT&T to complete its $85 billion takeover of Time Warner is a classic good-news/bad-news development. Good in that the U.S. president was prevented from using the Department of Justice to punish a perceived enemy. Bad in that it not only further consolidates the media industry, it also opens the doors for more mega-mergers in other industries, reducing jobs and competition and potentially raising prices and stifling innovation.
AT&T, already the world's largest telecommunications company measured by total assets, will add Time Warner to a TV and internet portfolio that includes DirectTV and U-Verse. AT&T will now control programming, including HBO and Turner Broadcasting's raft of cable networks, including CNN.
President Donald Trump, railing about "fake news" on CNN, instructed the Justice Department to oppose the merger. But the deal also drew opposition from liberals, who complained that it would lead to higher prices and fewer choices for consumers.
Trump's pique with CNN hamstrung the Justice Department. Instead of reaching a compromise on anti-competitive parts of the deal, as it did when Comcast bought NBCUniversal in 2011, the department was forced into an all-or-nothing posture. Judge Leon criticized the government's case as exceptionally weak.
The AT&T-Time Warner deal is a "vertical" merger, in that most business aspects of the two companies do not overlap. Antitrust regulators traditionally have been less concerned with vertical mergers than horizontal ones, which consolidate companies in the same business. Leon's decision almost surely will trigger a bidding war between Disney and Comcast for 20th Century Fox's movie and television assets. It signals a green light for vertical mergers in the health care industry such as the proposed CVS-Aetna and Cigna-Express Scripts combinations.
The cable industry's biggest problem now are the so-called FAANG tech companies: Facebook, Apple, Amazon, Netflix and Google. They've got cable customers cutting their cords in favor of internet streaming services. AT&T might provide the internet service that streams the video, but that's all it will do.
The government faces difficult changes regulating the tech-media sphere because the industry changes so quickly. The bulk of Netflix's business 10 years ago was DVD rentals. Amazon was just launching video on demand. Today there are almost as many Amazon Prime members as there are cable customers.
The tech industry is regulated lightly, if at all. This has promoted innovation and growth but at the cost of massive consolidation as big companies swallowed the competition. It also created the conditions for Russian hackers to intrude on the 2016 election. The government has a hard time regulating that which it doesn't understand. It must get smarter.
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