AT&T's mega-merger creates a content king. But will it wield the power fairly?

With HBO, TNT, CNN and more, AT&T can offer major perks to consumers but also use its media warchest to squelch competition.
Image: Joffrey (Jack Gleeson) and Margaery (Natalie Dormer) at their Purple Wedding on "Game of Thrones"
A scene from HBO's "Game of Thrones," which is now under the AT&T umbrella.Helen Sloan / HBO

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By Claire Atkinson

Last year, less than six months after AT&T struck an $85.4 billion deal in October 2016 to buy Time Warner, the telecom giant announced that consumers could get free HBO if they signed up for the company’s top-tier “unlimited plus” wireless plan.

The move was a clear signal of how AT&T would leverage Time Warner’s entertainment business to support AT&T’s wireless business: The company would use Time Warner’s extensive media holdings, which include HBO, TNT, TBS, CNN, and Warner Bros. film and TV operations, to create bundles to appeal to consumers.

Those plans are a go, now that U.S. District Judge Richard Leon issued an emphatic ruling on Tuesday against the Department of Justice’s attempt to block AT&T’s deal. The bundling is likely to begin in earnest — unless the DOJ appeals the case.

AT&T is already working on other offers to take advantage of its ability to give consumers the ability to watch TV on their mobile phones, a consumer phenomenon that continues to grow.

AT&T CEO Randall Stephenson surprised the media world when he revealed in April that the company was also working on a “skinny” internet TV bundle that would offer a package of non-sports cable channels for $15 — a service that would also be free for AT&T customers that opted for the company’s wireless customers.

TNT’s rights to distribute live NBA games are also among the more intriguing pieces that AT&T is now set to own. AT&T wireless customers could conceivably find themselves with free access to watch games and highlights on their phones. AT&T already owns DirecTV, which has the NFL’s Sunday Ticket package.

And then there’s CNN, the news network that has been publicly maligned by President Donald Trump and led to speculation that the DOJ’s lawsuit was politically motivated. CNN already claims a broad digital reach, but its live TV programming still requires a cable subscription. That could change for AT&T customers.

The question remains, however, whether this will provide consumers with greater competition and lower prices, or if it will be an easy way for AT&T to overpower other companies.

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In his 172-page ruling, Leon rejected all of the DOJ’s arguments about why the combination would be bad for competition and, therefore, bad for consumers. He reserved his strongest line for the DOJ’s claim that AT&T could use HBO as leverage with competitors.

“At the risk of stating the obvious, this is a gossamer-thin claim,” Leon wrote.

Central to Leon’s reasoning was the disruption of the traditional TV market and the emergence of internet-based TV bundles and direct-to-consumer services offered by Netflix and Amazon. Consumers continue to abandon pricey cable TV subscriptions, and advertisers now spend more online than on TV.

AT&T knows this first-hand, having seen subscribers to its DirecTV satellite service decline and consumers move to its internet-based DirecTV Now service.

With Time Warner, AT&T can now offer services similar to tech competitors.

“The decline in traditional [cable TV] subscriptions is just one symptom of the increasingly competitive nature of the video programming and distribution industry,” Leon wrote in his ruling.

Consumer advocates have not been similarly swayed. They claim that deals like free HBO can be used to hurt competition, especially now that AT&T is not bound by net neutrality rules, which had prevented internet service providers from giving preferential treatment to their own content.

“There is significant opportunity for AT&T to exploit the value of Time Warner content in ways that could hurt both consumers and competition alike,” Jonathan Schwantes, senior policy counsel for nonprofit organization Consumers Union, said. “This merger, combined with the repeal of net neutrality protections earlier this week, is a big loss for consumers.”

Leon did not mention net neutrality in his ruling.

AT&T touted those deals and its interest in providing consumers with even more ways to consume everything from live news to “Game of Thrones” as benefits for consumers. AT&T argued in the case that it is not going to raise prices for consumers and could even lower prices and reduce the number of ads it displays.

AT&T also said it will now be able to get to know more about who watches Time Warner-made programming and where they are located, making it easier to target advertising and command more money from advertisers.

Other companies are working toward a similar goal. Verizon, AT&T’s biggest wireless competitor, acquired AOL and Yahoo with the goal of creating a combination of content and distribution that would allow it to offer advertisers an alternative to Google and Facebook, which dominate the digital ad market. Comcast bought a majority stake in NBCUniversal in 2009, an acquisition that was regarded at the time as one of the biggest efforts to combine distribution and content.

Consumer advocates warned then about the outsized power this gave to Comcast. That deal was approved by the DOJ with the condition that Comcast would abide by net neutrality rules for seven years — an agreement which expired in January.

Schwantes said that Comcast has not lived up to the conditions imposed on the deal. A Comcast spokeswoman said that the Justice Department has never brought a compliance issue to Judge Leon in almost seven years. Comcast is the owner of NBCUniversal, the parent company of NBC News.

AT&T will be closely watched for how it handles Time Warner content, much of which is also distributed by its competitors. AT&T can use HBO as a perk to attract “Game of Thrones” die-hards, but it can also wield HBO — and the rest of its Time Warner arsenal — behind the scenes to squash competition for consumers that are turning to the internet to watch TV.

It’s an issue that has recently gained greater attention in Washington.

“Today’s decision underscores the need to restore robust net neutrality rules, so broadband providers like AT&T cannot use their gatekeeper role to harm competing services and content,” Sen. Edward Markey, D-Mass., said in a statement. “Without net neutrality protections in place, AT&T will be free to block, slowdown, or charge fees to competitors like Netflix and Hulu to favor their own DirecTV Now streaming service and HBO content.”