Almost exactly two years after shareholders approved the deal, AT&T’s acquisition of Time Warner is finally complete. A three-judge panel from the federal appeals court in the District of Columbia upheld a lower court’s ruling that the deal did not violate any antitrust laws. The judgment allowed the acquisition to proceed with no additional conditions. The lengthy court proceedings pitted AT&T against antitrust lawyers in the Department of Justice. Although some speculated politics played a role in the DOJ opposition, the outcome is less about politics than it is about the future of vertical mergers.
AT&T, which also owns DirecTV, is a distributor of media. They pay for content that appears on its various channels and outlets. On the other hand, Time Warner creates content which they sell to distributors like AT&T. As such, the two companies were not in direct competition with each other.
Normally, antitrust violations arise when an M&A between two competitive companies results in a non-competitive marketplace.
Although the AT&T/Time Warner deal did not follow these antitrust norms, the DOJ argued that the combined content creator and distributor company would have an unfair competitive advantage. They believed that if AT&T controlled content creation they could effectively eliminate competition by distributing it exclusively through their channels, thereby blocking competitors. Or, they could increase the cost of content, forcing competitors to increase their prices as well.
AT&T defended the merger by pointing to entities like Netflix, Google and Facebook. These internet giants had either acquired vertical competencies – as when Google acquired YouTube in 2006 – or they have created verticals – as Netflix has done with Netflix Originals. AT&T argued the acquisition would allow them to remain competitive in this ever-evolving technology and media landscape.
Additionally, AT&T maintains that selling Time Warner’s content to other distributors is actually in their best interest. Since content makes money on broad distribution, corporate tie-ins, and advertising, they need their content to appear on as many distribution channels as possible, even if those channels are not their own.
Shortly after the appeals court decision was made public, AT&T renamed Time Warner to WarnerMedia, LLC. The company immediately began reorganizing. Later, the DOJ announced that it would not pursue another appeal. For companies looking toward M&A for vertical integration, the AT&T case leads the way.