Home Online Advertising How A DOJ Suit Vs AT&T-Time Warner Deal Could Impact Other ‘Vertically Integrated’ Media Deals

How A DOJ Suit Vs AT&T-Time Warner Deal Could Impact Other ‘Vertically Integrated’ Media Deals

SHARE:

A legal challenge by the Department of Justice to the $85 billion merger of AT&T and Time Warner appears increasingly likely. And comments Thursday by DOJ antitrust chief Makan Delrahim signaled a more stringent approach to antitrust enforcement than American businesses have seen in decades.

The question now: Could the DOJ’s position mean curtains for future so-called “vertically integrated” companies created through the merger of tech and media giants?

Vertical integrations combine two separate categories within the same supply chain. In the media and telco industry, a prime example is Comcast’s acquisition of NBCUniversal. Similarly, a combined AT&T–Time Warner would tack content and media assets onto a large wireless and cable access provider. (By contrast, a horizontal merger, such as AT&T’s attempted takeover of T-Mobile in 2011, removes a competitor from the market. Such deals may be opposed by the DOJ when they involve high-market-share companies.)

But experts and analysts say that while vertically integrated media companies do pose risks, marketplace trends favor such mergers.

According to Cornell Law School professor and antitrust expert George Hay, the primary antitrust concern with this deal is that AT&T could use its vertical assets to handicap competitors, by, for instance, charging DirecTV rivals higher fees for Turner channels or by giving preferential rates to DirecTV on owned programming.

“You could see how it could be injurious to competitors,” said Hay. But he added that AT&T is unlikely to take such measures, considering that it relies on other cable providers for distribution and content.

And there are ways to achieve price parity without blocking the deal. Comcast’s 2009 deal for NBCU was challenged by the DOJ and settled when Comcast signed an agreement to offer NBC programming at equal rates to its competitors. Many expect AT&T’s deal to eventually clear with no divestiture, possibly under similar terms.

But Delrahim, the assistant attorney general charged with antitrust cases, said in a keynote to the American Bar Association on Thursday that he’s skeptical about such “behavioral consent decrees,” like Comcast’s DOJ settlement.

“With limited information, how can antitrust lawyers hope to write rules that distort competitive incentives just enough to undo the damage done by a merger, for years to come?” Delrahim said.

Others don’t see the harm in amending deals to satisfy regulators without going to court.

“There shouldn’t be concerns for the DOJ because there aren’t many synergies,” Pivotal Research senior analyst Brian Wieser tells AdExchanger. Comcast hasn’t sought to unfairly leverage NBCU, like by denying other cable operators access to exclusive NBC sports broadcasts, he said, and AT&T and Time Warner have less scale in their respective markets.

Subscribe

AdExchanger Daily

Get our editors’ roundup delivered to your inbox every weekday.

There’s also the glaring fact that a Time Warner sale is coming, whether the AT&T merger is approved or someone else picks up the rebound, Wieser said.

Antitrust Laws ‘Stacked Against Legacy Companies’

Dave Morgan, CEO of the TV ad-targeting firm Simulmedia and a long-time entrepreneur in ad tech, argues that antitrust legislation “is stacked against legacy companies.”

For example, Apple and Fox were both reportedly in talks with Time Warner earlier last year. A Fox deal would likely receive tough scrutiny as a horizontal merger. Meanwhile, Apple, the world’s largest company, with assets like Apple TV, iTunes, Apple News and media distribution opportunities in every iPhone, might not encroach on traditional antitrust standards.

According to Morgan, “My view as an operator in this business is that vertical integration is strategically necessary if any of these broadcasters are to compete with digital companies.”

Those digital companies are not sitting still. Alphabet has made investments that might eventually position it against traditional cable providers. Google Fiber offers broadband internet, and this year the company launched YouTube TV, a subscription TV bundle. But Alphabet has very little horizontal competition with companies like Comcast–NBCU and the proposed AT&T–Time Warner business. And its services are relatively new in the marketplace. Those factors insulate it from the scrutiny that Comcast and AT&T have faced.

“Google is big in the ad space,” Hay said, “but as an antitrust competition matter, where you have to identify specific harm in specific markets, it’s hard to find one.”

Likewise, Verizon has so far managed to fly under the antitrust radar by acquiring digital media assets AOL and Yahoo (now Oath), rather than TV assets. But they would certainly have a tougher go of things if Viacom, for instance, expressed merger interest.

Ad Tech Impact

Whether such deals are allowed will have a strong bearing on online advertising technology.

AT&T hired former Xaxis and GroupM leader Brian Lesser in August to build out an advertising and analytics platform fueled by AT&T data and Time Warner media. Such a platform would generate a spigot of quality, scaled video inventory and a chance to scale programmatic ad sales in the television channel.

If the DOJ takes a hard line and insists that AT&T divest media assets in the merger, “without question,” it would undercut mobile operators in the ad tech arena, Morgan said.

“The digital giants win in that world,” he said.

Must Read

Comic: Header Bidding Rapper (Wrapper!)

Prebid.org Is At A Crossroads, And Must Now Decide Whose Interests It Serves

Prebid’s future is up for grabs as the open-source project grows apart from the IAB Tech Lab, the industry’s self-appointed standards authority.

Rest In Privacy, Sandbox

Last week, after nearly six years of development and delays, Google officially retired its Privacy Sandbox.
Which means it’s time for a memorial service.

AWS Launches A Cloud Infrastructure Service For Ad Tech

AWS RTB Fabric offers ad tech platforms more streamlined integrations with ecosystem and infrastructure partners, allegedly lower latency compared to the public internet and discounts on data transfers.

Privacy! Commerce! Connected TV! Read all about it. Subscribe to AdExchanger Newsletters

Netflix Boasts Its Best Ad Sales Quarter Ever (Again)

In a livestreamed presentation to investors on Tuesday, co-CEO Greg Peters shared that Netflix had its “best ad sales quarter ever” in Q3, and more than doubled its upfront commitments for this year.

Comic: No One To Play With

Google Pulls The Plug On Topics, PAAPI And Other Major Privacy Sandbox APIs (As The CMA Says ‘Cheerio’)

Google’s aborted cookie crackdown ends with a quiet CMA sign-off and a sweeping phaseout of Privacy Sandbox technologies, from the Topics API to PAAPI.

The Trade Desk’s Auction Evolutions Bring High Drama To The Prebid Summit

TTD shared new details about OpenAds features that let publishers see for themselves whether it’s running a fair auction. But tension between TTD and Prebid hung over the event.