Opinion | How AT&T Fooled the Federal Judiciary

HBO has long been the crown jewel of American television. It was HBO, in the 1990s and 2000s, that kick-started the golden age of television, funding and running shows like “The Sopranos” and “The Wire.” And it is HBO that still captures broad audiences with shows like “Game of Thrones.”

So it’s disheartening to see this venerable institution of pop culture wielded as a weapon by AT&T — HBO’s new owner since the blockbuster merger in June between AT&T (a telecommunications giant) and Time Warner (a media giant). Last week, HBO went dark for both DISH and DISH-Sling, the main competitors to DirecTV and DirecTV Now, AT&T’s television services. This brazenly anticompetitive strategy does not portend a happy future for the viewing public, or for HBO itself.

At the risk of saying “we told you so,” it was widely predicted before the merger that AT&T would use HBO and other Time Warner media properties in just this way. When the Justice Department sued (unsuccessfully) to block the merger last year, its case was premised on the idea that AT&T would use its ownership of such properties to hurt its rivals in telecommunications. And now it is doing so.

Post-merger, AT&T has the means and the incentive to raise prices on valuable content (like HBO or the coverage of the N.C.A.A. “March Madness” basketball tournament) for cheaper, “unintegrated” telecom competitors that have been saving consumers money. If its rivals refuse to pay up, it can withhold the content entirely, diminishing them as competitors.

Defending its proposed acquisition of Time Warner in federal court in the spring, AT&T declared, swore and promised that it would never use Time Warner’s media properties as leverage against its rivals. The acquisition was all about “vision” and a “new AT&T” — a company that would be able to better compete with the content creation and distribution abilities of upstart powerhouses like Amazon and Netflix.

At trial, AT&T’s chief executive, Randall Stevenson, was asked if AT&T might use its ownership of content like HBO to raise prices or otherwise undermine its telecom competitors. Under oath, he answered that the premise was “absurd.”

But what looks absurd now is the reasoning of Judge Richard Leon of United States District Court in Washington, who took Mr. Stevenson’s bait, hook, line and sinker. Sitting as judge and jury, Judge Leon seemed to buy AT&T’s self-serving testimony, ignoring or dismissing the warnings of most people in the industry. He concluded that AT&T was merely attempting to retool itself for the 21st century, not looking for a structural advantage.

To reach that conclusion meant neglecting some basic economics. Presented with a clear demonstration by the economist Carl Shapiro of how AT&T’s bargaining power would increase after the merger, Judge Leon opted to assume that AT&T was not interested in profit maximization.

Unfortunately, there is every reason to think AT&T will keep using HBO and other media properties as weapons in the industry. The more it raises prices or withholds content, the more it either harms its rivals or gains new customers for itself. It’s a win-win situation made possible by the merger’s integration of content and content delivery.

Nor should we ignore the effects of AT&T’s anticompetitive tactics on the nature of the content created by HBO and its other media properties. After all, the more people there are who watch HBO, the more effective HBO is as a weapon for attacking other telecom companies and pushing people into becoming AT&T or DirecTV subscribers. This creates an incentive for AT&T to refashion HBO into a network that aims for the widest possible audience — as opposed to its traditional emphasis on quality.

Is it a coincidence that AT&T recently shut down the enormously popular FilmStruck subscription-streaming service from WarnerMedia (as Time Warner is now named), which gave viewers access to the best of Turner Classic Movies and Criterion Collection films? Or did FilmStruck fail the crucial test of providing sufficient leverage?

Given the new and concrete evidence that AT&T does plan to use HBO in an anticompetitive fashion, state and federal government ought not sit on the sidelines. The Justice Department has already appealed Judge’s Leon’s merger approval, and while judicial review is generally confined to the record of the case, the court of appeals might remand the case for more fact-finding or cite AT&T’s post-merger conduct as evidence of the errors in Judge Leon’s economic reasoning.

Meanwhile, it is not too late for a state to bring an antitrust lawsuit to undo the merger, based on the new evidence. The most obvious candidate is New York, where HBO is headquartered, and where Letitia James, the attorney general-elect, might want to prove her bona fides.

Whoever takes the lead, there is simply no calculation in which the use of HBO as an anticompetitive weapon is good for the future of America — for its telecom industry, its customers or its TV shows.

Tim Wu (@superwuster) is a law professor at Columbia, the author of the forthcoming book “The Curse of Bigness: Antitrust in the New Gilded Age” and a contributing opinion writer.

Source: Read Full Article