Continuing to battle for its proposed $85 billion merger with Time Warner Inc., AT&T has responded to the Justice Department’s warning about pay TV price hikes with its own pretrial brief.
“The essential premise of the [DOJ’s] theory is that the post-merger Turner—now backed by AT&T—will be more likely to drive harder bargains with AT&T’s distribution rivals, forcing them to pay higher prices to avoid losing access to Turner programming. The flaws in this theory are manifest,” AT&T said.
The trial starts Monday at the U.S. District Court for the District of Columbia in the DOJ’s bid to stop AT&T from buying Time Warner Inc. The government is arguing that the deal will harm competition. Specifically, based on the calculations of one of its chief witnesses, University of California at Berkeley economics professor Carl Shapiro, the DOJ is claiming that the deal will result in a $436-a-year spike in pay TV program pricing that will be handed down directly to consumers.
AT&T disputes this notion, noting that holding back programming from key Time Warner assets like Turner Networks would only harm … AT&T.
“As the government itself now recognizes, withholding programming is not an outcome Turner can tolerate,” AT&T noted in its brief.
“To Turner, withholding programming means immediate, catastrophic losses in licensing and advertising revenue that can never be recovered,” AT&T added. “Because those losses will not be any more sustainable after the merger than before, any threat to withhold content will be just as hollow as it was before. And everyone will know it. For this reason and others, Time Warner executives will explain at trial that the merger will not—and realistically could not—affect their negotiations with video distributors, as confirmed by experience with multiple comparable transactions in this industry.”
AT&T specifically targeted Shapiro’s math, as well.
“In his initial report, the government’s expert claimed, with startling and implausible precision, that the merger will cause consumer pay-TV prices to rise by a monthly total of 27 cents per subscriber, or less than 0.2% of a consumer’s average monthly bill,” the brief said. “Just a few weeks later, after fiddling with some input dials, the expert managed to almost double that insubstantial result to a still-insubstantial 45-cent monthly increase, all of 0.4% per bill, which is where the government currently stakes its case.”