Deeper Dive—Battle for the future of cable news exerts outsized influence over M&A

Would the U.S. Justice Department have challenged a horizontal merger with a weak case if CNN wasn't involved? (Josh Hallett/Flickr)

By one key regulatory measure, a Comcast all-cash bid for select 21st Century Fox assets, confirmed as quite likely to happen by the cable operator this week, would be fairly straightforward, simply because Fox News would not be part of the deal.

Indeed, cable and local TV news outlets—until recently, condemned as obsolete in a world in which information is increasingly controlled by digital platforms like Facebook—are suddenly exerting outsized influence on major deals in the global media and telecom marketplace.

For example, U.K. regulators clearly remember Rupert Murdoch’s phone hacking scandal seven years ago and have grave misgivings over how Fox News is programmed in the U.S. Their angst towards Fox is a key reason why Comcast was able to pry apart an earlier merger agreement forged between Murdoch’s 21st Century Fox and satellite TV operator Sky.

This week, Matt Hancock, Britain’s government secretary for media, said Comcast’s $31 billion bid for Sky doesn’t “raise concerns in relation to public-interest considerations which would meet the threshold for intervention.” 

Earlier, Hancock had decreed regulatory intervention for 21st Century Fox, which is seeking to buy the 61% of Sky it doesn’t already own. Simply put, U.K. regulators are concerned about Murdoch’s impact on Sky News, a relatively modest component of Sky’s overall bottom line but a programming outlet seen as profoundly influential on British and European society.

In the U.S., the American Cable Association has found itself aligned with myriad progressive groups in an attempt to stop Sinclair Broadcast Group’s $3.9 billion bid to buy Tribune Media—a key step in what is believed to be Sinclair’s larger goal to create a nationally distributed news platform perhaps as ideologically “balanced” as Fox News. 

Voices on the left—and even a few on the right—fear that the Baltimore-based Sinclair is planning to use the expanded reach of Tribune to push a centrally controlled ideological agenda on hundreds of local news stations across the U.S. Further, they believe that because Sinclair’s local news operations have provided such favorable coverage to Donald Trump, the Republican-led FCC is going to eventually rubber-stamp the Tribune deal, despite the fact that it doesn’t meet rules regarding station ownership caps. 

This week, Republican FCC Commissioner Michael O’Rielly said the notion that Sinclair has his agency in the bag is a “misguided fantasy.”

He wrote, "That is why I believe it is time to call these assertions for what they truly are: a rhetorical tool designed to divert attention from opponents’ lack of substantive objections to the underlying policies, combined with what seemingly appears to be an extreme personal dislike for the company itself.”

Meanwhile, the ACA—which is more concerned about an engorged Sinclair’s potential market power than its local news agenda—sent the FCC an ex carte filing, noting that “Sinclair withheld more than 250 agreements, schedules, exhibits, and related documents, including materials that appear to contemplate ongoing relationships between Sinclair and the parties to whom it will putatively divest stations.”

And, of course, there’s CNN, which many believe is at the heart of why the Justice Department is pushing a weak antitrust case in court to stop parent company Time Warner Inc. from being purchased by AT&T for $85.4 billion. 

At one point, AT&T claimed in its defense of the DOJ suit that the federal government was “selectively enforcing” antitrust law in targeting the deal, motivated by Trump’s publicly expressed animus towards CNN. 

Of course, AT&T eventually took that out of its case because such an assertion is really hard to prove in court. But the consensus among most telecom and media executives, and general M&A watchers, is that there was some reason why the DOJ, armed with a weak case, totally reached to challenge a horizontal merger that, to many, seemed like layup.  

And certainly, with CNN’s surging viewers driving an 8.2% first-quarter revenue spike for Turner Networks, the Time Warner division that controls CNN, the cable news network isn’t unimportant to the conglomerate’s bottom line.  

In making my case about outsized influence here, I’ll note that Time Warner doesn’t break out individual revenue performances for specific Turner channels. But it’s safe to assume that CNN generates nowhere near the $1.62 billion made in the first quarter by HBO, or the $3.24 billion generated by studio operation Warner Bros. 

Yet, it is widely believed that if not for CNN—a currently successful but relatively small portion of the Time Warner empire—the AT&T-Time Warner deal would have closed last year.