How the HBO blackout on Dish might impact the DOJ's appeal of AT&T's Time Warner merger

Game of Thrones - Emilia Clarke. Image courtesy of HBO
The HBO blackout on Dish Network could spell trouble for AT&T during the Justice Department's upcoming appeal of the Time Warner merger. (HBO)

An HBO blackout in and of itself is notable since it’s never happened before in the network’s more than 40 years. But it could have deeper implications as AT&T plans to fight off a challenge to its Time Warner merger.

Over the summer, Judge Richard Leon ruled that AT&T could proceed as planned with its $85 billion acquisition of Time Warner, and he placed no conditions on the deal. That decision flew in the face of the U.S. Justice Department’s attempt the block the transaction, a move that garnered support from rival pay TV providers like Dish Network.

The DOJ has since filed to appeal that decision and oral arguments for that appeal are scheduled to take place Dec. 6. In the lead up to that court date, AT&T has a PR crisis on its hands.

This week, HBO and Cinemax—both part of AT&T’s WarnerMedia—went dark on Dish Network and Sling TV. A war of words quickly erupted between Dish and HBO.

Dish accused AT&T of using its new market power to shut out pay TV competitors (AT&T owns Dish satellite rival DirecTV) and harm consumers.

"Plain and simple, the merger created for AT&T immense power over consumers," said Andy LeCuyer, senior vice president of programming at Dish, in a statement. "It seems AT&T is implementing a new strategy to shut off its recently acquired content from other distributors.”

HBO countered, accusing Dish of being “extremely difficult” and not negotiating in good faith.

“Past behavior shows that removing services from their customers is becoming all too common a negotiating tactic for them,” said HBO in a statement.

Now WarnerMedia and the DOJ have weighed in on the impasse, which has affected a reported 2.5 million HBO subscribers on Dish Network.

“This behavior, unfortunately, is consistent with what the Department of Justice predicted would result from the merger,” a DOJ representative told Reuters. “We are hopeful the Court of Appeals will correct the errors of the District Court.”

WarnerMedia came back with an accusation that the DOJ-Dish collaboration that took place during the first attempt to block the Time Warner merger is continuing with Dish making the “tactical decision” to drop HBO.

History seems to side with HBO in this argument. HBO has never gone dark on a distributor before and likely wouldn’t want to pull its service since it would instantly cost it every subscriber it has on a distributor’s platform. On the other hand, Dish has an extensive reputation for taking carriage disputes to the channel blackout stage.

During the AT&T-Time Warner trial, AT&T’s lawyers dug up numerous comments Dish Network Chairman Charlie Ergen had made in the past regarding channel blackouts, including a quote about how “real negotiation starts when we go dark.”

But HBO going dark on an AT&T competitor’s pay TV service just months after AT&T completed its acquisition and for the first time in HBO’s history certainly does look like the kind of issue the DOJ and opponents like Dish said might happen.

Consumer group Public Knowledge echoed this sentiment, noting that AT&T has the incentive to black out popular channels like HBO on competitors since it could drive consumers to DirecTV.

“In ruling against the DOJ, Judge Richard Leon dismissed this concern. While it is difficult from the outside to determine the different factors at play in any particular DOJ dispute, the circumstances suggest that the government's case was correct. This is another reason the DC Court of Appeals should reverse the decision allowing the merger,” said John Bergmayer, senior counsel at Public Knowledge, in a statement.

For now, Dish is offering credits to affected subscribers and HBO is pointing people toward its direct-to-consumer services to help mitigate the initial fallout. But in the meantime, AT&T is facing a significant bump in the road and a big potential headache once the DOJ’s appeal officially kicks off next month.