WASHINGTON — It’s likely the reason that Supreme Court did not vacate the FCC’s 2015 Open Internet order at the same time it denied internet service providers’ appeal was that two conservative justices recused themselves: Chief Justice John Roberts and new Associate Justice Brett Kavanaugh.

The three other Republican appointees would have vacated the 2015 order.

Not vacating the order means it can be used by net neutrality groups challenging the Federal Communications Commission Republicans’ deregulatory Restoring Internet Freedom Order (RIF).

Justices don’t have to explain their recusals. But Kavanaugh was a judge on the U.S. Court of Appeals for the D.C. Circuit who participated in the en banc decision on whether to review the panel decision to uphold 2015 order. He dissented from the decision not to hear the appeal. This was before the 2015 order was mooted by the new FCC order.

Roberts’s 2017 financial disclosure statement included stock in Charter Communications and Time Warner, which would have become AT&T stock after the merger if Roberts still held it, which court transparency group Fix the Court says was the case. That would almost certainly explain his recusal, though Fix the Court said Roberts participated in the June decision to deny cert in the case of AT&T Mobility’s advertised service plans, four days after the AT&T-Time Warner deal closed, so theoretically Roberts should have recused himself. That was likely an oversight, as last term Roberts recused himself from two Time Warner-related cases.

If Roberts continues to own the stock, that could take him out of play if the Justice Department’s appeal of the AT&T-Time Warner merger gets that far. Currently it is before the D.C. Circuit, which last week picked the three-judge panel that will hear the appeal Dec. 6.

AT&T chair and CEO Randall Stephenson, a day after the U.S. Dept. of Justice said it would appeal a federal court decision that helped clear the path to its merger with Time Warner Inc., told CNBC Friday morning that the DOJ’s action could affect another potential mega-media merger: Comcast’s pursuit of 21 Century Fox assets.

Related: DOJ to Appeal AT&T-Time Warner Merger 

Comcast was expected to raise the ante again for certain Fox programming and studio assets pledged to The Walt Disney Co. Comcast had outbid Disney’s original $52.4 billion equity offer for the assets in June with a $65 billion all-cash proposal, only to be bested by another cash and stock offer from Disney worth $71.3 billion. The DOJ approved the Disney deal on June 27. 

Speaking to CNBC’s Squawk Box on Friday from the Allen & Co. conference in Sun Valley, Idaho, Stephenson said the DOJ’s plans to appeal the Time Warner purchase came as little surprise, adding that it probably isn’t great news for Comcast’s pursuit of Fox.

“[It] probably can’t help it,” Stephenson told CNBC, according to a transcript. Stephenson said he didn’t want to speculate on the government’s motives for appealing his merger, but said it could affect the Comcast-Fox “process.”

Related: AT&T, Time Warner Cleared to Merge 

“You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions,” Stephenson said. “But who knows whether that’s behind us.”

The AT&T chief stressed that the appeal process – which he speculated could take five-to-six months to complete -- will have no effect on the way AT&T and Warner Media run their businesses.

“This changes nothing,” Stephenson said. “This changes nothing we’ll be doing over the next 30 days or the next 12 months. We’re about executing our plan. We think the likelihood of this thing being reversed and overturned is really remote. It’s a very narrow path that would have to be traveled to get this thing reversed in any way. So we’re about executing our plan. The merger is closed. We own Time Warner.”

Related: AT&T Completes Time Warner Purchase 

Stephenson said as part of the original agreement, AT&T would run Warner Media separately and independently, and the company has no intention of changing that.

“I mean, when you have content players who are both suppliers and customers, you just have an obligation to treat them that way anyway,” Stephenson said. “So this changes nothing about how we operate the business. It changes nothing about products we will launch. It changes nothing about other M&A we need to do like Appnexus.”

Related: AT&T to Acquire AppNexus as Start of TV Ad Marketplace

And while the AT&T chief said the appeal could pose some problems for Comcast-Fox, he doesn’t see the same chilling effect on other potential mergers.

“If [I] were a CEO looking at media acquisitions and deals, I don’t think I would be looking at them today any differently than I did yesterday,” Stephenson said. “I think this is a process that will play itself out. But I think there is such a slim chance of this thing being altered in some way that it wouldn’t affect my thinking much at all.

But he added that most other companies shouldn’t have been looking to the AT&T-Time Warner ruling as a regulatory template in the first place, because Judge Leon’s ruling was so specific to that transaction.

AT&T has come under fire lately over how it would run Warner Media, specifically a Town Hall meeting with HBO employees where Warner Media chief John Stankey appeared to want the premium network to be more like Netflix. Stephenson said that Stankey’s message of increasing engagement is a strong one. 

“At the end of the day that’s what this is all about, engaging the consumer,” Stephenson said. “Because the more engagement you have, the more opportunity you have to create value.”

More engagement could mean “pumping more content into HBO,” but it also means spreading it across AT&T’s other digital properties like DirecTV Now, WatchTV and online sites like CNN.com.

Still, the AT&T chief said the company is aware of the potential for culture clashes between Warner and other AT&T units, but added he wasn’t concerned about it.

“I’m conscious of it and we’re being very, very careful and mindful of that.” Stephenson said. “The way we’ve organized the business, it will be run separately, very independently. It’s important that we preserve the culture.” 

A month after a federal judge squashed the U.S. Dept. of Justice’s attempt to block the $108.7 billion AT&T-Time Warner merger, the agency appears to be going ahead with an appeal to again challenge the deal.

In his June 12 ruling, U.S. District Court Judge Richard Leon said the government failed to prove its argument that the deal would lead to higher prices for content for both consumers and other service providers, and urged the DOJ not to appeal. But just weeks after Judge Leon’s ruling, AT&T raised the price of its DirecTV Now service by $5 per month, a move that DOJ could possibly use to prove its earlier point. 

Related: AT&T Completes Time Warner Purchase 

In its two-page notice filed with the U.S. District Court for the District of Columbia, DOJ simply stated its intention to appeal Judge Leon's ruling.

"Notice is hereby given that the United States of America, plaintiff in the above named case, hereby appeals to the United States Court of Appeals for the District of Columbia Circuit from the final judgment entered in this action on June 12, 2018," DOJ said in its filing. .

In a statement, AT&T said it is ready for the latest stage of what has become a lengthy legal battle.

“The Court’s decision could hardly have been more thorough, fact-based, and well-reasoned," AT&T General Counsel David McAtee, said in a statement. "While the losing party in litigation always has the right to appeal if it wishes, we are surprised that the DOJ has chosen to do so under these circumstances. We are ready to defend the Court’s decision at the D.C. Circuit Court of Appeals.”

While the appeal will set the stage for a second round of legal proceedings, it isn’t yet known if the agency will take a different path in its appeal. Some analysts have suggested that Justice might focus on how the combination of a major programmer and an ISP could pose a more serious antitrust risk. 

“The AT&T-Time Warner transaction is a bad deal for consumers and competition," said Public Knowledge Senior counsel John Bergmayer. "Since it has gone forward, AT&T has already raised prices for its DirectTV Now video service, more than doubled the mysterious ‘administrative fee’ it tacks on to most of its wireless bills, and raised the price of some of its wireless plans while removing the HBO subscription that it had previously included. Judge Leon’s decision contained numerous errors, and we believe the DOJ’s position should be vindicated.”

For AT&T and Time Warner, now comes the hard part.

In the months leading toward U.S. District Court Judge Richard Leon’s rejection of the federal government’s attempt to block the AT&T-Time Warner merger, both companies made a lot of promises. Now, with the $108.7 billion deal having closed last Thursday (June 14), they will have to make good on them.

On June 12, Judge Leon rejected the U.S. Department of Justice’s claims that the deal was anticompetitive, calling into question the DOJ’s math and its assertions that the combined company would restrict access to programming or raise prices.

He also attempted to nip any thoughts by the government of appealing his decision, adding any moves toward a stay would “cause irreparable harm to the defendants in general and AT&T in specific” and would be a “manifestly unjust outcome of this case.” The DOJ agreed, but still has the right to appeal.

Related: AT&T, Time Warner Cleared to Merge

Agreeing to Arbitration

Though Judge Leon imposed no conditions on the deal, AT&T and Time Warner pledged a few things they hoped would smooth the approval path. Perhaps the pledge with the biggest impact across the industry was the promise to offer “baseball-style” arbitration in carriage disputes between its networks, such as TNT, TBS, CNN and Cartoon Network, and other distributors.

In baseball-style arbitration, a third party arbitrator receives sealed proposals from both parties in the dispute, and after a hearing selects one of those proposals without modification. During the arbitration period, no networks could be blacked out.

AT&T-Time Warner had promised to extend the arbitration offer for seven years after the deal closed. According to AT&T, the arbitration offer still stands.

The American Cable Association, which was against the merger, said although the arbitration offer is flawed — it doesn’t include HBO — it is an essential part of the deal.

“If there is any saving grace in the Court’s opinion, it is that the Court recognized that the offer made by AT&T-Time Warner (via Turner Broadcasting) to agree to commercial arbitration to settle program access disputes ‘will have real-world effects,’ helping to prevent ‘new’ AT&T from raising prices to its rivals,” the ACA said in a statement.

AT&T made some other promises for after the deal closing, including launching a sports-free video bundle that will cost $15 per month for non-wireless customers, but will be free to AT&T Wireless subscribers with unlimited data plans. AT&T chairman and CEO Randall Stephenson said the service, called AT&T Watch, would include Turner channels and others, but would only come to life if the Time Warner merger were approved.

AT&T also promised to offer a broadband-delivered DirecTV product, priced at between $80 and $90 per month, but details on that product were sketchy. Still, analysts saw AT&T Watch — and the telco’s aggressive discounting strategies (wireless customers get the $35 DirecTV Now package for $10 per month) — as a critical look into how AT&T views the content business going forward.

Related: AT&T to Introduce Broadband-Delivered OTT DirecTV Product

Bundles and Other Promises

In a blog titled “AT&T Wants to Give Video Away for Free,” BTIG Media analyst Rich Greenfield wrote that creating another sports-free bundle is nothing new.

“What makes AT&T Watch so significant is that AT&T is planning to give this package of video channels to AT&T wireless unlimited plan subscribers at no cost,” Greenfield wrote, adding that with an estimated 15 million AT&T Wireless customers on unlimited data plans, uptake should be high.

All of these moves appear to be in line with what Stephenson has been saying all along — the days of high-priced, fat packages of linear TV are over.

“If you’d asked me seven years ago what this world would look like today, I would have missed it so far,” Stephenson said during the April DOJ trial, according to a court transcript. “The need for people, for content creators, to go through cable companies and satellite companies to get their content to the consumer, that is a thing of the past.”

While media pundits hone their prognostication skills to determine what the next merger candidate will be in the wake of AT&T-Time Warner (besides Comcast-Fox or Disney-Fox), most are dubious that any of those deals will include the companies that arguably started the whole rush for scale: Facebook, Apple, Amazon, Netflix and Google, popularly known as FAANG.

Amazon, according to reports, toyed with the idea of joining Comcast in its $65 billion bid for 21st Century Fox assets, but talks never advanced. Apple also was said to have been thinking of bidding on Time Warner before AT&T announced its deal in October 2016, but again decided to hold off.

Related: AT&T Completes Time Warner Purchase 

While there has been speculation for years about when the big tech companies would make substantial plays for traditional media targets, it’s become clear they might not need to make any big acquisitions to achieve their goals.

Going it Alone’s Good for Netflix

Perhaps the best evidence for that is Netflix itself. Netflix may have toyed with the idea of selling out early in its development, but the company built its current empire largely from scratch, buying rights deals for cable shows and, more recently, leading the industry in originally produced content.

Amazon and Facebook have dipped their toes into programming, but haven’t yet made the major commitment some have expected. Instead, Amazon re-upped its deal for streaming rights for NFL Thursday Night Football and bought rights for a 20-match English Premier League soccer package outside the United States.

Facebook has a deal to stream Mixed Match Challenge, a 12-episode show that airs on Facebook Watch featuring WWE Raw and SmackDown wrestlers, but hasn’t yet made a big financial commitment to video, either.

Amazon, of course, has Amazon Prime Video, which has been growing nicely, offering original scripted series and movies and streaming the back catalogs of other networks. Amazon Studios is expected to continue to be a big player in content, although it will likely lag Netflix, which according to UBS is believed to be spending about $12.6 billion on non-sports content in 2018. Netflix has said it plans to end the year with 1,000 original movies and series, including 470 that will debut in the second half of the year.

Related: Netflix Investing 85% of New Spending in Originals

Despite the lack of activity, Pivotal Research Group CEO and senior media and communications analyst Jeff Wlodarczak said he expects the tech giants to be buyers not builders. Also, there isn’t that much left to buy.

“If Comcast gets Fox, I don’t see that many attractive content assets left for the FAANGs,” Wlodarczak said, although Discovery Inc., which bought Scripps Networks earlier this year, could be a target.

Others say it doesn’t matter. The old way of doing business — studios produce shows and try to sell them to networks, which in turn monetize them in as many ways on as many outlets as possible — is fading away faster than many have expected. Amazon and Netflix don’t sell content to networks: they use it on their direct-to-consumer services. And that may end up being the future as we know it.

Related: Amazon Prime Exceeds 100 Million Subs

BTIG media analyst Richard Greenfield, who has been a big proponent of the new paradigm (and chides the old one with the hashtag #goodluckbundle), sees the tech companies sitting out this merger and acquisition wave.

“I wouldn’t expect a flood of M&A,” Greenfield told Cheddar TV. “The media industry, especially after we get through this Comcast- Fox-Disney transaction, it’s a pretty consolidated sector. I think most of the tech companies — take a Netflix, take a Facebook, take a Google — I don’t think they have a lot of interest in buying legacy media companies. I think they’d rather invest and build out content and programming.”

Usual Suspects Might Be Quiet

MoffettNathanson media analyst Michael Nathanson wrote in a note to clients that he couldn’t see a wave of deals in the wake of the AT&T-Time Warner ruling either. Nathanson said CBS could be a target because it offers strategic value through retransmission consent revenue, an OTT presence via CBS All Access and live sports rights. But, he said, if deals between distributors and programmers were that compelling, they would have been done before. He couldn’t remember any past potential deals between distributors and programmers held back solely because of regulatory concerns.

“In all the years, we have never been asked, do you think the DOJ would allow Company X to buy [AMC Networks] or [Lionsgate]?” Nathanson wrote. “Also, it is far from clear who the distribution buyers for these assets will be.”

Just days after saying it was ready and willing to make a counteroffer for 21st Century Fox assets pledged to The Walt Disney Co., Comcast now has about six weeks to put up or shut up.

Both Disney and Fox said on May 30 that they will hold their respective special shareholders’ meetings July 10 to vote on the $68 billion deal. Disney’s is slated for 10 a.m. at the New Amsterdam Theater in New York, Fox’s at the same time at the New York Hilton Midtown. While both companies have recommended that shareholders vote in favor of the transaction approved by their boards months ago, Fox acknowledged it was “aware” that Comcast could make a competing offer.

Should Comcast lob in an all-cash offer (and every indication is that it will), the shareholders’ meetings could be postponed to a later time.

Waiting on AT&T Ruling

Comcast is expected to wait until June 12 to make a formal offer for the assets. That’s when U.S. District Court Judge Richard Leon is expected to make his ruling on the other big media deal on the table: AT&T’s $108.7 billion purchase of Time Warner.

Much has been made of Comcast’s intentions, mainly surrounding the inevitable bidding war that a counteroffer would touch off. But more broadly, its move underscores just how rapidly the pay TV landscape is changing.

In one fell swoop, the deal would give Comcast control of two sizable content and distribution assets inside the U.S. (online video service Hulu) and outside (U.K. satellite-TV giant Sky).

Hulu, the online service partly owned by Disney (30%), Fox (30%), Comcast (30%) and Time Warner (10%), about a year ago launched Hulu Live, a virtual multichannel video programming distributor that now has about 800,000 customers. That’s in addition to the Hulu SVOD service, which boasts around 20 million customers.

Getting Fox’s 30% interest in Hulu would give Comcast 60% control of a national OTT distribution arm — it would likely try to buy out Disney and Time Warner at a later date — and could position the cable operator nicely for any changes that may come in the distribution business.

Adding Fox Networks International, Sky and Star India, Fox’s pay TV network in India, would also lessen the blow of increasingly intense competition in the U.S. by boosting Comcast’s international exposure from 9% of total revenue to 25%.

“It’s an international play,” said one person familiar with Comcast’s thinking, who asked not to be named. “You’ve got Sky News, they have an OTT platform called Sky Now; over in India, 400 million people watch a cricket match. There’s a lot of opportunity internationally.”

Comcast made a formal offer for 100% of Sky in April valued at $31 billion, a deal that trumps an earlier buyout offer by Fox. Unlike the Fox deal, it is expected to get little pushback from U.K. regulators. Adding the Sky bid to an anticipated $78 billion offer for the Fox assets would push Comcast’s total commitment to the Murdoch family well over $100 billion.

Comcast was an early participant in the bidding for the Fox assets last year, but dropped out after it became apparent Disney was the preferred suitor. Comcast apparently floated an all-stock deal that was at a 16% premium to the Disney bid, but said in a statement at the time it “never got the level of engagement needed to make a definitive offer.”

Cable Declines, Netflix Soars

Since December, cable companies have endured heavier-than-expected video subscriber losses and a shift in investor sentiment toward alternative distribution. Comcast shares have lost more than 20% of their value since the beginning of the year, and the rest of the sector has seen similar declines.

Meanwhile, shares in Netflix, which practically invented the SVOD space, are up by more than 80%, and last week the OTT service passed both Comcast and Disney in total value, with a market cap of $153.7 billion. Disney’s market cap was $149.02 billion and Comcast’s was $144.9 billion as of May 31.

“It feels like Comcast wants it more than Disney partly because Disney needs Fox less than Comcast,” Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said. “In regards to developing a global OTT platform, Disney probably does need Fox less than Comcast.”

FCC chair Ajit Pai said neither he nor his staff talked with AT&T representatives during the period when the company was making monthly payments to Donald Trump's then-attorney Michael Cohen.

Pai's comments came during a press conference following the FCC's public meeting Thursday (May 10) in response to a question from Bloomberg reporter Todd Shields.

AT&T has confirmed it paid Cohen's company, Essential Consultants, but said it was paying for insights into the new administration, reportedly including Trump's position on net neutrality, and that it was not for legal or lobbying work.

One insight AT&T was certainly interested in is how the President viewed the proposed AT&T-Time Warner merger. 

Candidate Trump had said his administration would block an effort to combine AT&T with CNN parent Time Warner. He has been a vocal critic of the cable news net as one of the ringleaders of what he says has been a liberal media "fake news" attack on his presidency.

Dish Network chairman Charlie Ergen said government approval of the $108.7 billion AT&T-Time Warner merger could plant the seeds for further consolidation in the industry, while a rejection could put a damper on any further deals. But either way, he said Dish won’t likely be a participant in the rush to acquire content.

“Were not likely to get into content creation,” Ergen said on a conference call with reporters shortly after a similar call with analysts to discuss quarterly results. “That’s a skill set we don’t have; it takes a different skill set, it takes a lot of capital; it’s a little hit or miss and we’re just not that company. And we’ve always felt from a distribution point of view, we shouldn’t be in competition with our distribution partners.”

Related: T-Mobile, Sprint Combo Bypasses Dish

Other distributors are waiting for the AT&T-Time Warner deal to get approved before pulling the trigger on other deals. AT&T-Time Warner just wrapped up their arguments in the federal court case to stop the U.S. Dept. of Justice from blocking the deal While the judge’s decision on the matter is expected on June 12, the general consensus is that the deal will be approved, but with some conditions.

Comcast, which already has lobbed an offer to buy U.K.-based satellite giant Sky, also is reportedly waiting in the wings for approval of the AT&T-Time Warner deal before launching a separate bid for 21 Century Fox content assets currently pledged to The Walt Disney Co.

Related: Big Mergers in Holding Patterns

On the call with reporters, Ergen said he had no particular insight into the possible Comcast bid, but said it speaks to the broader issue of the current regulatory environment.

“I think you’re starting to see the seeds of potentially some major consolidation efforts out there; or depending on the ruling of AT&T-Time Warner, you may see a bit more of a cold shower,” Ergen said.

Earlier, on the analyst call, Ergen expressed some surprise at the current state of the content industry, especially in how it allowed services like Netflix to run roughshod over their businesses.

“OTT opens up a number of potential minefields for content owners that I’m not sure they’ve totally thought through,” Ergen said, pointing out the increased potential for piracy and the beginnings of true a la carte programming.

Watch MCN: Media's CEOs by the Numbers

Ergen said that several things could happen, including the abatement of heavy price discounting to the creation of new revenue streams like addressable advertising – which he said distributors have the technical ability to launch but content providers have been slow to adapt.

“And in some cases, some programmers will get dropped from certain operators because the customer is not asking necessarily for more content from current providers, they’re more balanced with not seeing their rates increase, or not increase as much,” Ergen said.

He added he has been surprised with the rise of SVOD services like Netflix and Amazon, but said there are still things linear content producers can do to reinvigorate the business.

“There’s a reason why people like Netflix and there is a lot of things we could do in the current linear style business that would more reflective of what customers want. It’s just hard to corral everybody,” Ergen said. “Every contract we have is different, so sometimes you can take some content with you and offload I and take it on an airplane, and sometimes you can’t. With Netflix you can do that.”

Later, on the reporter call, Ergen said that he hopes the industry would focus more on piracy and account sharing, reducing ad loads and unbundling networks.

“I’m hopeful that there is going to be some content owners out there who will take some chances to try to do some things,” Ergen said.

Washington — Proposed media mergers are beginning to stack up in a Republican-controlled Washington, D.C., which might be a surprise were it not for the peripatetic course set by a pro-business president who has opposed mergers involving media companies he dislikes.

At press time the Sinclair Broadcast Group-Tribune Media deal was still in Department of Justice and Federal Communications Commission limbo, with the former yet to weigh in and the latter yet to restart its shot clock on vetting the latest, and fourth, iteration of the transaction in Sinclair’s attempt to woo regulators and sweeten the deal with more or different station spinoffs.

Even if Justice signs off, the FCC will need to take most of six weeks more before it renders a decision, since it has signaled it will put out whatever proves to be Sinclair’s last, best offer for comment and replies.

The Justice Department’s lawsuit against an AT&T-Time Warner merger that many had expected to have trouble getting approval just wrapped up the argument phase, with the judge now mulling whether the combination is a sufficient threat to competition to justify blocking it, as the Trump administration has attempted to do.

Now joining the queue will be Sprint-T-Mobile. Key to that deal is whether regulators see the combination of the third- and fourth-largest U.S. wireless companies as reducing competition to the detriment of consumers, or as creating a stronger No. 3 “un-carrier” to the dominant ex-Bells, Verizon and AT&T.

AT&T is preparing to introduce a $15 per month, sports-free OTT TV service called AT&T Watch, in the coming weeks, according Twitter-based coverage of AT&T chairman and CEO Randall Stephenson’s antitrust trial testimony for the pending AT&T-Time Warner merger. 

Update: AT&T is also looking to make this package available for free to customers on its unlimited mobile service plans. 

RELATED: AT&T’s Stephenson Says Need for Scale Led to Time Warner Buy

Brian Fung, a tech reporter for The Washington Post, was on the scene and tweeted that AT&T Watch would be an OTT TV service, like DirecTV Now is, but start at a less expensive price point and not include sports programming:

[embed]https://twitter.com/b_fung/status/987062529338826752[/embed]

AT&T has been asked for further details, but Fung noted later that the company confirmed some of the basic details mentioned by Stephenson:

[embed]https://twitter.com/b_fung/status/987080231235346433[/embed]

AT&T hasn’t detailed pricing and packaging for this new OTT TV offering, but it would appear to be most akin to an entertainment-focused national offering from Philo that launched last November and starts at $16 per month, and on the complete opposite end of the spectrum of fuboTV, the sports-oriented virtual MVPD.

Update:Per CNN, AT&T Watch will be available for sale to all, but will be offered for free to consumers who take AT&T’s unlimited wireless service.

CNN added that AT&T alluded to this offering in a pretrial brief, holding that a combination with Time Warner would enable AT&T to bring those content assets to its wireless platform to “develop new and more valuable services especially for mobile video devices.”

Among examples, AT&T noted that it would “launch a new service with Turner and a small number of popular cable networks, which would be made available for free to AT&T's wireless customers on unlimited plans and for a nominal price to anyone else."

RELATED: Philo Unleashes Entertainment-Focused OTT TV Service

Philo hasn’t announced subscriber figures or ramped up a bunch of marketing for its new service, so it’s difficult to determine how its sports-free offering is resonating in the market. As for AT&T, a skinny bundle without sports would address a part of the market not covered as directly by DirecTV Now, which ended 2017 with 1.15 million subscribers.

The nation’s top antitrust enforcer, Makan Delrahim, who is currently taking on AT&T in a Washington, D.C., federal court to block its merger with Time Warner, will also be defending AT&T’s business interests in another D.C. federal court.

In a speech at Vanderbilt University, the head of the Justice Department’s antitrust division pointed out that his department would be defending the Federal Communications Commission in the legal challenges to its network neutrality regulations rollback, which AT&T backed and is defending in court as a member of USTelecom. That will put Delrahim and the telco on the same legal side.

Delrahim pointed out that the economic regulations, like the FCC’s network neutrality issue, fall under his division’s purview. “When the U.S. government defends [such regulations],” he said, “it’s the antitrust division that gets involved with defending their rules.” While the net neutrality case was going to be argued in the 9th U.S. Circuit Court of Appeals in California, it has been moved to the D.C. Circuit, which has heard previous appeals of the FCC’s rules.

Delrahim did not comment on Justice’s lawsuit against the AT&T-Time Warner merger, which began in Washington two weeks ago.

But he did talk about the importance of the court’s decision and its potential impact on the future direction of business and vertical integration.

Delrahim has signaled that he thinks that rather than apply conditions under consent decrees, Justice should apply structural remedies, such as spinoffs, then let the market determine what happens next, instead of having the government enforcing measures to make an illegal deal legal.

Critics of AT&T’s pending $108.7 billion purchase of Time Warner have pointed to the myriad dangers of consolidating large content and distribution companies – but some analysts say the environment is already headed in that direction.

The U.S. Dept. of Justice has already said it would block the AT&T-Time Warner merger, with the parties scheduled to go to court to state their cases on March 19. Whatever the outcome, the rush for scale won’t be slowed, UBS Securities telecom analyst John Hodulik said.

Related: Feds Lay Out Court Strategy for Blocking AT&T-Time Warner

Hodulik — who believes the deal will be approved — cited in a research note the steady decline of traditional TV distributors, the accelerated push for heft and the inevitable move to direct-to-consumer services as catalysts for more deals. Subscribers to traditional pay TV providers have declined by about 50% since 2010 and dipped 14% in 2017 alone, he noted.

OTT Has Changed Everything
“OTT is clearly the future of video distribution,” Hodulik wrote, and is likely the main driver behind the mega content deal between The Walt Disney Co. and 21st Century Fox, Comcast’s unsolicited bid for British satellite TV company Sky and CBS’s moves to revisit a recombination with corporate sister Viacom.

Hodulik argued that government fears that a combined AT&T-Time Warner would limit content choices and drive up prices run counter to the OTT-inspired shift. And if AT&T isn’t allowed to purchase Time Warner, another company will.

Earlier this month, at an industry conference, CBS chief operating officer Joe Ianniello called the current environment an “arms race” to accumulate content needed to drive direct-to-consumer products.

Ianniello said CBS All Access, the broadcaster’s own OTT product, will add six to seven new shows in the next 12 months, just to compete with the likes of Netflix and other providers. “We’re doubling down,” he said.

Hodulik thinks the land rush for content is warranted. He predicted that virtual multichannel video programming distributors such as Sling TV and DirecTV now will nearly triple their subscriber bases from about 5.5 million in 2017 to 15.1 million by 2020.

Watch MCN: vMVPDs by the Numbers

At the same time, pay TV subscribers, down 3.6% in 2017 to 95.4 million customers when vMVPDs are included, are expected to dip another 4.4% in 2018 to 91.2 million, according to the analyst.

Cable Gets Into the Act
Hodulik said traditional distributors dipping their toes in the vMVPD waters — like Comcast and Charter Communications — will make the full plunge in the next few years.

Comcast introduced Instant TV in late September, a package of broadcast and education channels for $18 per month, to compete with Sling TV and DirecTV.

Charter unveiled its “Choice” package — 25 channels for $21.99 per month — earlier this year.

Mostly because of a desire not to cannibalize existing, higher margin businesses, the offerings haven’t been broadly offered. That is about to change, especially as streaming services gain scale, Hodulik believes. He said he thinks it won’t be long before their OTT offerings mirror their existing video packages.

“We believe scale benefits will eventually lead cable to offer streaming TV services out of region, likely in conjunction with a wireless offering,” he wrote.

A flurry of mega deal announcements late in the year didn’t help programming stocks that much in 2017, as the sector rose just 4.1% for the year, while distribution stocks, despite continued pressure from over-the-top competition, managed another year of double-digit percentage growth.

Despite an acceleration in pay TV subscriber losses in the third quarter – about 827,000, compared with 559,000 in the prior year – distribution stocks rose 12% for the year, fueled by strong growth at Charter Communications. Charter, the target of intense takeover speculation earlier in the year – none of those deals have come to fruition – rose 17% for the year, closing at $335.96 per share on Dec. 29.

That, coupled with steady growth at Comcast (16%), Liberty Global (17.2%) and Cable One (13%), offset declines at the two newest stocks in the sector. Altice USA, the domestic cable arm of European telecom giant Altice N.V., went public in May and fell about 35% by the end of the year, mainly dragged down by leverage concerns at the parent company. Overbuilder Wide Open West tapped the public markets in June, but dipped about 36% for the year, closing at $10.57 each on Dec. 29, as competitive concerns weighed on the stock.

Still, cable distributors gave back a big chunk of their gains earlier in the year when Comcast and Charter both reported subscriber losses in the third quarter. Comcast had warned investors that it would lose between 100,000 and 150,000 customers in Q3 due to Hurricane Harvey, as well as “competitive issues.” It ended up losing 125,000 video customers in the period, and broadband growth was slower than expected. Charter lost about 104,000 video customers in Q3 – more than twice its losses in the prior year.

Those losses affected the stocks – Comcast fell 7% in September after Comcast Cable EVP of XFinity Services Matt Strauss mentioned a shortfall was coming, and never quite recovered. If the year had ended on Sept. 6, Comcast would have finished up 19.2%. The same would have been true for Charter – its shares fell 8.3% on Oct. 26 when it announced Q3 results. The day before, Charter was on a pace to finish the year up 20%.

Distributor stocks rose nearly 40% in 2016, mainly on deal activity and speculation that more consolidation was to come. While 2017 wasn't the deal free-for-all that some may have expected, Pivotal Research Group CEO and senior media & communications analyst Jeff Wlodarczak said changing investor attitudes and tax reform are driving shares.

“Investors are transitioning to more of a higher data monetization, wireless market share, still solid overall financial growth and increasingly large capital return strategies,” Wlodarczak said. “At the end of the day I think we are in the seventh inning of the transition for cable.”

Neither sector matched the growth of the so-called FANG stocks – Facebook, Amazon, Netflix and Google – which rose a combined 46.8% for the year. Amazon, which plans to spend about $6 billion on programming in the coming year, rose the most, rising 56% for the year from $749.87 to $1,169.47 each. Netflix was a close second, rising 55.1% from $123.80 to $191.96 each, while Facebook gained 53.4% from $115.05 to $176.46 per share. Google gained the least but still beat cable’s best, rising 35.5% from $771.82 each to $1,046.20 per share by year’s end.

The Walt Disney Co.’s Dec. 14 announcement of its plan to purchase core assets from 21st Century Fox was the cap for what had been a strong deal year in the programming sector. In July, Discovery Communications announced its long-awaited purchase of Scripps Networks Interactive in a transaction valued at about $14.6 billion.

But those deals were just barely enough to push the sector into the black for the year. Overall, programming stocks were up 4.1%, perhaps weighed down by uncertainties surrounding the other mega-deal in the sector, AT&T’s $108.7 billion purchase of Time Warner Inc.

AT&T had expected to close the Time Warner deal by the end of the year, and for most of 2017 looked to be on track to meet that goal. But as the year wore on, rumblings that the Department of Justice would look unfavorably on the deal began to grow, culminating in a DOJ lawsuit in November to block the deal on anti-trust terms. AT&T has vowed to fight the suit, and is scheduled to have its day in court in March.

Whatever the outcome, the roller-coaster approval process has played havoc with the stocks. AT&T shares were down 8.6% for the year, closing on Dec. 29 at $38.88 each. Time Warner’s decline was softer, dropping 5.2% to close at $91.47 on Dec. 29.

President Donald Trump waited until Tuesday morning (Jan. 2) before renewing his attacks on the news media, though in this case in the form of a call for better coverage of his Administration.

In a pair ot tweets prompted by the naming of a new publisher for The New York Times, a favorite target, the President suggested it was a chance for the paper, which he has branded failing (and did again Tuesday) and a tool of his Democratic opponents, to "lose" all of its "phony" and "non-existent" sources. The President has railed against unnamed sources in stories critical of him or his Administration.

The Failing New York Times has a new publisher, A.G. Sulzberger. Congratulations! Here is a last chance for the Times to fulfill the vision of its Founder, Adolph Ochs, “to give the news impartially, without fear or FAVOR, regardless of party, sect, or interests involved.” Get...

— Donald J. Trump (@realDonaldTrump) January 2, 2018

....impartial journalists of a much higher standard, lose all of your phony and non-existent “sources,” and treat the President of the United States FAIRLY, so that the next time I (and the people) win, you won’t have to write an apology to your readers for a job poorly done! GL

— Donald J. Trump (@realDonaldTrump) January 2, 2018

The president's attacks on the media have led to reporters groups branding him a threat to a free press here and abroad and raised issues about how his administration would treat the proposed merger of AT&T and CNN parent Time Warner.

CNN has been the most consistent cable news target of the President's twitter ire, as the Times has been on the print side. The Justice Department is trying to block the merger. Though Justice argues that is because of the incentive and opportunity to favor must-have programming, the President's vow as a candidate to block the merger, combined with his attacks on CNN, have raised questions about Justice's move.

The timetable for the government's suitagainst the proposed AT&T-Time Warner merger in the U.S. District Court for the District of Columbia is taking shape.

Related: DOJ Suing to Block AT&T-Time Warner Deal

There will be a Dec. 21 status hearing before Judge Richard Leon to go over scheduling issues, procedures and the like.

No big news is expected out of that hearing.

The trial is scheduled to begin March 19, 2018, unless the sides can settle before then.

Justice wants AT&T to spin off the Turner programming assets, arguing they give the combined company the incentive and opportunity to disfavor competitors.

AT&T and Time Warner have signaled such a spinoff is a nonstarter and offered up what amounts to their own behavioral conditions, though Makan Delrahim, who heads the antitrust division signaled Justice would be looking for more divestitures and fewer behavioral conditions, suggesting the latter remedy was over-regulatory, as well as essentially allowing an illegal merger under conditions that were hard to monitor.

President Donald Trump is not making it any easier for the Justice Department to make its antitrust case against the AT&T-Time Warner Inc. deal, continuing to tweet attacks on CNN, one of the assets in the deal.

AT&T is expected to use the president’s attacks, combined with his threat as a candidate to block the deal, to suggest it was the president’s opposition to a media outlet he dislikes getting potentially more powerful, rather than antitrust law, that drove the DOJ effort to get the compay to spin off programming assets like CNNor HBO, then to try to block the deal outright when AT&T declined to pare back those assets.

CNN currently runs second to Fox News Channel, a Trump favorite, in the cable news race.

The president, continuing a pattern of attacking CNN by name, tweeted last week:

“We should have a contest as to which of the Networks, plus CNN and not including Fox, is the most dishonest, corrupt and/or distorted in its political coverage of your favorite President (me). They are all bad. Winner to receive the FAKE NEWS TROPHY.”

That trophy could turn out to be a booby prize for the tweeter-in chief if it continues to raise the issue of motive.

Related: Fox News Channel Would Get 'Fake News Trophy,' per Survey

Deal critics argue there are plenty of legitimate reasons for blocking the deal, but the president continues to inject himself into the conversation and, like his tweets about the immigration ban ultimately cited in court decisions against the administration, is doing DOJ no favors.

Analysts say AT&T’s declaration that it would offer distributors arbitration when Turner carriage deals expire—and its promise of no blackouts for seven years—if its acquisition of Time Warner goes through answers one of the government's biggest objections to the deal.

AT&T disclosed the offer on Tuesday in response to the Justice Department’s suit looking to block the merger on antitrust grounds.

Related: AT&T, Time Warner Accuse DOJ of Selective Enforcement

In a research note Wednesday (Nov. 29), MoffettNathanson Research analysts Craig Moffett and Michael Nathanson called AT&T's arbitration and no-blackout gambit clever.

“In a single commitment, AT&T has gotten to the very heart of the DOJ’s case,” the analysts say. "This commitment captures the very essence of the so-called 'non-exclusivity provisions' of the erstwhile Program Access Rules about which we have written so frequently in the past.

“And by making the commitment irrevocable, they have alleviated the take-it-or-leave-it nature of the decision that would otherwise have faced Judge Leon,” Moffett and Nathanson say. “This both reduces pressure on Judge Leon – he no longer has to consider the deal as if it has no behavioral remedies whatsoever, as would have been the case absent this commitment – and increases it, as it now becomes much harder to reject the deal when AT&T is committing to exactly the same behavioral remedy to which Comcast committed (and for the same amount of time).”

The analysts say it would be tough for the Justice Department to argue that AT&T would be able to raise the wholesale price of its content to competitors when it is agreeing not to use the weapon that gives it the most leverage, and most hurts consumers.

AT&T vowed to fight the U.S. Department of Justice’s move Monday to block its $108.7 billion merger with Time Warner Inc., adding that the government has no legal grounds to stop the deal, which has been slogging through the federal anti-trust approval process for more than a year.

“We are going in to this to win,” AT&T chairman and CEO Randall Stephenson told reporters in a press conference Monday night. “We are very confident and we intend to win.”

Stephenson said on the call that AT&T has “offered concrete and substantial solution” and will continue to offer them to get the deal closed. He declined to say what those solutions were.

AT&T first announced its agreement to acquire Time Warner in a deal valued at $85 billion ($108.7 billion including debt) on Oct. 22, 2016. At the time, the companies believed the deal would take about a year to complete.

The deal would combine the largest distributor – AT&T with about 25 million pay TV customers – and the second largest content provider. Time Warner includes the Warner Bros. movie studios, and Turner Networks including content brands like CNN, Home Box Office, Cartoon Network, TNT, TBS and TCM.

AT&T had been confident that because the merger was a vertical combination – neither company has any competing businesses – it would have easily moved through the approval process. But that became less clear shortly after the deal was announced, when then-presidential candidate Donald Trump said he would block the deal if he were elected.

When Trump did win the election, business leaders believed he would back off on his promise and let the deal through. But Trump has battled with CNN since becoming President – he regularly calls the network “fake news” – and it became clearer in the past month that the deal may face some resistance from the government.

Stephenson had contended earlier that CNN divestiture was never put on the table as a condition of the deal, but he again said at the Monday press conference that selling the network was not an option.

“There has been a lot of reporting and speculation whether this is all about CNN,” Stephenson said. “Frankly, I don’t know. But nobody should be surprised that the question keeps coming up, because we witnessed such an abrupt change in the application of antitrust law here. The bottom line here is we cannot and we will not be party to any agreement that would even give the perception of compromising the First Amendment protections of the press. Any agreement that results in us forfeiting control of CNN, whether directly or indirectly, is a non-starter. We believe quite strongly that any divestiture of AT&T assets or Time Warner assets is not required by the law. We have no intention of backing down from the government’s lawsuit.”

Earlier this month, newly appointed Assistant Attorney General Makan Delrahim, head of the DOJ’s anti-trust division, had hinted that he would apply structural conditions rather than behavioral conditions to mergers, and word leaked to several news outlets that the government would seek a divestiture of either Turner or DirecTV to get the deal approved.

Related: Makan Delrahim Lays Groundwork for Divestiture

In a statement, Delrahim said the merger would “greatly harm American consumers. It would mean higher monthly television bills and fewer of the new, emerging innovative options that consumers are beginning to enjoy.”

AT&T has argued all along that the DOJ has no precedent to stop the merger – neither AT&T nor Time Warner compete in any business and the deal would mot remove a top competitor from the industry.

“Today’s DOJ lawsuit is a radical and inexplicable departure from decades of antitrust precedent. Vertical mergers like this one are routinely approved because they benefit consumers without removing any competitor from the market. We see no legitimate reason for our merger to be treated differently,” AT&T Senior EVP and General Counsel David McAtee II said in a statement. “Our merger combines Time Warner’s content and talent with AT&T’s TV, wireless and broadband distribution platforms. The result will help make television more affordable, innovative, interactive and mobile. Fortunately, the Department of Justice doesn’t have the final say in this matter. Rather, it bears the burden of proving to the U.S. District Court that the transaction violates the law. We are confident that the Court will reject the Government’s claims and permit this merger under longstanding legal precedent.”

Now the DOJ will have to prove that the deal violates anti-trust law. That won’t be easy. The DOJ hasn’t successfully blocked a vertical merger in 50 years. And the last time it attempted to block a vertical deal – U.S. v. Hammermill Paper Co. in 1977 – it was rejected by the court.

But the government was successful during the Nixon Administration of blocking Ford Motor Co.’s purchase of Autolite, one of two independent sparkplug manufacturers in the country at the time. The government was successful in that case because it involved static technologies, high concentration levels and barriers to entry, according to AT&T.

“In contrast AT&T and Time Warner are both in wildly competitive, fluid and innovative industries with new entrants on a daily basis,” AT&T said in a statement. “Neither company has market power.”

But the lawsuit could delay the process long enough for both parties to call it a day and walk away from the transaction – much like Comcast did in 2015 when it discovered the DOJ would contest its merger with Time Warner Cable. While this merger is different – Time Warner Cable was the second largest distributor in the country and the combined company would have huge dominance in broadband nationally – some have argued it would place too much power in once company’s hands.

The government has cited one case where its opposition helped scratch a big deal – Semiconductor maker Lam Research’s failed purchase of KLA Tenecor in 2016. AT&T argued that the DOJ did not officially file a suit to block that deal, but like the Comcast-TWC merger, let it be known that it would oppose the union. The parties simply walked away from the deal. And that may be the DOJ’s whole point.

But at least for now, AT&T seems adamant about having its day in court.

“Voluntary abandonment is not precedent,” AT&T argued in a statement. “No court decided anything because there was no case.

Daniel Petrocelli, retained counsel from O'Melveny & Myers for both AT&T and Time Warner said at the press conference that he does not expect the suit to drag on in the courts.

“This is not a case that is going to drag on for months and months,” Petrocelli said, adding that he was hopeful a trial could proceed in as early as 60 days. “The DOJ will be hard pressed to tell the court they are not ready.”

AT&T cited hundreds of vertical mergers that have been approved by DOJ since the Ford deal, including 2011’s merger of Comcast and NBC Universal. While that deal was loaded with conditions –many of which will expire next year, speculation has been high that the DOJ believes it may have missed the boat on that deal, allowing Comcast to amass too much content power. According to some observers, the agency doesn’t want to make the same mistake with AT&T-Time Warner.

But whatever the government feels about big deals – one worry is that AT&T would make some content from Time Warner exclusive to its own distribution properties – it may have little choice. AT&T claims there

“The critical and uncontested fact is that this merger neither eliminates any competitor nor increases concentration in any market,” AT&T said in a statement.

Media watchdog groups had been opposed to the deal from the start, but have expressed some trepidation over the reports that the action could be at least in part motivated by the President’s own bias toward CNN. Many have said that would create a dangerous precedent.

“Blocking this merger is the right thing to do — and we hope the Justice Department is doing it for the right reasons,” Free Press CEO Craig Aaron said in a statement. “This deal would give AT&T way too much power to undercut competitors and raise costs on TV viewers and internet users everywhere.

“…It’s refreshing to see the Justice Department doing something about this deal,” Aaron continued. “However, we remain very troubled by President Trump’s threats to punish outlets like CNN that have aired critical coverage of the administration. The Justice Department must demonstrate that Trump’s saber-rattling has nothing to do with this suit. It could start by giving the same level of scrutiny to other mega-deals like Sinclair’s proposed merger with Tribune. But the bottom line is that the public would be best served if this merger is scrapped.”

Time Warner shares were down by about 1% on Nov. 20 and were priced as low as $87.15and as high as $88.50 in after-hours trading.

Some observers have warned that the DOJ action could put a chill on future media mergers, especially those involving companies that have been critical of the president. Stephenson agreed.

“I would suggest that this lawsuit has the whole world questioning what they will, can and cannot do,” Stephenson said. This throws a huge degree of uncertainty to anybody contemplating joint ventures, anybody contemplating M&A. That’s one of the key concerns about this. To take suddenly without any notice and just upturn 50 years of precedent on a transaction like this can have nothing but a freezing effect on commerce in general.”

WASHINGTON — The Justice Department’s new antitrust chief, Makan Delrahim, may not have talked specifics during a speech discussing his theory of antitrust merger reviews, but he sent clear signals that divestitures are a cleaner, more deregulatory fix for problematic deals. That ultimately could translate into a trip to court by AT&T.

Delrahim did not talk about the AT&T-Time Warner deal in a speech he gave to the American Bar Association in Washington on Nov. 16, though he did mention Time Warner Cable.

He signaled he is more partial to applying structural conditions such as divestitures than to imposing behavioral conditions before allowing a merger that, absent those conditions, would be illegal.

That could indicate the department is indeed planning to seek structural conditions in the AT&T-Time Warner deal, of divesting either the Turner programming assets or DirecTV, rather than allowing the combined company to keep all assets but agree not to use its clout of owning and distributing high-value content to disadvantage competitors.

Related > AT&T-Time Warner: Missed Connection?

The approach could also be a way to publicly justify divestiture requirements outside of the heated political context of President Donald Trump’s attacks on Turner’s CNN and suggestions that a DOJ divestiture requirement would stem not from reasonable antitrust theory and the facts of the merger but from political retaliation by proxy.

One veteran attorney told Multichannel News he had no doubt that if Delrahim or others at the department felt such political pressure, they would resign rather than bow to it, and that there were indeed solid reasons for a divestiture.

“[A]t times, antitrust enforcers have experimented with allowing illegal mergers to proceed subject to behavioral commitments,” Delrahim said, citing the Comcast-NBCU deal as one example, according to a published transcript of his remarks. “That approach is fundamentally regulatory, imposing ongoing government oversight on what should preferably be a free market. And, as 11 senators wrote to the Attorney General earlier this year, the ‘lack of enforceability and reliability of such conditions [can] render them insufficient’ to protect consumers. As we reduce regulation across the government, I expect to cut back on the number of long-term consent decrees we have in place and to return to the preferred focus on structural relief to remedy mergers that violate the law and harm consumers.”

Delrahim suggested that behavioral conditions, though justifiable in some circumstances, are particularly tough to craft and enforce. “[H]ow 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? I don’t think I’m smart enough to do that.”

He also invoked the would-be Comcast-Time Warner Cable merger, which collapsed in April of 2015 despite the reigning wisdom that both the DOJ and the Federal Communications Commission would approve it with behavioral conditions.

AT&T has vowed to fight any divestiture. It has likely already signaled to the Justice Department it wants to close the transaction — it must give the government 30 days’ notice — which would force the DOJ’s hand.

‘‘Winter is coming” may be the ominous tagline for HBO’s hit show Game of Thrones, but for parent Time Warner’s pending merger with AT&T, winter is already here. More than a year after the two corporate giants unveiled their $108.7 billion merger plans, a distinct chill has enveloped the union of the largest pay TV distributor and the second-largest content provider, brought on by what many perceive as strong signals from the White House that the deal, once expected to be a shoo-in through the regulatory approval process, is now facing very real hurdles just steps from the finish line.

Media outlets were abuzz last week as reports flooded in that the U.S. Department of Justice, charged with determining whether the AT&T-Time Warner merger would violate antitrust laws, was asking that the combined company divest either its Turner cable network unit or its DirecTV satellite-television operation. The Turner request was most curious, or perhaps revelatory, because it is the home of CNN, the cable news network that President Donald Trump has excoriated in public statements and on his Twitter account as “fake news.”

While the focus is on CNN and Turner, the broader implications — that a sitting president is trying to negatively influence a merger involving a news organization that has been critical of him — are even more chilling. While much of the recent media focus has been on CNN, if the merger is successfully blocked it would send a strong message to media companies that have been waiting for this deal to close to open the merger floodgates.

In a research note, Barclays media analyst Kannan Venkateshwar noted that if AT&T walked away from the deal, other companies such as The Walt Disney Co. or technology companies like Apple would be logical suitors. Even 21st Century Fox, which attempted an $80 billion hostile takeover of Time Warner in 2014, only to be rebuffed, could make a new deal pitch. But the government’s stance may put a damper on any of that. (Last week, Fox was considered to be a takeover target by Disney; read Would a Mouse Eat a Fox?)

The government, in theory, is concerned about media companies becoming too big. AT&T could raise the price of HBO for rivals, create exclusive programming or even refuse to sell to rivals such as Dish Network.

“There are good reasons for the Justice Department to be concerned about this merger,” Columbia Law professor Tim Wu wrote in The New York Times. But “the unfortunate fact is that Mr. Trump has engendered so much distrust in government that everything that any federal agency does these days seems questionable,” he added. Wu said the Justice Department should do a better job of “explain[ing]its concerns about the merger to the public and to Congress.”

Chilling Effect
If a vertical deal such as this (distribution and content) is blocked by the Justice Department, analysts don’t see how other media companies would get comfortable pitching a horizontal deal (content plus content or distribution plus distribution).

“Technology companies in theory could increase competition in the distribution market by acquiring media companies,” Venkateshwar wrote. But if the AT&T-Time Warner deal implodes, all bets are off. “Therefore, while we could see multiple buyers in theory, it is tough to believe such a transaction would be attempted without greater regulatory clarity.”

Most analysts see the new conditions as a message from the Justice Department that it will block the merger. Without Turner and its stable of pay TV networks — like TBS, TNT, Cartoon Network, TCM, CNN and truTV — there is little reason to do a deal. And owning content without the distribution that comes from the DirecTV satellite assets — which have more than 20 million subscribers across the country — flies in the face of the original reasoning for the transaction.

AT&T is apparently ready to draw a line in the sand. When reports surfaced that the DOJ claimed that AT&T offered to spin off CNN to get the deal approved, which the DOJ rejected, AT&T chairman and CEO Randall Stephenson fired off what was for him a heated denial.

“Until now, we’ve never commented on our discussions with the DOJ,” Stephenson said in a Nov. 8 statement. “But given DOJ’s statement this afternoon, it’s important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so.”

At The New York Times’s Dealbook conference in New York on Nov. 9, Stephenson doubled down on his insistence that CNN was not for sale. He also said he has not felt pressure from the government to sell the network, which may be a case of carefully selecting his words. Early reports on the DOJ’s demands centered on selling Turner, CNN’s parent, or DirecTV.

Related: AT&T’s Stephenson: 'No Intention' to Sell CNN

But Stephenson echoed what others have said regarding a sale of CNN, Turner or DirecTV to win approval of the deal: It makes little sense.

When AT&T officially announced the merger on Oct. 22, 2016, the telco saw huge opportunity in pairing Time Warner’s content with AT&T’s distribution. Stephenson brought home that point again at the Dealbook conference.

“One of the key benefits of putting these two companies together is to stand up a new advertising capability,” Stephenson said. “We have built an amazing distribution platform — 150 million mobile subscribers, the largest pay TV base in the United States, a huge broadband base. There’s a lot of information and data that we think can be used to stand up a new advertising business. Pairing that with the Turner advertising inventory is a really powerful thing, we believe. That’s what we aspire to do. Selling CNN makes no sense in that context.”

But despite Stephenson’s protestations — he also said the Nov. 6 meeting with the DOJ, the fulcrum of all the recent controversy, was “productive” — Time Warner stock continues to sink.

In just the past two weeks, Time Warner shares have dropped nearly 15% from $102.20 per share on Oct. 19 to $87.05 per share on Nov. 9, precariously closer to their price just prior to the deal announcement ($82.99 each) and nearly 20% below the $107.50 per share at which AT&T valued the company for the deal.

Related: Wall Street Looks at Options for Time Warner Assets

If the DOJ decides to block the deal — and indications are that, unless the agency has a dramatic change of heart, it will — the first step will be for the government to file a suit stating that the deal violates antitrust rules. Stephenson said if that is the case, AT&T wants the case expedited to further accelerate the process.

“We are prepared to litigate now,” Stephenson said at the Dealbook conference.

A Justice Department suit to block the deal would be nearly unprecedented: Stephenson said the agency hasn’t challenged and defeated a vertical merger in more than 40 years. It is even more surprising given that the new head of DOJ’s antitrust division, assistant attorney general Makan Delrahim, said months ago that he didn’t see any problems with the merger.

“It reinforced what we thought about the transaction,” Stephenson said of Delrahim’s earlier comments. “He made comments that were exactly what we thought about this transaction going in.”

He added that the Nov. 6 meeting with DOJ was more of a “getting to know you” session, and the next step is to continue the process.

“As you might guess, when you’re doing a big negotiation, you spend a lot of time just getting to know each other,” Stephenson said. “You spend a lot of time trying to understand what the bid/ask is in a transaction like that. I think we had a very productive meeting on Monday. I think we both learned a lot about where each other are. Now we continue this process to see if we can get to a negotiated settlement.”

If the DOJ is pushing for asset divestiture, it would appear to be more in line with the president’s stance on big mergers than the head of the agency’s.

At a speech at the New York University School of Law on Oct. 27, Delrahim said that competitive impact was the main focus for the agency when reviewing mergers.

“That’s an important part of the process, because blocking a procompetitive transaction can be as dangerous as clearing an anticompetitive one,” Delrahim said, according to a transcript on the DOJ website. “The goal should be to promote, not stifle, competition.

“Our role in the antitrust division is the pursuit of justice in the marketplace,” he continued. “When we do our jobs correctly, we protect the competitive process around which our economy is organized and on which the American Dream is premised. And we do so through law enforcement consistent with limited government and the rule of law. It’s a compelling mission.”

Related: FCC's Pai Says DOJ Will Do Right Thing With AT&T-Time Warner

Delrahim’s boss, Trump, has made his stance on CNN clear since his campaign, when in a speech in Gettysburg, Pa., last October he said he would block the AT&T-Time Warner merger because it created “too much concentration of power in the hands of too few.”

Perhaps even more chilling would be implications on past and future deals if the government sues to block the AT&T-Time Warner merger and is successful. Trump has vowed to dismantle Comcast’s 2011 purchase of NBCUniversal. In the same Gettysburg speech, he said that deal created “one massive entity that is trying to tell the voters what to think and what to do.”

Stephenson also downplayed Trump’s role in influencing the DOJ, adding that he has only had contact with Justice officials throughout the merger process. But no one is suggesting that Trump is actively involved in the approval process. Several reports have said that DOJ officials are well aware of the president’s feelings toward the deal, and especially CNN, through his countless Twitter posts and comments criticizing the network.

Shifting Political Winds
But any presidential opposition to the deal could also have the reverse effect. Already several organizations that have publicly opposed the merger because it concentrates too much media power in one entity are beginning to rethink that position.

Free Press, which in the past has said it would back a requirement that AT&T spin off CNN or Turner to decrease media concentration, said it doesn’t approve of such moves if they are merely a manifestation of Trump’s apparent hatred of the news media.

“While there are plenty of good reasons to oppose AT&T’s Time Warner takeover, punishing CNN for trying to hold this administration accountable isn’t one of them,” Free Press president Craig Aaron said last week. “No matter where you come down on this merger, everyone should agree that the government shouldn’t base antitrust decisions or FCC rulings on whether it likes a newsroom’s coverage.”

For its part, AT&T is forcing the government to either go big or go home. In a research note, BTIG media analyst Richard Greenfield noted that AT&T certified compliance with the DOJ on Nov. 6, which started a 30-day shot clock for the government to make a decision either way. If litigation is filed, it could go on for at least four to five months even at an expedited rate, meaning AT&T would miss its earlier target of a year-end close and would be hard pressed to complete the deal by April 22, the official termination date for the merger — and Stephenson’s birthday.

The AT&T chief claimed he didn’t know about compliance certification, but expressed his frustration with the process.

“We need this to move along,” Stephenson said. “This has been well over a year for a vertical merger, and we each need to take actions that will get this to closure. Either we settle or we litigate, one of the two. I think we’re both aligned on that.”

Washington bureau chief John Eggerton contributed to this report.

AT&T CEO Randall Stephenson shot back at reports that claimed the U.S. Department of Justice said the telco had offered to sell CNN to clear the path toward approval of its pending merger with Time Warner, issuing a statement that AT&T has no intention of selling the network.

“Until now, we’ve never commented on our discussions with the DOJ,” Stephenson said in a statement Wednesday (Nov. 8). “But given DOJ’s statement this afternoon, it’s important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so.”

Earlier Wednesday, a report in the The New York Times said DOJ would require a divestiture of either Turner Broadcasting, which includes CNN, or DirecTV as a condition of the deal. It was the latest in what has been a growing sense that the merger, once thought to be a shoo-in for approval, may face more hurdles. 

Prior to that, AT&T chief financial officer John Stephens had said at the Wells Fargo Media & Telecom Conference that the timing for the deal’s approval was “now uncertain.”

The path to an AT&T-Time Warner merger got even murkier Wednesday after The New York Times reported that the U.S. Department of Justice would seek a divestiture of either Turner Broadcasting or DirecTV as a condition for its approval of a deal.

UPDATE (4:15 p.m.):AT&T’s Stephenson: 'No Intention' to Sell CNN

The Times, citing sources familiar with the companies, said the DOJ has asked that AT&T sell either Turner Broadcasting – Time Warner's group of cable channels that includes CNN, the news network President Donald Trump has repeatedly accused of airing “fake news” – or DirecTV, the satellite TV giant that AT&T purchased in 2015.

The possible conditions of the merger would appear to remove any purpose for doing the deal. When it announced the pairing in October 2016, AT&T said the inclusion of the Time Warner cable channels would fuel future over-the-top video offerings. DirecTV also is a core part of that strategy, with its more than 20 million pay TV subscribers. Its programming deals also were the foundation for AT&T’s over-the-top service DirecTV Now, which currently has about 1.5 million subscribers.

Once thought to be a relative shoo-in for regulatory approval – neither company has overlapping businesses – the path toward the finish line has been less clear in recent weeks. Earlier today, AT&T chief financial officer John Stephens said the timing of the Time Warner deal’s approval, once expected before the end of the year, is “now uncertain.”

AT&T said it had no comment on the Times story. But in a statement today, AT&T came out in support of President Trump’s tax plan, which is facing stiff resistance in Congress, stating that it will invest an additional $1 billion in its U.S. operations in 2018 if the plan currently before the House is signed into law.

“With a rate of 20% combined with provisions for full expensing of capital expenditures for the next five years, we’re prepared to increase our investment in the United States,” AT&T CEO Randall Stephenson said in a statement. “If the House bill is signed into law, we’d commit to increase our domestic investment by $1 billion in the first year in which the new rates are in place. And research tells us that every $1 billion in capital invested in telecom creates about 7,000 good jobs for the middle class.”

AT&T and Time Warner will most likely sue if the government puts such onerous conditions on the deal.

Candidate Donald Trump had threatened that a President Trump's Justice Department would block an AT&T/Time Warner deal as too much consolidation.

But a condition requiring a spin-off of CNN, which is part of Turner, would bring the President's attacks on the news media into play since CNN has been the President's favorite whipping-outlet in Tweets slamming it as fake news, though it has plenty of company including the New York Times and Washington Post and broadcast network news operations.

Even deregulatory Democrats have warned against blocking or hobbling the deal if it is seen as retribution for news coverage the President disagrees with.

An AT&T source said, without comment on whether the report about Justice was accurate, that the company’s lawyers could find no legal justification for requiring a CNN spin-off.

Given that, if Justice did sue to block the merger without a spin-off, AT&T might just take its changes and litigate the suit.

Justice can’t nix a merger, but it can file suit to block it in court as a violation of antitrust laws.  That case is harder to make with a vertical merger like AT&T—primarily combining distribution and content assets—than other combos.

Time Warner shares were down 5.5% ($5.20 per share) to $89.46 each in afternoon trading, while AT&T shares were down 12 cents each (0.4%) to $32.95 per share.  

Washington Bureau Chief John Eggerton contributed to this report

The Wall Street Journal was reporting Thursday (Nov. 2) that the Justice Department is "weighing" filing suit against the AT&T-Time Warner deal, but it was not immediately clear whether that was a new flashpoint or a matter of of leaving options open in the ongoing process of negotiations leading ultimately to either conditioning approval of the deal, or conceivably blocking it, either of which would require Justice to file suit.

A source familiar with the ongoing talks between the companies and Justice suggested it was the latter.

Related: Time Warner Shares Plunge on Reports DOJ Will Block AT&T Deal

Some conditions were anticipated if the deal was approved, which would necessitate Justice first filing suit in court to block the deal, then filing a settlement agreement with the merging parties to revolve its antitrust issues.

But if Justice did sue to block the deal, that could raise questions about whether the Trump Administration viewed media mergers as creating too large and powerful media outlets. The President as a candidate suggested the deal created too large a company, and since being elected has slammed CNN as the poster-outlet for fake news.

AT&T and Time Warner only have to worry about resolving any antitrust issues with the meld since the deal was structured to avoid a public interest review by the FCC.

In a note to clients, analysis firm Capitol Forum said Justice's new antitrust chief, Makan Delrahim, was delving into the merger and had been talking with independent programmers pushing for various conditions.

"If Delrahim accepts the programmers’ criticisms of AT&T-Time Warner, it could add to the list of conditions DOJ is pressing the companies to accept," said Capitol Forum. "Until now, the negotiations largely have centered on conditions that would protect rival video programming distributors’ access to Time Warner content and create an arbitration system to resolve disputes."

The note said Delrahim had "not ruled out the possibility" of suing to block the deal. It also said to look for a Thanksgiving time frame for a decision.

AT&T declined comment. Justice does not comment on the status of merger reviews.

“When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios,” said AT&T in a statement. “For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market. While we won't comment on our discussions with DOJ, we see no reason in the law or the facts why this transaction should be an exception.”

Time Warner Inc. shares took a nosedive Thursday after the Wall Street Journal reported that the U.S. Dept. of Justice is considering filing a lawsuit to block the content company’s planned merger with AT&T.

Time Warner shares were down more than $6 each (6.2%) to $92.31 per share in early trading Thursday as reports surfaced that the deal, expected to be closed by the end of the year, may encounter a hiccup. The shares closed at $94.70 each, down 3.75% or $3.69 per share.

AT&T announced the deal in October 2016, a $108.7 billion (including assumed debt) pairing that would combine the largest pay TV distributor in the country with the second largest content creator. Time Warner owns the Warner Bros. movie studios and iconic networks like HBO, TBS, Cartoon Network and CNN.

While President Trump had said during his election campaign that he would block the deal, mainly because of what he believed was CNN’s harsh treatment of him, most in the cable business expected the deal to be approved with few or no conditions. AT&T executives have said in the past that because the two companies don’t compete, there is little reason to consider the deal to be anti-competitive.

Related > Analysis: DOJ's New Antitrust Chief Keeping AT&T-Time Warner Options Open

“When the DOJ reviews any transaction, it is common and expected for both sides to prepare for all possible scenarios," AT&T said in a statement. "For over 40 years, vertical mergers like this one have always been approved because they benefit consumers without removing any competitors from the market.  While we won't comment on our discussions with DOJ, we see no reason in the law or the facts why this transaction should be an exception.” 

According to a report in the Journal, DOJ is considering filing a suit in the case that it decides to block the merger. The Journal also said there is another faction within the agency that is working with the companies to approving the deal, but with conditions, but those two sides are not close to a compromise.

The Journal added that it is common in deals of this nature for the DOJ to be working on two separate tracks, and stated that in recent years the agency has placed an emphasis on preparing for litigation in case talks break down.

If the DOJ decided to block the deal, it would have to present its case to a judge and prove that the union would harm competition.

AT&T shares were relatively unscathed in early trading, down 5 cents each (0.2%) to $33.50 each.      

AT&T barely outpaced Google to be the third quarter's top spender on lobbying, shelling out $4.13 million, up 8% from Q3 2016, according to Consumer Watchdog's tracking of 16 telecom/technology companies.

The telco is trying to shepherd its Time Warner merger through Washington, though it has just extended the close on that deal as the Justice Department continues to vet it; the FCC is not separately reviewing the merger.

Google was a close second behind AT&T, spending $4.17 million on lobbying, up 9% from Q3 2016.

On the cable side, Comcast spent $3.51 million, up 3%, while Charter spent $1.88 million, down 6%. Among technology companies, several saw double-digit percentage increases in lobbying spend for the quarter.

Amazon spending was way up, increasing 26% year-over-year to $3.41 million, almost triple what it spent in 2013. Facebook spending was $2.85 million, up 30% over Q3 2016, and Apple spent $1.86 million, up a whopping 74% from last year. In contrast, Twitter's spending was tweet-sized at only $120,000, down 29%.

Consumer Watchdog based its numbers on filings with the House of Representatives that were due last week.

Growing Time Warner’s direct-to-consumer business will be a key priority after it is acquired by AT&T.

Speaking at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference Thursday (Sept. 7), AT&T senior executive vice president John Stankey, who will run AT&T's media business, said getting the importance of getting direct-to-consumer rights should not be underestimated.

RELATED: AT&T, Time Warner Reach Deal 

AT&T brings to the combined company expertise with scaled consumer relationships, Stankey said.

AT&T has “the experience, the history and the advantage of having a lot of those through our distribution business,” he said. “The Time Warner Company clearly has the ability to make great content, great intellectual property that can be extended and used to differentiate brand and experiences. And our belief is, bringing those two together is extremely important in the future.”

Related: AT&T Entertainment Chief Touts Content

Stankey noted that the media business is approaching an inflection point. The pay TV business “is at peak and it’s going to decline. I think the question is, what is the rate and pace?”

At the same time customers are experimenting with over-the-top streaming products, including AT&T’s DirecTV Now.

“A lot of folks are round-tripping and coming back into the core bundles afterwards,” Stankey said. “I think they’re still searching for what the solution is. The solution is more on-demand capabilities, better user interface and higher value for the current amount people are paying. And I do believe the industry will react to that, albeit a little bit slow because of some of the licensing constructs that are out there.”

Stankey wants Time Warner’s units — Turner, HBO and Warner Bros. — to continue to make great content.

“My goal is not to go in and try to explain to creatives how they can do their job better," he said. "That is not what I’m good at nor is it my training or my expertise.

“What I do understand are things like industry structure, I understand the application of technology and distribution," Stankey added. "I understand data and customer relationships, I understand integration and getting people to build business models effectively around the marriage of content and technology. And so my goal and my focus will be on facilitating that."

Stankey said that on its own, Time Warner recognized the changes in the industry and was looking at ways to be more collaborative. It was also getting into direct-to-consumer businesses, including Filmstruck with classic films, a Boomerang kids business and an upcoming sports service built around European soccer.

Related: Turner Building Sports Streaming Service With UEFA Soccer Rights

But in the first year after the AT&T-Time Warner merger is completed, Stankey expects the company to be able reach a number of goals.

With AT&T's platform, “you should expect to see experimentation and piloting content that's available today in traditional means that we can start to innovate on top,” he said. "And we have got a great customer base to experiment with.

“We want more engagement, especially in an ad-supported business,” he added. “So there are other variants you should see on what I would call embedded content models that will be in the first year.”

AT&T will be using data to build up its ad business, he said.

“And even before we have full infrastructure on data and what I would call programmatic-driven placement of advertising in the premium space, there's data that can help us sell existing ad inventory differently and more effectively, and we will be doing that as we get through that first year,” Stankey said.

Without adding subscribers, using data to build new ad models should increase ad rates and open up new inventory.

But Stankey said AT&T wants to have a business with two healthy revenue streams.

“If customers really like a broad plethora of content, broad choice, you need both subscription and advertising to have the maximum amount of content being built," he said. “And we think that's the right thing for the industry and it's the right thing for the consumer.”

Brazilian authorities have weighed in with antitrust concerns about the AT&T-Time Warner merger, according to deal critic Public Knowledge.

Such a finding would mean AT&T-DirecTV "would not be allowed to treat Time Warner assets as part of that company, but would need to deal with them at arms length," the group said.

Brazil's Administrative Council for Economic Defense (CADE) said the deal should be rejected unless some properties are divested, though it did not identify which, said Public Knowledge.

The CADE board still has to vote on that recommendation.

AT&T was putting the best face on it, including saying it would work with CADE to "clarify" any issues.

“The merger between AT&T and Time Warner has taken one more step in its path to conclusion in the Brazilian market," the telco said. "The CADE’s Superintendency referred the case to the Board for review. This means that the transaction will now be analyzed by the CADE’s body responsible for its final decision on the matter.

AT&T said it believes the union of the two players will not bring anti-competitive impacts to the market, but rather will benefit consumers as it will enlarge the options of content available to them and raise their access to information and entertainment. The combined companies will also contribute to market competitiveness, improving the offer of high-quality services to customers, and will stimulate the development of the audiovisual sector in Brazil.

AT&T said that of the 19 approvals it needs from 19 different countries, it has already gotten 16, with three pending -- Brazil, Chile and the United States.

Reports last week had the U.S. Justice Department reaching the home stretch of its antitrust review. The FCC is not conducting a public-interest review because the deal was structured so that it did not include any exchange of licenses.

AT&T said it hired top GroupM executive Brian Lesser to build and lead a new advertising and analytics business that will use AT&T consumer data and content assets.

Lesser, who had been CEO of GroupM North America, will be CEO of the new business and report to AT&T CEO Randall Stephenson.

"Brian is a terrific executive and one of the best there is in harnessing technology and data to create targeted advertising," Stephenson said. "Once we complete our acquisition of Time Warner Inc., we believe there is an opportunity to build an automated advertising platform that can do for premium video and TV advertising what the search and social media companies have done for digital advertising."

AT&T is in the process of acquiring Time Warner, whose Turner unit is among the more sophisticated media companies in using data for advertising sales.

“Advertising is evolving from broad messages delivered through traditional media channels, to customized, individual content coordinated across all connected devices," Lesser said. “AT&T has amazing assets for creating engaging advertising experiences for consumers. I am excited to work with Randall and the entire AT&T team to build a world-class advertising and insights business.”


For more of this story, please visit broadcastingcable.com.

Time Warner, preparing for its acquisition by AT&T, said its second-quarter profit was up 11% as subscription revenue rose at Turner and HBO.

Net income rose 10% to $1.06 billion, or $1.34 per share, from $952 million, or $1.20 per share, a year ago. Revenue rose 5% to $7.3 billion.

The results topped Wall Street forecasts.

Time Warner said it continues to expect the AT&T deal to close before the end of this year. The company also reaffirmed its full-year earning guidance.

At Turner, revenue rose 3% to $3.1 billion. Subscription revenue was up 13%. Operating income was down 7% to $1.1 billion because of higher expenses. Programming costs were up 12% mostly because of the new licensing deal with the NBA.

Turner's advertising revenue was down 6%, and content revenue was down 8%. The company said not having the NCAA Championship and Final Four games this year cost it 8% worth of ad revenue. It also had two fewer NBA playoff games and lower ratings at its domestic entertainment networks. Ad revenue increased at CNN and Turner’s international networks.

Related > Turner’s Martin: ‘We Need Fans, Not Viewers’

At HBO, operating income increased 10% to $531 million as programming costs declined 3%. Revenue rose 1%, with subscription revenue up 8%, while content and other revenue was down 44%.

“We’re very pleased with our first-half results, which keep us on track to achieve our objectives for the year,” said CEO Jeff Bewkes. “Our performance is a result of the continued successful execution of our strategic objectives – with the strong subscription revenue growth at Home Box Office and Turner a great example of this – along with the investments we’re making in our brands and high-quality video content.”

Related > TCA17: Turner’s Kevin Reilly Says Consolidation Will Whittle Down Cable Channels

Warner Bros. operating income was down 28% to $233 million from last year when Flixster was sold. Adjusted operating income was up 20% to $261 million. Revenue rose 12% to $3 billion as higher theatrical revenues were partly offset by lower TV revenue.

Bewkes noted the box office numbers for the films Wonder Woman and Dunkirk, and the Emmy award nominations earned by HBO and Warner Bros.

“These results and accolades reflect strong execution and the investments we’ve been making, both in the best content and in ensuring that we deliver our content across platforms to offer engaging experiences for our audiences,” he said. “Accelerating our pace of innovation and being able to connect more directly with consumers are among the exciting reasons for our proposed merger with AT&T, which remains on track to close before year-end, pending regulatory review and consents.”

More than a dozen media consolidation critics, including Common Cause, Consumers Union and the Writers Guild of America West, have told U.S. Attorney General Jeff Sessions that, from all appearances, the proposed AT&T-Time Warner merger cannot pass muster by "conditions and piecemeal divestitures" and should be blocked.

The Department of Justice is the only authority vetting the deal, which was structured to avoid the license transfers that would have triggered FCC review on public interest grounds.

Related: FCC Approves Sale of Time Warner Station WPCH-TV to Meredith

"Because this merger poses such grave dangers to consumers and creators in mature and emerging markets, we urge the Department to investigate the merger thoroughly, and take whatever action is warranted, based on the evidence uncovered in your investigation, to prevent harm to competition and consumers," the group wrote. "And if you conclude, as appears to us from the available information, that conditions and piecemeal divestitures will not be sufficient, then we hope you will challenge the merger in its entirety."

The groups talked about the ability and incentive of the combined company to harm competition.

"Buying Time Warner would incentivize and enable AT&T to cement its dominance and benefit itself, at the expense of pro-consumer competition in the video distribution market, by raising the cost of Time Warner programming to its rivals," they said. "It would also incentivize and enable AT&T to put onerous restrictions on programming availability, such as device or windowing restrictions, which are another way of raising the costs of its rivals."

Related: EU OKs AT&T-Time Warner Merger

Also signing on to the letter were Public Knowledge, Alliance for Community Media, Media Alliance, National Hispanic Media Coalition, Consumer Action, Open MIC (Open Media and Information Companies Initiative), Consumer Federation of America, Open Technology Institute at New America, Courage Campaign, The Utility Reform Network and Free Press.

Maine Republican Sen. Susan Collins, who famously has issues with the Republican healthcare bill, also has some issues with the AT&T-Time Warner Inc. merger.

Collins said she thinks the merger could have a "significant, negative impact on competition and innovation," according to a letter to acting assistant attorney general Andrew Finch, a copy of which was obtained by Multichannel News.

Collins did not come out against the deal, but said DOJ needs to look carefully at its "potential impact on consumers and competition."

She said the merger could "create an opportunity" for AT&T to "favor HBO in marketing and packaging of premium content to its customers, discriminating against competitors."

The risk that the deal could "dramatically reduce consumer choice" in favor of AT&T's new "in-house brand" is real, she said.

Collins added that the merger could allow AT&T, which also owns DirecTV, to raise content costs to competitors like Dish, which would pass them along to her constituents. "Ultimately, consumers would lose," she said.

DOJ's antitrust review is the sole federal review. The FCC is not vetting the merger on public interest grounds because the deal does not involve any license transfers after AT&T and Time Warner structured it so no licenses were in play. Various states are also reviewing the deal.

Consolidation among communications service providers (CSPs) has been on the upswing for years. And, with a convergence-friendly regulatory climate now in place in the U.S., mergers and acquisitions (M&As) could shift into overdrive.

There are many compelling reasons why CSPs are chomping at the bit to combine forces. Subscriber and revenue growth, cost savings, and access to new technology for rolling out emerging Internet of Things (IoT) and 5G wireless services top the list. Other motivations include broadening geographical distribution (e.g., Charter Communications’ merger with Time Warner Cable), market expansion (AT&T and DirecTV), content access (AT&T and Time Warner), and boosting mobile advertising (Verizon, scooping up AOL and Yahoo).

Moreover, through consolidation, CSPs can lower customer acquisition costs, improve retention rates, and increase average revenue per user (APRU). All worthy goals. But to achieve them, CSPs must go the extra mile to stay connected to the needs of subscribers, even as their companies expand. The kicker? It’s hard enough for them to do that already, and consolidation only makes it harder. Here are four ways CSPs can bake customer centricity into their consolidation strategy.

Make customer experience a top priority
Back in the day when CSPs had few competitors, they could take their subscribers for granted. And most did. That’s no longer a viable tactic. Thanks to cord-cutting options and disruptive newcomers like Google and Facebook, CSPs are seeing their subscribers—and their revenues—fleeing by the millions. And yet, despite efforts in recent years to improve services, telecoms, mobile carriers, cable operators, and internet service providers still occupy some of the lowest rungs in the latest industry comparison surveys, such as net promoter scores (NPS).

One of the best ways CSPs can boost customer satisfaction is by establishing formal customer experience (CX) programs. A holistic approach that encompasses the entirety of a customer’s history with a company over time, CX orchestrates all customer-related activities across all functional areas and lines of business. CX is the difference between noting that a customer service issue was resolved (something most operators already do) and capturing that a customer is still unhappy that there was a problem in the first place (something almost none of them track).

To provide consistently rewarding customer experiences, CSPs will need to overcome the dysfunction stemming from their historically fragmented processes and departmental silos, layers of complexity that greatly increase with M&A activity, by the way. They must also overhaul their creaky legacy operations and business systems, collectively known as OSS/BSS. Augmented with cloud-based options, these tired solutions can deliver the real-time digital agility CSPs need to respond smartly to subscriber demands.

Use data to serve customers, not just bill
CSPs have more data about their customers than practically any other industry. But so far, most have used that data for only narrow, blatantly self-serving purposes, such as documenting data consumption for billing or creating more targeted mobile ads. And yet hidden within that data are insights into customer behavior, preferences, and opinions that reveal how subscribers feel about a provider overall.

For example, with cognitive analytics, like those from IBM Watson, providers can predict which customers are likely to churn and take proactive steps to retain them. Data analytics can also detect which services give subscribers the most trouble, or which subscribers would be most receptive to upsells—handy information to have when you’re expanding offerings through consolidation.

The problem is, many providers can’t gain those insights because subscriber data is buried in separate systems for CRM, billing, accounting, and provisioning, among others. Again, cloud-based platforms can help them bridge information silos. With that data, they can deepen customer connections and increase retention by offering more intuitive services, surgically targeted incentives, and delight-inducing rewards based on customer usage history.

Expand customer self-service
Many of today’s subscribers are not just digitally savvy, they’re also more technically capable. Above all, they’re impatient. They want to explore service options, place orders, renew, and have everything fulfilled instantaneously, using any device or channel. Ideally with minimal clicks or agent intervention. CSPs have been slow to deploy self-service options that are on par with digital trendsetters like Amazon or eBay.

Self-service becomes even more critical as CSPs ramp up deployment of new smart home, connected car, mobile video, and augmented reality services that M&A deals make possible. These new services, along with new devices, product bundles, and pricing plans that accompany them, can be very confusing for subscribers. CSPs can help them navigate new offers and increase conversions by deploying brainier chatbots, richer online FAQs, and interactive guides that truly empower subscribers to get answers, resolve problems, and complete transactions without assistance.

Make customer service more personal
Establishing truly personal connections goes a long way to keeping customers loyal when competitors start waving the latest race-to-the-bottom pricing deal or multi-play bundle. Indeed, according to a 2016 Accenture report, 75% of consumers are more likely to buy from companies that know them by name, make recommendations based on past purchases, or know their purchase history.

Personalization becomes even more essential with consolidation, because customers can often feel overlooked or ignored as providers gain new subscribers and capabilities.

Technology now makes it possible for CSPs to bring old-school personal service to every subscriber interaction and touch point. For example, emails and chat sessions can be pre-populated with personal greetings. Newer omnichannel contact center solutions can capture all information on first contact, so subscribers never have to repeat themselves from one agent to the next. And a subscriber’s social communications can be merged with CRM and contact center solutions so nothing falls through the cracks.

It’s all about the customer
All indications are that M&A activity is here to stay. Comms are banking on consolidation as they jockey for best position in pricing, packaging, bandwidth, coverage, and content deals. The specifics may change, but those battles will continue. When all is said and done, however, the CSPs that will consistently grow their subscriber bases and revenue streams are those who ensure that their customers always come first, no matter how often they merge, how much technology morphs, or which disruptions come down the pike next.

About the Author:
Brendan O'Brien is chief innovation officer and co-founder at Aria Systems, a leading cloud-billing provider. In 2002, he introduced the world to cloud billing and innovated database-driven, enterprise-grade web applications before the concept of “cloud” was on the horizon and is among the industry's foremost thinkers on IoT and recurring revenue.

Photo by Jose Luis Pelaez Inc./Getty Images

The FCC has approved the sale of Time Warner's WPCH-TV Atlanta to Meredith for $70 million.

The application was filed in February and was part of the strategy to avoid FCC review of the AT&T-Time Warner merger.

Related: Time Warner Selling WPCH to Meredith

Had Time Warner still owned the station, AT&T would have had to submit the merger for FCC review of that license transfer instead of simply submitting it to the Justice Department for antitrust review. The FCC's review goes beyond whether a deal is anticompetitive to look at its pro-public interest benefits.

Meredith has a JSA with WPCH — formerly Turner's Superstation WTBS — for more than 15% of ad time, so it already has an attributable interest in the station. It already owns WGCL-TV there, but the market is large enough to accommodate duopolies.

Time Warner has some other FCC licenses — for internal links between CNN field trucks and studios — but AT&T had signaled those will not be part of the deal either.

The assignment of license was granted April 14, but the FCC had not yet released the public notice of the approval at press time Tuesday (April 18).

The president has tapped a Justice Department vet to vet mergers as assistant attorney general atop the Antitrust division.

The White House signaled late Monday that it intended to nominate Makan Delrahim for the post.

Most recently Delrahim was deputy assistant and deputy counsel to the president, joining the DOJ in January from a Los Angeles law firm, where he had been partner.

The White House did not identify the firm, but according to OpenSecrets, which tracks the professional movements of government employees, it was Brownstein, Hyatt, which has represented Comcast, NCTA: The Television & Internet Association and Dell, among others.

Before that, during the George W. Bush Administration, Delrahim was deputy assistant attorney general for the DOJ's Antitrust division and the Attorney General’s Task Force on Intellectual Property. He is also former chief counsel on the Senate Judiciary Committee.

Justice's Antitrust Division gets most of the Hart-Scott-Rodino antitrust reviews of media mergers, including its current review of the AT&T-Time Warner merger, which Trump, as a candidate, threatened to try to block. In the interim, the pro-business, anti-regulation Trump has come more to the fore, raising the odds that that threat was more about his anger at the media in general than an anti- merger philosophy.

FCC chairman Ajit Pai said Wednesday (March 8) during a Senate Commerce Committee FCC oversight hearing that he would get an agency staff legal analysis confirming his belief that, based on the way the AT&T-Time Warner merger is being structured, the FCC has no authority to conduct a public interest review of the deal.

The Justice Department is currently reviewing the proposed merger for antitrust issues, but the deal was not submitted to the FCC for a public interest review, which looks beyond preventing competitive harms to weighing the benefits to consumers and the marketplace.

Asked by Sen. Brian Schatz (D-Hawaii), ranking member of the Communications Subcommittee, whether the FCC would be reviewing the deal, Pai said that since no license was changing hands -- the "jurisdictional hook" for the FCC's review -- the agency would not have a role.

"In so far as that remains the case, it is my belief the FCC would not have the legal authority to review that transaction," Pai said.

Schatz asked whether Pai had asked his staff for a legal analysis confirming it would have no role. Pai said no, but agreed when pressed by Schatz that he would do so and share the findings with the committee.

Sen. Richard Blumenthal (D-Conn.) asked if Pai would do a public interest review analysis of the deal anyway. The chairman said if the deal is not filed with the FCC, it would have no fact set on which to review it. But he did say he would take that request back to the General Counsel's office.

Time Warner, understandably preoccupied with its pending $108.7 billion acquisition by AT&T, still managed to lap its media company peers on the affiliate-revenue front last year and is on pace for more of the same in 2017, according to UBS media analyst Doug Mitchelson.

That growth, especially during a period when programmers are pressured by falling ratings, skinny bundles that lock them out of millennial-focused packages and over-the-top distribution, could be a key reason why the programmer was so attractive to AT&T in the first place.

AT&T has said repeatedly that content will drive the future — and Entertainment Group chief John Stankey reiterated that point at the Mobile World Congress conference in Barcelona, Spain, last week, telling the audience that programming is what will make AT&T relevant.

“Content that is compelling matters,” Stankey said at the conference.

Content that is compelling also makes money.

‘TIMING WAS GOOD’
In a recent deep dive into the programming industry, Mitchelson pointed out that Time Warner’s affiliate fee growth in Q4 of 2016 was 15%, more than double that of its closest peer, 21st Century Fox, at 7.4%.

Affiliate-fee growth actually declined for other programmers last year, according to Mitchelson, as 2016 was marked by declining subscriber rolls as customers cut back on various distribution cords in favor of OTT services and skinnier bundles.

Time Warner’s Turner division in fact has seen similar declines — the company averaged about a 2% loss in subscribers last year, about the same as its peers — yet has managed to keep affiliate-fee growth humming.

Part of that is because Time Warner struck carriage deals in 2015 and 2016 with major distributors like AT&T and Dish Network that usually have higher increases in the early years.

“The timing was good,” Telsey Advisory Group media analyst Tom Eagan said. Turner had earlier issued guidance for mid-teen percentage growth for 2016, which it delivered handily, Eagan noted. He said domestic affiliate-fee growth is expected to rise another 13% to 14% at Turner in 2017, leveling off a bit to 13% growth in 2018.

Mitchelson doesn’t expect the affiliate train to slow down this year, either. He’s predicting a 12.9% increase in fees for Time Warner in 2017, while Fox is expected to grow by about 8.2% in the same period.

Credit Suisse media analyst Omar Sheikh also was encouraged by the affiliate fee increases. He expects 15% growth in 2017 followed by a 10% rise in each of the years between 2018 and 2020. At premium channel HBO, which had a 5% affiliate fee increase in 2016, Sheikh predicts fees will rise 6% in 2017-2018 and 5% in 2019-2020.

Helping out HBO’s bottom line has been its standalone OTT product, HBO Now. Launched in April 2015, HBO Now has about 2 million subscribers and growing.

“We expect growth to be driven by affiliate renewals and strength at HBO Now,” Sheikh wrote, helping to offset rising programming costs — up 7% in 2016 and estimated to rise 9% in 2017 — “and demonstrates that the company is executing well on its opportunity to grow domestic subscribers, which management has noted is HBO’s ‘most important long-term growth driver.’ ”

Just as in 2016, key to Turner’s future growth will be its ability to secure healthy increases with existing distributors as well as with new digital distributors. Turner seems to be out of the mix at least initially in Google’s new YouTube TV offering — the 30-channel, $35 monthly video service currently doesn’t have any Turner or Viacom networks in its lineup. That’s likely to change, Eagan said, but in order to keep the $35 price point, more expensive networks like Turner will likely be available on separate tiers or packages for an additional charge.

MILESTONE MOMENTS AHEAD
On the traditional carriage front, Turner’s Comcast affiliate agreement comes due in the next few months, and the programmer is expected to be part of Hulu’s live-TV streamed offering scheduled to be release later this year. Time Warner is a part owner of Hulu, along with The Walt Disney Co., Fox and Comcast’s NBCUniversal.

The Hulu deal could be key for Turner. The much anticipated but scantily described offering — expected to have a $40 monthly price point — could set the tone for similar offerings in the future.

Turner has been an enthusiastic participant in OTT services: Its AT&T distribution pact in September was one of the first for the telco’s DirecTV Now over-the-top service, which launched in December and has about 200,000 subscribers.

Eagan said that while the number of bundled-streaming services — including Sony PlayStation Vue, Sling TV and more on the way — is growing, most have been launched by existing pay TV distributors. Programmer-owned Hulu could offer a new perspective.

Eagan said channel-driven streaming services such as CBS All Access, which has about 2 million customers, have fared better than operator-led services like Sling TV, which has about 1.1 million subscribers.

“The question is what is going to happen when you get all of the individual channel OTT services and the package runs together,” Eagan said.

Cable stocks had a strong run in 2016 — distributor shares increased almost 40% for the year — and with a more business-friendly presidential administration set to take hold later this month, the sector has ample runway ahead, according to several analysts.

That kind of optimism wasn’t quite so evident before the Nov. 8 election, when analysts had expected more scrutiny of media companies and pressure to keep pricing low and access high under another Democratic administration. But after Republican candidate Donald Trump’s surprise win, Wall Street’s attitude toward the sector has switched from “anything but” to “anything goes.”

“After yet another year of strong outperformance for cable stocks, investors might be forgiven for assuming that all the good news must at long last be fully discounted in the sector,” MoffettNathanson principal and senior analyst Craig Moffett wrote. “On the contrary, however, we think there is a good deal more room to run.”

Related:Viewer Watch 2017: Download the Complete Report [subscription required]

BARRIERS GET LOWER

Moffett’s optimism is fueled by three factors: lower taxes, less regulation and lower capital intensity.

Lower taxes, one of the promises of the new administration, should help lift all boats in the market. But cable, with high cash-flow margins (around 39% to 40%), low capital intensity (around 15%), could increase its trading multiples from about 7 times cash flow to 9.5 times cash flow if the corporate tax rate dips from 38% to 15%, according to Moffett.

On the regulatory front, the Trump administration is expected to reverse Title II regulation of the broadband business, which could open the door for usage-based broadband pricing and even material charges for interconnection or peering, two items that were off-limits under outgoing Federal Communications Commission chairman Tom Wheeler.

Related:The FCC's New Playbook

Capital intensity is expected to drop as more and more functionality is placed in the cloud and more customers get their video through apps, extending the life of set-top boxes in the field and reducing the need to buy new ones. Moffett estimated that a reduction in capital intensity from 15% to 13% would result in an increase of warranted valuations of almost a full turn of cash flow.

Telsey Advisory Group media analyst Tom Eagan was encouraged by cable’s subscriber performance for the year. While pay TV subscribers fell harder in 2016 than in the prior year, cable nearly halved its losses for the year.

That could encourage some privately held cable operators to tap the public markets. Altice USA, the domestic arm of European telecom company Altice N.V., has already said it is investigating an initial public offering of a minority interest in the U.S. cable operation. Eagan said he believes others could step up to the IPO plate in 2017, including privately owned Cox Communications and Mediacom Communications.

Moffett said increased competition from over-the-top services could erode customer growth, but that the greatest threat could come from 5G wireless services. The higher-speed data technology is expected to take years to fully deploy, but already Verizon has said it plans to conduct trials in 2017.

Related:New Normal: Digital Distribution [subscription required]

“If there is a downside risk to multiples, this is it,” Moffett said of 5G.

The analyst was less fearful of OTT services, in part because they have been here for years and also because what was supposed to be the category killer — AT&T’s DirecTV Now — has been plagued early on by spotty service and disruptions. New OTT offerings from Hulu and Google in 2017 are expected to have an impact, just not a very great one.

“In all likelihood, however, these services will pose a bigger headline risk than they will a financial one,” Moffett wrote. “Cable’s broadband moat provides a very powerful pricing counterbalance. By charging a premium for standalone broadband, and by upselling a portion of cord-cutters to faster broadband tiers, cable operators can relatively easily insulate themselves from subscriber losses to cord-cutting.”

On the programming side, 2016 was a mixed bag as cord-cutting and skinny bundles chipped away at what was once considered to be rock solid subscriber bases. The Walt Disney Co.’s ESPN took the highest-profile hit — it lost an estimated 7 million subscribers over the past two years and about 10 million since 2010 — but across the board networks averaged a loss of about 2% of their subscribers. That had a domino effect on other parts of the business, affecting affiliate fees and ad rates for even the strongest networks.

AT&T’s pending $108.7 billion purchase of Time Warner Inc., expected to close by the end of 2017, gave a lift to programmers and refueled interest in vertical integration. If that deal passes regulatory muster — and many analysts believe it will — it could start a chain reaction in M&A. A more laissez-faire regulatory attitude also could strengthen existing vertically integrated Comcast-NBCUniversal and others by allowing exclusive content for distributors.

OUTLOOK ON MEASUREMENT

Eagan said that despite negative headlines for the advertising business overall, ad agency stocks and fundamentals performed well. On the measurement side of the business, Eagan noted that Nielsen may have won the battle but not the war, saying both Nielsen and comScore will “benefit from marketer demand for third-party digital metric verification.”

Internal stresses helped pressure Viacom into another year of poor performance as infighting between CEO Philippe Dauman and controlling shareholder Sumner Redstone resulted in the former’s resignation in August. While the stock got a lift from talks concerning a recombination with former corporate sister CBS, those discussions ended in December with no deal.

While the hope is that new CEO Bob Bakish, a longtime Viacom international executive, can turn things around, it could take time. Meanwhile, Viacom’s ad revenue continues to slide, executives continue to leave, and its once-strong Paramount film studio limps along.

“For Viacom, if anything could go wrong for them, it did,” MoffettNathanson senior research analyst Michael Nathanson wrote in a note to clients.

AMC Networks, parent of AMC, IFC, WE tv, Sundance and BBC America, saw its stock drop more than 50% in 2016 as investors worried that it was too dependent on one program, albeit a big one: The Walking Dead. While that series remains the No. 1 scripted show on television, AMC is facing increasing pressure to come up with hits, as are other programmers like Scripps Networks Interactive (parent of Food Network and HGTV) and Discovery Communications.

With just 10 days left in the year and the Dow Jones Industrial Average inching toward a record 20,000 points, cable distribution stocks were a good place to be in 2016, with the sector up nearly 40%.

Dow 20,000 has been a possibility for days – the index was at 19,919.73, down 22 points at 10:45 a.m. on Dec. 22. The market barometer has gained more than 4,000 points in the past 12 months.

With consolidation on every cable investor's mind in the wake of Charter Communications’ $80 billion purchase of Time Warner Cable on May 18, it was no surprise that the two best performers in the sector were Charter – up 43.8%, or $88.74 per share to $291.24 on Dec. 21 – and Cable One, up 43.9%, or $190.21 per share to $623.87 each on Dec. 21. Cable One, which has switched its focus from video to broadband – it has lost about 20% of its video customer base in the past two years – is generally thought to be a prime takeover target in the coming months. But so far, no one has pulled the trigger on a deal.

Comcast, which agreed to purchase content company DreamWorks Animation earlier in the year for about $3.8 billion, rose 25.5% ($14.40 each) between Dec. 31, 2015 and Dec. 21, 2016, mainly on strong execution. The cable operator is expected to report its first full year of basic video customer growth in ten years in 2016.

Still, that combination of solid fundamental growth and merger speculation helped the sector over the hump in 2016  compared to 10% growth in 2015. And though consoldiation has removed two stocks from the distributor ranks in 2016 -- Time Warner Cable and Cablevision Systems, which was purchased by Altice USA in June -- one more stock could be added tto the mix in 2017. Altice USA, the domestic arm of Altice N.V. has said it is exploring a  possible IPO of a minority interest in the company in 2017.

Liberty Global, the international cable operator chaired by cable legend John Malone, was the lone declining stock in the sector, dipping 16.5%, or $6.14 per share, to $31.06 on Dec. 21.

Programmers had a tougher time, with declining subscribers, falling ratings and sluggish ad sales outweighing possible M&A activity. On that note, Time Warner Inc. was the top performer in the sector, rising 48.4% ($31.32 each) between Dec. 31 and Dec. 21 to $95.99 per share. Driving most of that growth was its October agreement to be purchased by AT&T for $108.7 billion, or about $107.50 per share.

That deal, which is expected to spark further attempts at vertical integration in the sector, is expected to close by the end of 2017.

AT&T’s stock rose about 23% for the year, from $34.41 on Dec. 31, 2015 to $42.36 on Dec. 21.

Scripps Networks Interactive, another possible M&A target, also posted strong gains for the year, rising 30% ($16.92 each) to $72.13 per share on Dec. 21.

The Walt Disney Co., which has been plagued by subscriber losses at its flagship sports network ESPN, managed to eke out a slight gain for the year, rising 0.5% (48 cents each) to $105.56 per share).

Viacom, which seemed to be headed toward a recombination with former corporate sister CBS until controlling shareholder Sumner Redstone’s National Amusements Inc. put the kibosh on the deal, fell 14.4% ($5.91 each) to $35.25 per share on Dec. 21. In contrast, CBS, which has ridden a wave of rising retrans fees, strong ratings and success at its over-the-top services CBS All Access and Showtime Anytime rose 37.1% ($17.50) for the year, closing at $64.63 each on Dec. 21.  

Other programmers reported more modest gains, with 21st Century Fox up 4.7%, Discovery Communications up 6.6% and MSG Networks up 4.6% for the year.

At Netflix, continued commitment to original programming and subscriber growth helped boost its stock up 10.6% ($12.12 each) for the year to $126.50 per share.

The biggest decliners in the programming sector were AMC Networks, down 30.3% ($22.61 each) to $52.07 per share for the year; and QVC Group, down 26% ($7.11 each) to $20.21 per share.   

Online content pioneer Mark Cuban told the Senate Antitrust Subcommittee Wednesday (Dec. 7) that the AT&T-Time Warner merger is pro-consumer and will be necessary for the companies going forward to be competitive with the dominant content providers, Web content giants Amazon, Apple, Microsoft, Google and Facebook.

In his testimony at the hearing about the deal, Cuban said that while radio and TV used to be the big competition for online streaming services, now its app-driven websites and services like Snapchat, He said Facebook is in the dominant content delivery position, saying it was taking over millennials and had become the major alternative to boredom, which used to be the province of TV and radio.

Related: Stephenson: AT&T-TW Would Be Disruptive Cable Competitor

Public Knowledge president Gene Kimmelman countered that all those Web giants weren't charging $200 per month for those apps and that user-generated online content was not comparable to the expensively produced content from a Time Warner.

He also said those businesses are all dependent on the ISP gatekeepers, including AT&T.

The 750,000-strong brothers (and sisters) of the International Brotherhood of Electrical Workers (IBEW) is backing the proposed AT&T/Time Warner Cable merger, calling it pro-consumer and pro-worker.

That is according to a letter to Senate Antitrust Subcommittee Chairman Michael Lee and ranking member Amy Klobuchar obatined by Multichannel News and being sent on the eve of the senators' oversight hearing on the deal.

"AT&T has a history of business practices that emphasize integrity and respect for its employees and consumers like," wrote IBEW President Lonnie Stephenson, saying it was on behalf of his members.

He said that at a time when wages for many workers are stagnant, AT&T's "commitment to respecting its employees' right to come together on the job to promote fair wages and family-friendly benefit is the right direction for our economy and nation.

Related: IBEW Ratifies contracts for Former DirecTV Employees.

Stephenson said there were many examples of AT&T's commitment, no more so than its DirecTV purchase and the choice in video and high-speed Internet service it created.

"The AT&T-Time Warner transaction would represent another step forward for the telecommunications and broadcast industries," he told the powerful senators.

Critics have raised competition issues, but Stephenson didn't see it that way. "By bringing together companies in two separate markets," he said, "it will do so without creating the traditional risks to competition."

WASHINGTON — AT&T chairman and CEO Randall Stephenson is pitching the AT&T-Time Warner Inc. merger to Congress as creating a new, disruptive video entrant to compete against established dominant players, something of a switch for the iconic company used to being regarded as an 800-pound incumbent telecom gorilla.

That is according to Stephenson's prepared testimony for a Dec. 7 hearing in the Senate Antitrust Subcommittee on the proposed merger.

He says the combined company would "disrupt the entrenched pay-TV models," while accelerating the deployment of 5G wireless broadband.

He says AT&T is already shaking up the status quo, and used over-the-top service DirecTV Now as exhibit A in making that case.

He plans to tell Congress the new subscription-based online service is targeted to the 20 million-plus households who have cut the cord or had the scissors in hand.

While merger critics are concerned about combining that online distribution with Time Warner content, afraid the company will favor that, Stephenson bills the combination as a way to bring more innovated services to the marketplace more quickly to "threaten cable's entrenched and still dominant position."

He said the ability to give customers what they want has been constrained because AT&T owns little of its own programming. “Instead, we have to negotiate those matters with third-party content owners, and in a fast-changing marketplace like vide, it is particularly difficult to obtain flexibility to pursue new and untested business models.”

The deal will help AT&T “break out of that box and reshape the competitive landscape” with a “stable” of Time Warner content to use as a “launching pad” for an array of content, Stephenson said, including for mobile. Armed with those content resources, the company can “innovate more quickly, experiment more readily, tweak our offerings as we gauge consumer response, and bring consumers the options they seek.

He also framed the “zero-rating" portion of the plan as instead data charges included in the price for AT&T Mobility customers. The FCC has signaled zeroing out the cost for an affiliated service like DirecTV Now may run afoul of network neutrality rules, though that is the Democratic-led FCC and a new Republican FCC would likely take a different view.

As to speeding 5G, he said that with the Time Warner content, AT&T will have a strong incentive to optimize the additional value of our content by having a robust mobile network and can deliver advanced video services made possible by the transaction."

Stephenson said it would be a “gross mistake” to view the merger as anything but pro-competitive, a mistake a number of merger critics and congressional Democrats have apparently been making given some of their comments following the deal's announcement. He says it would be irrational for AT&T to do anything but offer widespread distribution of Time Warner content, which he says "is more valuable when distributed to as many eyes as possible."

As to limiting access to competing programming, “as a distributor of video services, AT&T must offer the programming its customers want, regardless of whether or not AT&T owns that programming.”

Stephenson’s final word was an assurance about Time Warner’s news operations.

"We are committed to continuing the editorial independence of CNN," he said. “That independence is what makes CNN so popular and valuable, and we will not do anything to change that.”

Customers signing up for DirecTV Now has "exceeded expectations," according to AT&T CEO Randall Stephenson.

Speaking at the annual UBS Global Media and Communications Conference Tuesday, Stephenson said that on its first day last Wednesday (Nov. 30), the number of customers exceeded early projections for the month.

He said the product was over-indexing in apartment buildings, a market DirecTV had been targeting.

RELATED: DirecTV Now to Launch on November 30

"This demonstrated the demand for long-form premium content," Stephenson said.

Acquiring access to long-form content was a driver for acquiring DirecTV, he said. The proposed acquisition of Time Warner would be a completion of that strategy, he added.

At $35 a month for 100 channels, analysts see little profit in DirecTV Now.

RELATED: DirecTV Now’s ‘Customer Lifetime Value’ Not Favorable: Analyst

Read more at B&C.

The combination of AT&T and Time Warner Inc. is beneficial and should be approved, if for no other reason than because of “corporate democracy” in governance.

Most other major “content” companies have two classes of stock, vesting extraordinary voting powers to controlling families far in excess of their equity ownership. AT&T and Time Warner have rare one-share, one-vote structures. This also leads to more independent boards of directors.

Viacom and CBS Corp. are both controlled by the Redstone family. Sumner Redstone displayed little public responsibility to anything more than the transient stock price  He fired very able CEOs, including Frank Biondi and Tom Freston, as well as Mel Karmazin, who initiated the merger with CBS, giving Redstone control of both media giants. Until recently, he supported Viacom CEO Philippe Dauman, whose compensation included hundreds of millions of dollars, while the company deteriorated.

Redstone’s long-estranged, now reconciled, daughter wants to maintain family control by re-merging Viacom and CBS, which has been brilliantly led by Les Moonves. Ms. Redstone has no apparent public record of media responsibility.

21st Century Fox and News Corp. are controlled by the super-voting stock of the Murdoch family, which has a journalistic tradition. Rupert Murdoch’s foremost public position has been the Fox News Channel for greater editorial “balance.”

Rupert’s two older sons are now succeeding him, despite the journalistic scandals in the United Kingdom overseen by James Murdoch.

The two largest content/distribution companies are The Walt Disney Co., which is fully and equitably public (but also has significant non-media holdings, e.g. parks and resorts), and Comcast, in which the Roberts family’s voting rights are multiples of their equity ownership.

So far, Comcast has exhibited no special favors to either the distribution or the content side of its holdings, nor has it discriminated against any competitor. Indeed, it has greatly improved the performance of NBCUniversal, which it acquired from General Electric, and is the principal innovator in more consumer-friendly cable navigation.

Not incidentally, Comcast, CBS, Fox and Disney, all have super-expensive commitments to the NFL extending into the next decade when traditional re-sale patterns will certainly be altered.

Time Warner has expensive commitments to Major League Baseball and the NBA, but not of NFL magnitude; thus encouraging greater innovation for more consumer-friendly distribution, particularly mobile phones.

The Discovery networks are largely controlled by super-voting interests of cable pioneer John Malone and the Newhouse family.

A+E Networks is controlled by the fully public Walt Disney Co. and fully private Hearst family interests (which also control television stations and a large print portfolio).

There are other family controlled video content suppliers -- e.g. AMC Networks, Scripps Networks Interactive, et. al. — but they lack the clout of the big players.

The regulatory evaluative process should be both objective and subjective, including the degree of individual or family control, past records, integrity and relative incentives to further improve technology as it further disassembles the cozy media history of the past 50 years.

Full disclosure: Hardly disinterested, I am a shareholder in both AT&T (as a result of its acquisition of DirecTV) and Time Warner, after having served both as a senior Warner Bros. executive from 1969 to 2003 and as one of Steve Ross’s strategic advisers until his death in 1992.

I brought the acquisition of MTV and Nickelodeon to the management of pre-Redstone Viacom, introduced Ross to his Time counterparts leading to the original Time Warner merger, and have served on the boards -- and governance committees -- of three public media companies.

I hope an insider’s insight can carry real-world weight when theorists or ideologues, on both sides of the regulatory discussion, make their evaluation.

(An irony: All press discussions about Time Warner CEO Jeff Bewkes have focused only on his divestiture of video components, with not one of the opining journalists recalling how Bewkes also divested Warner Music before that industry diminished from technological changes.)

Edward Bleier is the retired president of Warner Bros. Domestic Pay TV, Cable & Network Features, now serving as a board member of three media companies.

WASHINGTON — AT&T’s road to approval of its merger with Time Warner Inc. may have gotten a bit rockier last week with the announced Department of Justice lawsuit against both the telco and its DirecTV subsidiary, and by the same team that will be reviewing the proposed deal.

Whether the Federal Communications Commission will get to review the deal remains a question. As Multichannel News pointed out when the merger was announced, the DOJ will review it for antitrust issues, and that review will be led by two officials who, until only a few months ago, were FCC officials dealing directly with merger reviews.

One is Renata Hesse, who succeeded Bob Baer back in April atop DOJ’s antitrust division, and prior to that was a merger adviser to the FCC on such issues as blocking the proposed AT&T-T-Mobile deal.

The other, former FCC general counsel Jonathan Sallet, last week was listed as the lead attorney on the DOJ team that brought the suit against DirecTV and its corporate parent, AT&T; the suit alleges they were the ringleaders in a series of “unlawful information exchanges” in negotiations with Time Warner Cable over carriage of SportsNet LA, the regional sports network managed by the MSO (since acquired by Charter Communications) and owned by baseball’s Los Angeles Dodgers.

AT&T respectfully disagreed with that conclusion and will fight the charges in court even as it tries to get Sallet and company to approve the merger, promising it will deal fairly with competitors over content.

Sallet, now deputy assistant attorney general of the DOJ’s antitrust division, said in announcing the suit, “Competition, not collusion, best serves consumers, and that is especially true when, as with pay television providers, consumers have only a handful of choices in the marketplace.”

One of the key issues in the AT&T-Time Warner deal is access to all of Time Warner’s content and whether AT&T would try to keep it to itself. The companies argue that they will, in fact, make Time Warner content more accessible and become a stronger competitor to pay TV providers, thus expanding that handful of choices with a stronger mobile content offering.

Not surprisingly, one of the groups trying to block the merger, Public Knowledge, used the suit as an argument against the AT&T-TW deal in particular and further consolidation in general.

Adonis Hoffman, former chief of staff to FCC commissioner Mignon Clyburn, said he thinks the deal will go through and noted that having Sallet lead the review team is both a plus and minus for the deal’s prospects.

“Sallet knows his way around these issues, but clearly there is some pretty strong language on behavior that could carry over into the review, if not by him, then by others on his team,” Hoffman said. “But remember, this is the same Jonathan Sallet who approved the AT&TDirecTV merger and Charter-Time Warner Cable merger. So, he is not opposed to mergers and he is a brilliant antitrust lawyer.”

“If allegations of wrongdoing are there for this specific case, that is one thing, but I think Sallet is professional enough to differentiate between alleged bad action with respect to carriage negotiations versus a vertical merger,” Hoffman said.

AT&T and Time Warner certainly hope so.

Related >Back to the Future: Analysis of the AT&T-Time Warner Deal [subscription required]

WASHINGTON — A former Federal Communications Commission bureau chief remembers being in the room for a meeting after America Online announced its merger with Time Warner Inc. in 2000. The talk from the two companies then had been about innovation and synergy.

Someone in the room asked whether the FCC had jurisdiction over the Internet. There was a pause, silence and some puzzled looks before an agreement that, indeed, it did.

“Unspoken and lingering in the air was the thought that this is far too big for us not to have jurisdiction,” said the former official.

The question of the FCC’s role in reviewing another big merger involving Time Warner — this time, a $107.8 billion acquisition by telco AT&T — was again hanging in the air last week. This time, the question was whether the FCC would have any role in reviewing the deal and whether, regardless of who vets it, that deal would go through.

JURISDICTIONAL HOOKS

The FCC reviews mergers when licenses change hands, but Time Warner owns only a single TV station, WPCH-TV in Atlanta. It could spin off the station (the former superstation WTBS, now operated under an local management agreement by Meredith Corp.) to avoid that potential review.

Time Warner also has a handful of earth-station licenses it uses to distribute cable networks HBO and TBS, which would seem harder to unload in order to get out from under FCC oversight of the deal, though analysts suggested AT&T and Time Warner were busy trying to figure that out.

Related > More stories on the AT&T-Time Warner Merger

The former FCC official said it would be interesting to see if the agency can resist finding some other way into the deal if that happens, adding, “This one will be a real thrill to watch.”

It could be an extended thrill ride. Given the size of the deal and the intervening presidential election and change in administrations, a decision isn’t likely to be reached until late next year.

Related > Marcus, Bewkes. What’s In a (CEO) Name? [subscription required]

AT&T’s bid for Time Warner appeared to be a pivot toward broadband video distribution after its purchase only a little over a year ago of satellite-TV provider DirecTV, which the telco also pitched as making it a stronger competitor to Big Cable.

Clearly, positioning the deal as creating competition for cable and more access for online content was a pitch aimed at Washington, where the Obama administration is always looking to create more video competition and access, particularly online.

But securing the deal could come at the price of monetizing all that new Time Warner content if the quid pro quo is making it accessible to others.

The FCC has made it clear that it has authority over the distribution of content over the Internet, which is what the deal announced last week — combining killer content from CNN, Warner Bros. TV and films with mobile broadband — is all about.

But even if the antitrust-focused Justice Department is the lead dog and if it concludes that AT&T-Time Warner deal could hurt competition for online content or shelf space, it could sue to block the deal, seek spinoffs or apply deal conditions. (For instance, Time Warner’s 10% interest in OTT platform Hulu could be problematic, if the DOJ is concerned about that online video programming asset in combination with planned over-the-top TV service DirecTV Now.)

It was the Justice Department that took the lead in imposing conditions on the Charter Communications-Time Warner Cable, merger preventing contractual impediments to that online competition. The DOJ can also consult with the FCC for its expertise whether or not it is an official participant.

FIRST TIME FOR EVERYTHING

Deal defenders, including AT&T, were pointing out repeatedly that the Department of Justice had not nixed any vertical deals. “In the modern history of the media and the Internet, the U.S. government has always approved vertical mergers like ours, because they benefit consumers, strengthen competition, and, in our case, encourage innovation and investment,” David McAtee, AT&T senior executive vice president and general counsel, blogged last week.

There is a first time for everything, and as AT&T itself pointed out, this is the first deal combining content with a wireless broadband company. It billed the merger as the next revolution in video.

It would also be the first big media merger review of a potential Hillary Clinton administration. Clinton has pledged tougher merger reviews. That could translate to trying to block or condition the deal based on the conclusion that AT&T-DirecTV had both the incentive and the ability to restrict other online providers from access to its content.

The deal vetting will start as a new presidential administration comes in, which could delay the proceedings and bifurcate the process.

Sen. Ed Markey (D-Mass.) said the FCC should get to review the proposed AT&T-Time Warner merger.

"[T]he FCC is our telecommunications cop on the beat, and we need it to ensure that marketplace actions don’t harm consumers, stifle innovation or reduce competition," Markey said.

There has been talk that the companies might be able to avoid an FCC review by spinning off a TV station and some satellite licenses; that would mean the Department of Justice would review the deal for antitrust issues, though likely with FCC input anyway.

But Markey said the deal "demands" a review by both parties.

“A review by the FCC would help prevent pay TV gatekeepers from favoring their own content providers and blocking minority, diverse and independent programmers from reaching America's living rooms," he said, echoing FCC chairman Tom Wheeler's arguments for various regulatory efforts. "A review by the FCC would help ensure that Americans can continue to enjoy watching all the content that should be available to them, and that their right to privacy is maintained even when technologies change.”

Markey did not say he opposed, or supported, the deal. But he said an FCC review would give the agency a chance to either "apply pro-consumer, pro-competition conditions if the acquisition is not in the public interest or halt it altogether.

Comcast chairman and CEO Brian Roberts (pictured) said from the start that he wasn’t going to comment on that other potentially vertically integrated company in the media space, instead letting his own company’s performance speak for itself.

And speak it did. As analysts and investors grappled with the logic behind AT&T’s $108.7 billion vertical integration play for Time Warner Inc., Comcast showed under the right circumstances, it can work in spades.

In the third quarter, Comcast again seemed like the poster child for vertical integration. At its cable operations, basic video customers rose by 32,000, its best third quarter in 10 years. Revenue increased 4.5% and operating cash flow increased 5.5%. At its NBCU operations, revenue rose 28% and OCF was up 32%, driven largely by its broadcast of the Summer Olympic Games in Rio de Janiero.

Comcast purchased a 51% interest in NBC Universal in 2011 (it took in the rest about two years later) and in five-and-half years has more than doubled operating cash flow, taken a perennial No. 4 broadcast network and made it No. 1 for the past four consecutive years and turned in two record years for its Universal Pictures movie studio.

“Part of that [success] is the culture [Comcast chairman and CEO] Brian [Roberts] and everyone else at Comcast have created,” NBC Universal CEO Steve Burke said on a conference call with analysts to discuss third quarter results. “Part of it is the willingness to invest, part of it is Symphony, which we call our special sauce. Looking back at the past five-and-a-half years, the Comcast element has lent a great, great stimulus to NBC Universal. I think the results speak for themselves.”

On the analyst call, Roberts didn’t want to comment on the AT&T-Time Warner merger, citing company policy not to comment on other people’s deals. But he did offer this.

“We have a fabulous company,” Roberts said on the call. “What we are pleased to reported today demonstrates that – putting the assets together, adding customers, we have new products and real market leadership in almost every area, right through the Olympics and to X1’s integration of Netflix. We couldn’t be happier with this quarter and the momentum of this year.”

Comcast’s name has come up a lot in the discussions around the AT&T-Time Warner merger, mainly as an example of how vertical integration can work. But anyone who uses that unique pairing as a template for the rest of the industry is missing the mark. Comcast-NBCU works for very specific reasons; reasons that are unlikely to be duplicated in this landscape for the foreseeable future.

Comcast first announced its intent to purchase a 51% interest in NBCU from General Electric in December 2009 (the deal took more than a year to close), the first big media deal after the financial meltdown that was the 2008 Great Recession. As MoffettNathanson principal and senior analyst Craig Moffett put it, NBCU has done well for Comcast because the cable operator bought it at a good price (9 times cash flow compared to 12.1 times for AT&T-Time Warner) and at a trough of advertising, content and ratings cycles.

At the time, NBCU was an undermanaged asset that Comcast helped grow by pushing for retransmission consent revenue ($800 million this year from $0 in 2009) and growing ad sales. In contrast, Time Warner is considered to be one of the better run content companies and has taken advantage of direct to consumer offerings like HBO Now and has steadily increased ad sales.

Moffett said in a recent report that just because AT&T-Time Warner may not have the same characteristics as Comcast-NBCU, it doesn’t mean it’s a bad deal, just different. But it makes the Time Warner deal more of a diversification play than a strategic one. And diversification plays work best when the price is low.

On the surface AT&T-Time Warner looks high, priced at about 12-times forward looking cash flow, compared to the 9-times multiple Comcast paid for NBCU. But that too could even out over time.

Time will eventually tell whether this deal, if it is approved, was worth it. Moffett pointed out that another plus for Comcast is that its cable distribution business was in good shape before and after it did its content deal. Not so much the case for AT&T, where subscribers to its U–verse television service have been leaving at an alarming rate over the past year.

 “Very broadly put, Comcast-NBC Universal is a very special company,” Roberts said on the conference call. That statement may be truer today than ever.

Netflix CEO Reed Hastings has issued some conditional praise to the proposed merger of AT&T and Time Warner Inc., so long as AT&T's future data policies don’t give rivals such as TW-owned HBO a leg up on his OTT SVOD service.

“[A]s long as HBO’s bits and Netflix’s bits are treated the same, that would be the starting place,” Hastings said Monday night at The Wall Street Journal DLive conference, according to Fortune. “We really want to make sure that to the consumer, to the system, that basically it doesn’t give an unfair advantage to HBO over Netflix. If it’s open competition, we love that.”

Those concerns seem to be tied to wariness that AT&T might try to zero-rate content from the TW content stable.

RELATED: AT&T to Tweak, Raise Broadband Data Plans

Notably, Netflix was okay with the Charter-Time Warner Cable deal when Charter pledged to extend its settlement-free peering policy to the acquired systems. Per FCC's OTT-friendly order on that deal, Charter is also prohibited from imposing data caps or charging usage-based pricing for its residential broadband service.

Hastings also admired AT&T’s plans for DirecTV Now, the OTT-TV service slated to launch sometime next month.

RELATED: DirecTV Now Coming in November

“I think AT&T is going to be very aggressive about building a national competitor to all of the cable companies,” Hastings said. “If they pull that off, that would be in the consumer’s interest.”