On Tuesday, a federal judge approved a proposed merger in which telecommunications giant AT&T will purchase and subsume entertainment conglomerate Time Warner Inc., rejecting in the process an attempt by the Justice Department to block the $85 billion deal.
The merger (set to be completed by next week) is a huge development, as AT&T — owner and operator of DirecTV — will assume control of all Time Warner properties, including HBO, CNN, all the Turner networks, Warner Bros. Entertainment, DC Comics, and a ten-percent stake in Hulu. So, what does this mean for you, exactly?
Fast lanes (and slow ones)
First and foremost, it means AT&T can decide to prioritize first-party content over its internet pipelines — HBO Now, for example — in the wake of the recent Net Neutrality repeal. If you’re not sure what this means, it’s easy to understand like this: Say you’ve got an AT&T internet subscription, and you stream shows and movies with HBO Now. AT&T could theoretically choose to slow down speeds when its customers are accessing competing services (like Netflix, or Amazon Prime Video) in order to make its own streaming service a more attractive destination.
This practice has been commonly referred to as creating internet “fast lanes,” in which an internet service provider (ISP) prioritizes certain content traveling through its pipelines. Alternately, “throttling” refers to the practice of ISPs intentionally slowing down connection speeds to certain content; it’s the flip side of the same coin. There was plenty of discussion about this when Netflix was orchestrating deals with ISPs in order to better deliver its content, and it was also of major concern when Comcast purchased a controlling stake in NBCUniversal, which is why that deal came with certain restrictions, such as the requirement for Comcast to submit to third-party arbitration in disputes over terms and pricing with other pay-TV companies.
Internet fast lanes are a big reason many consumer advocacy groups are against these kinds of vertical mergers, in which a manufacturer and supplier within the same industry pair up (in this case, a content distributor like AT&T merging with a content producer like Time Warner).
To alleviate these concerns, AT&T has signed a network management disclosure agreement — a statement echoed by a coalition of 16 major ISPs, including Comcast. There’s still reason to be concerned about the Time Warner merger, however, given that AT&T has shown no restraint in flexing its muscles. An AT&T-associated lobbying group (which also represents Verizon and CenturyLink, among others) has recently advocated for increased pricing power over smaller, “mom-and-pop” ISPs, for instance. When big corporations make promises that don’t benefit the bottom line, it’s hard to take them at their word.
A worrying precedent
The merger could also portend similar acquisitions in the near future, like Comcast’s proposed acquisition of Fox properties, for which the company is sparring with Disney. In fact, less than a day after the AT&T/Time Warner deal was approved, Comcast submitted a new, $65 billion cash offer for the majority of Fox’s properties in hopes of outbidding Disney (a counter-bid from the House of Mouse is likely). Media companies have been scrambling to compete with rising streaming powerhouses like Netflix and Amazon, which boast seemingly bottomless budgeting for original content, but such massive mergers can reframe such players — especially Netflix, which doesn’t have a multibillion-dollar conglomerate to fall back on — as underdogs going forward.
The AT&T-Time Warner deal, like so many mergers before it, will lead to higher prices and fewer choices
There are two opposing schools of thought regarding such mega-mergers; free-market capitalists and, especially, large corporations see vertical mergers as indicators of a healthy, competitive economy, while consumer advocacy groups see them as portents of an expensive, restrictive future. The former reads government antitrust legislation as intrusive meddling (like NBA Commissioner David Stern’s decision to disallow a blockbuster trade in 2011), and the latter anticipates cable and internet price hikes and the aforementioned internet fast lanes from companies with few real competitors.
The Writers Guild of America West released a statement condemning the deal: “[The AT&T-Time Warner deal], like so many mergers before it, will lead to higher prices and fewer choices … This ruling, coupled with the government’s abdication of open Internet protections yesterday, means the future of the Internet and content distribution is in the hands of a few, increasingly consolidated and powerful corporate gatekeepers.”
Don’t be evil (please?)
With the absorption of Time Warner, AT&T now controls both the content you want to watch and the pipeline through which you get that content. Nothing — apart from the disclosure statements, which are entirely unenforceable and essentially amount to nothing more than “take us at our word” — is stopping AT&T (or a post-Fox-merger Comcast) from throttling competing content or imposing data caps with exceptions for first-party services (like HBO Now).
The move also paves the way for cable companies to continue to thrive in the cord-cutting era. By owning the networks, shows, and movies that viewers want to watch, AT&T can dictate the terms on which that content is seen. Whether that stands to benefit Joe Sixpack remains to be seen, but this much is clear: Going forward, it will be more difficult to truly cut ties (or “cords,” as it were) with major telecom corporations.