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United States v. AT&T Inc.

United States District Court for the District of Columbia

June 12, 2018, Decided; June 12, 2018, Filed

Civil Case No. 17-2511 (RJL)

Opinion

 [*163]  MEMORANDUM OPINION

If there ever were an antitrust case where the parties had a dramatically different assessment of the current state of the relevant market and a fundamentally different vision of its future development, this is the one. Small wonder it had to go to trial !

 [*164]  On November 20, 2017, the U.S. Department of Justice's Antitrust Division brought this suit, on behalf of the United States of America ("the Government" or "the plaintiff"), to block the merger of AT&T Inc. ("AT&T") and Time Warner Inc. ("Time Warner") as a violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The Government claims, in essence, that permitting AT&T to acquire Time Warner is likely to substantially lessen competition in the video programming and distribution market nationwide by enabling AT&T to use Time Warner's "must have" television content to either raise its rivals' video programming costs or, by way of a "blackout," drive those same rivals' customers to [**3]  its subsidiary, DirecTV. Thus, according to the Government, consumers nationwide will be harmed by increased prices for access to Turner networks, notwithstanding the Government's concession that this vertical merger would result in hundreds of millions of dollars in annual cost savings to AT&T's customers and notwithstanding the fact that (unlike in "horizontal" mergers) no competitor will be eliminated by the merger's proposed vertical integration.

Not surprisingly, the defendants, AT&T, Time Warner, and DirecTV, strongly disagree. Their vision couldn't be more different. The video programming and distribution market, they point out, has been, and is, in the middle of a revolution where high-speed internet access has facilitated a "veritable explosion" of new, innovative video content and advertising offerings over the past five years. Trial Tr. ("Tr.") 1397:1-4 (Montemagno (Charter)). Vertically integrated entities like Netflix, Hulu, and Amazon have achieved remarkable success in creating and providing affordable, on-demand video content directly to viewers over the internet. Meanwhile, web giants Facebook and Google have developed new ways to use data to create effective — and [**4]  lucrative — digital advertisements tailored to the individual consumer.

As a result of these "tectonic changes" brought on by the proliferation of high-speed internet access, video programmers such as Time Warner and video distributors such as AT&T find themselves facing two stark realities: declining video subscriptions and flatlining television advertising revenues. Id. at 3079:18 (Bewkes (Time Warner)). Indeed, cost-conscious consumers increasingly choose to "cut" or "shave" the cord, abandoning their traditional cable- or satellite- TV packages for cheaper content alternatives available over the internet. At the same time, Facebook's and Google's dominant digital advertising platforms have surpassed television advertising in revenue. Watching vertically integrated, data-informed entities thrive as television subscriptions and advertising revenues declined, AT&T and Time Warner concluded that each had a problem that the other could solve: Time Warner could provide AT&T with the ability to experiment with and develop innovative video content and advertising offerings for AT&T's many video and wireless customers, and AT&T could afford Time Warner access to customer relationships and [**5]  valuable data about its programming. Together, AT&T and Time Warner concluded that both companies could stop "chasing taillights" and catch up with the competition. 2/16/18 Hr'g Tr. 34:16 [Dkt # 67]. Those were the circumstances that drove AT&T, a distributor of content, and Time Warner, a content creator and programmer, to announce their historic $108 billion merger in October 2016 (the "proposed merger" or "challenged merger"). Those are the circumstances that cause them to claim today that their merger will increase not only innovation, but competition in this marketplace for years to come.

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310 F. Supp. 3d 161 *; 2018 U.S. Dist. LEXIS 100023 **; 2018-1 Trade Cas. (CCH) P80,407; 2018 Comm. Reg. (P & F) 86; 2018 WL 2930849

UNITED STATES OF AMERICA, Plaintiff, v. AT&T INC., et al., Defendants.

Subsequent History: Affirmed by United States v. AT&T, Inc., 2019 U.S. App. LEXIS 5561 (D.C. Cir., Feb. 26, 2019)

Prior History: United States v. At&T Inc., 2017 U.S. Dist. LEXIS 207694 (D.D.C., Dec. 8, 2017)

CORE TERMS

merger, distributors, video, subscriber, consumers, programming, blackout, customers, affiliate, programmers, negotiations, networks, bargaining, predicted, advertising, long-term, proposed merger, leverage, increased-leverage, competitor, Cable, post-merger, defendants', vertically, coordination, DISH, prices, third-party, real-world, effects

Antitrust & Trade Law, Clayton Act, Claims, Evidence, Burdens of Proof, Allocation, Preponderance of Evidence, Scope, Remedies, Injunctions, Burden Shifting, Types of Evidence, Testimony, Expert Witnesses