Appeals Court Upholds Decision Allowing AT&T To Buy Time Warner
Appeals Court Upholds Decision Allowing AT&T To Buy Time Warner
No. 18-5214
v.
II.
A.
The video programming and distribution industry
traditionally operates in a three-stage chain of production.
Studios or networks create content. Then, programmers
package content into networks and license those networks to
video distributors. Finally, distributors sell bundles of
networks to subscribers. For example, a studio may create a
television show and sell it to Turner Broadcasting System
(“Turner Broadcasting”), a programmer, which would package
that television show into one of its networks, such as CNN or
TNT. Turner Broadcasting would then license its networks to
distributors, such as DirecTV or Comcast.
The evidence before the district court also showed that the
industry has been changing in recent years. Multichannel video
programming distributors (“MVPDs”) offer live television
content as well as libraries of licensed content “on demand” to
subscribers. So-called “traditional” MVPDs distribute
channels to subscribers on cable or by satellite. Recently,
“virtual” MVPDs have also emerged. They distribute live
videos and on-demand videos to subscribers over the internet
and compete with traditional MVPDs for subscribers. Virtual
MVPDs, such as DirecTV Now and YouTube TV, have been
gaining market share, the evidence showed, because they are
easy to use and low-cost, often because they offer subscribers
smaller packages of channels, known as “skinny bundles.”
B.
The government’s increased leverage theory is that “by
combining Time Warner’s programming and DirecTV’s
distribution, the merger would give Time Warner increased
bargaining leverage in negotiations with rival distributors,
leading to higher, supracompetitive prices for millions of
consumers.” Appellant Br. 33. Under this theory, Turner
Broadcasting’s bargaining position in affiliate negotiations will
change after the merger due to its relationship with AT&T
because the cost of a blackout will be lower. Prior to the
merger, if Turner Broadcasting failed to reach a deal with a
distributor and engaged in a long-term blackout, then it would
lose affiliate fees and advertising revenues. After the merger,
some costs of a blackout would be offset because some
customers would leave the rival distributor due to Turner
Broadcasting’s blackout and a portion of those customers
would switch to AT&T distributor services. The merged
AT&T-Turner Broadcasting entity would earn a profit margin
on these new customers. Because Turner Broadcasting would
make a profit from switched customers, the cost of a long-term
blackout would decrease after the merger and thereby give it
increased bargaining leverage during affiliate negotiations with
rival distributors sufficient to enable it to secure higher affiliate
fees from distributors, which would result in higher prices for
consumers.
III.
1
In re Matter of Applications of Comcast Corp., General Electric
Co. and NBC Universal, Inc., for Consent to Assign Licenses or
Transfer Control of Licensees, MB Docket No. 10-56, Reply
Comments of DirecTV, Inc., 4 (Aug. 19, 2010); In re Matter of
Revision of the Commission’s Program Access Rules et al., MB
Docket No. 12-68 et al., Comments of DirecTV, LLC 19 (June 22,
2012); In re Matter of Revision of the Commission’s Program Access
Rules et al., MB Docket No. 12-68 et al., Comments of AT&T Inc.
22 (June 22, 2012); In re Matter of Revision of the Commission’s
Program Access Rules et al., MB Docket No. 12-68 et al., Reply
Comments of AT&T Inc. 2 (July 23, 2012).
25
801(d)(2), see Talavera v. Shah, 638 F.3d 303, 309 (D.C. Cir.
2011), yet even as admissions, the district court had to evaluate
their persuasive force in the circumstances before it, and the
district court did. See VirnetX, 767 F.3d at 1332; cf. General
Dynamics, 415 U.S. at 498; Owens v. Republic of Sudan, 864
F.3d 751, 790 (D.C. Cir. 2017).