Daenerys Targaryen: Lannister, Targaryen, Baratheon, Stark, Tyrell — they’re all just spokes on a wheel. This one’s on top, then that one’s on top, and on and on it spins, crushing those on the ground.I’ll concede this: AT&T’s DirecTV business is probably not a “golden goose”, as the Justice Department claims.
Tyrion Lannister: It’s a beautiful dream, stopping the wheel. You’re not the first person who’s ever dreamt it.
Daenerys Targaryen: I’m not going to stop the wheel, I’m going to break the wheel.– Game of Thrones
Is it trying to buy earnings growth? Probably. Is it trying to steamroll its nascent online-streaming competition? Maybe! It could be hoping for both, for all we know.
But the question of pay-TV’s profitability isn’t central to the issue at hand. AT&T doesn’t need high pay-TV margins to undermine its competition. In fact, the assumption that anti-trust enforcement requires rich monopoly profits and high consumer prices has been challenged in recent years.
The DOJ argues that if AT&T owns a prominent industry supplier, it could simply starve DirecTV’s competitors of content, and lure away their customers by promising a cheaper, faster Game of Thrones fix. (It doesn’t seem terribly easy to compete with HBO.)
It can do so because AT&T is more than a pay-TV distributor or phone company*. It’s a digital platform — an especially capital-intensive one, to be sure, but one that has managed bounced back after an encounter with the business end of an anti-trust enforcement hammer decades ago. These days, its wireless business has 138.8m subscribers, more than a third of the US population.
The company could use its reach to expand Time Warner’s already-nice margins. And if net neutrality is rolled back as expected, it would be permitted to cleanly stream HBO and throttle/charge fees to, say, Netflix. And Time Warner could help its parent company’s platform gain market share, even without cutting off other distributors’ access to its content.
AT&T could just charge above-market prices for content and make DirecTV cheaper in comparison. The DOJ describes this risk in its complaint, along with the possibility of undermining online-streaming competitors, which Matt addressed yesterday. From the complaint:
The merger would […] substantially lessen competition by giving the merged company the additional leverage to charge its rival video distributors higher prices for its networks than Time Warner’s current market power would otherwise allow, making those distributors less able to compete effectively with the merged company. The view that vertical mergers help market efficiency and keep prices low is a legacy of Robert Bork, the rejected Reagan Supreme Court nominee and author of The Antitrust Paradox. Bork wrote that “the only legitimate goal of antitrust is the maximization of consumer welfare,” and that “productive efficiency” is “the single most important factor contributing to that welfare.”Yet Lina Khan — of the recently (and dramatically) formed Open Markets Initiative — makes a compelling argument that modern platform monopolies and oligopolists have exploited Bork’s market-focused framework to dodge regulation....MORE
There is an issue that– while extremely important today–receives too little attention not only in the traditional media but also in the blogosphere, and academia: the subversion of competition by special interests. Following Adam Smith, the vast majority of economists believe that competition is the essential ingredient that makes a market economy work. Yet, what ensures that markets are indeed competitive? While a competitive market system ends up benefitting everyone, nobody benefits enough to spend resources to lobby for it. Business has very powerful lobbies; competitive markets do not. The diffuse constituency which is in favor of competitive markets has few incentives to mobilize in its defense....MORE