The much-anticipated AT&T/Time Warner trial is now underway. In our previous column, we analyzed the legal issues raised by the Department of Justices's (DOJ) suit to block AT&T/DirecTV's (AT&T) proposed acquisition of Time Warner. Our discussion focused on the issues raised in the DOJ's complaint, and the key issues that the D.C. District Court would likely examine in assessing the case. Now, at the approximate midpoint of the trial, we return to consider how a vertical mega-merger from a few years ago—and a familiar face from that case—may provide some clues of what is to come.

A Familiar Face at the Helm

Presiding over the case is Judge Richard J. Leon, a George W. Bush-appointee who took senior status in December 2016. Although the case was initially assigned to Judge Christopher Cooper, an Obama-appointee, the assignment was shifted to Judge Leon without explanation. Judge Leon is no stranger to high-profile cases—he presided over the district court proceedings in Boumediene v. Bush, a case in which the Supreme Court ultimately held that prisoners at Guantanamo Bay had a right to the writ of habeas corpus. But more importantly for our purposes, he handled one of the largest vertical media mergers in recent memory—a case with many parallels to AT&T/Time Warner—the multi-billion dollar deal between Comcast and NBC Universal (NBCU).

A Look at 'Comcast/NBCU'

In 2011, Comcast sought to finalize a $37 billion deal to purchase NBCU, which would combine NBCU's video programming with Comcast's distribution network. Unlike here, the government did not sue to block the deal, but the parties appeared in front of Judge Leon to finalize the consent agreement that addressed the government's antitrust concerns. The DOJ had agreed to allow the deal to go through on the condition that Comcast cede control of Hulu, the popular video-streaming website, make stand-alone broadband service available to customers at $49.95 per month for three years, and allow online distributors to submit disputes regarding Comcast's licensing of NBC content to arbitration. In what some viewed as an unusual move, Judge Leon took issue with the arbitration terms and threatened to nix the deal.

Judge Leon's primary concern was that the arbitration terms in the consent decree would harm online video distributors, like Netflix, which sought Comcast and NBCU content, because they were non-appealable. A private, “baseball-style” arbitration would be used to work out the prices for carrying NBCU programming if the parties failed to agree. Although the government had pushed to assuage the fears of Judge Leon, he was still “not completely certain that these safeguards [in the consent decree], alone, will sufficiently protect the public interest in the years ahead.” For that reason, Judge Leon found that additional steps were necessary to monitor the post-merger entity. He ordered that for two years, the parties would be required to create and maintain a report documenting the arbitration process, including how many online video distributors initiated arbitration and appealed the result of their arbitration. Additionally, Judge Leon ordered yearly hearings before the court to explain and discuss the report.

AT&T/Time Warner

In this case, the DOJ tailored its trial brief to primarily focus on the possible harm to Multichannel Video Programming Distributors (MVPDs) and Virtual MVPDs (VMVPDs), rather than to online video companies. MVPDs include cable companies and satellite companies, such as Comcast, Charter, DirecTV, and Dish; VMVPDs include “cut the cord” options such as Sling TV, PlayStation Vue, and DirecTV Now. Importantly, both DirecTV distributors are owned by AT&T. The DOJ's main contention is that a merged AT&T and Time Warner could threaten to withhold Time Warner's “must have” content (HBO, TNT, TBS, and CNN) as leverage against DirecTV's rival MVPDs, which would ultimately result in consumers paying higher prices. The government claims that the merger could cost consumers “between $270.9 and $361.2 million more per year” for MVPD service alone.

Indeed, on page one of its trial brief, the DOJ directly quoted AT&T's senior vice president and general counsel's statement that, when program distributors acquire content producers, they “have the incentive and ability to use (and indeed have used whenever and wherever they can) that control as a weapon to hinder competition.” The government also quoted a damaging statement made by DirecTV to the Federal Communications Commission (FCC) when it was evaluating the Comcast/NBCU merger: “This [vertical integration of programming and distribution] ultimately results in higher prices and lower quality service for consumers.”

What Parallels Can We Draw?

First, both cases involve a merger between a content company and a content distributor, which although different in certain respects, present the same basic fear that one “behemoth”—AT&T or Comcast—will harm competition by increasing the price of featured programming or otherwise limiting access to that programming. In Comcast/NBCU, Judge Leon seemed particularly troubled by the negative impact the merger could have on online video distributors. But since that merger was approved, online video companies have proved an exceedingly disruptive force for the cable industry, as consumers have increasingly “cut the cord” in favor of competing online video distributors and VMVPDs.