If you would like to get a quick and easy return on an investment, buy Time Warner Inc. (NYSE:TWX) stock now, because the Department of Justice’s complaint against TWX’s merger with AT&T Inc. (NYSE:T) is literally comical. It is the funniest lawsuit you will ever read, because it shows either: 1) how utterly out of touch the DOJ is with modern-day content consumption or 2) that it is a purely politically driven lawsuit.
I’ll take you through some of the nonsense in the lawsuit and show why the DOJ is out of its mind. According to the DOJ:
“The merger would give the merged company the power to lessen competition and harm consumers in the Multichannel Video Distribution and the All Video Distribution markets by increasing the prices its rival MVPDs and virtual MVPDs pay for Turner’s networks and impeding their use of HBO to attract customers.”
Naturally, if AT&T owns popular content like Turner and HBO, it would try and extract more money from cable or other satellite providers in exchange for carrying that content. The problem with the DOJ’s claim is that, in reality, any price increase would have to be reasonable. If it were unreasonable, the carrier can tell AT&T to pound sand and AT&T gets nothing.
Yet, AT&T’s CEO Randall Stephenson has explicitly said that the purpose of the merger is to create an enhanced advertising model. If a carrier doesn’t carry its programming in certain jurisdictions, that becomes lost advertising revenue.
So, of course pricing power is not going to be absolute here, because the advertising revenue is far more important to AT&T.
Not only that, if the dispute is bad enough, the carrier will tell its consumers to call AT&T and demand that they make pricing demands reasonable, otherwise it won’t be able to provide the desired programming. Up until now, the way it usually works is that a content provider will tell consumers to pester the carrier or “you will lose our channel!”
That’s how carriage disputes usually get settled. This will be no different — except consumers can also threaten to cancel their AT&T phone contracts as leverage.
Thus, enough checks and balances exist here. The DOJ needs to have its head examined.
Comedic Complaint #2 Against AT&T and Time Warner Merger
The other complaint is so utterly ridiculous that it belongs in a sitcom:
“The merger would give the merged company the ability to impede and slow innovation by hindering emerging online competitors and would increase the likelihood of oligopolistic coordination … Moreover, after the merger, AT&T/DirecTV and Comcast/NBCU, which together have almost half of the country’s MVPD customers, would have an increased incentive and ability to harm competition by impeding emerging online competitors that they consider a threat, and increasing the prices for the networks they own.”
Wait, wait, wait. The DOJ wants to sell us on the idea that the combined entity, along with its peers, would — I’m sorry, I’m laughing so hard it’s difficult to write — somehow harm companies like Netflix, Inc. (NASDAQ:NFLX) and Amazon.com, Inc. (NASDAQ:AMZN) and Apple, Inc. (NASDAQ:AAPL) and Alphabet, Inc. (NASDAQ:GOOGL, NASDAQ:GOOG)?
Can someone explain how this is going to happen? All these companies not only have billions of dollars in the bank (well, not Netflix), they also have the ability to directly deliver their content to consumers! In other words, they don’t need no stinkin’ distributors!
In fact, these businesses, particularly Amazon and Apple, don’t even have to spend money to acquire viewers, since everyone already has access to their services!
The DOJ complaint is literally a joke.
Buy TWX stock. Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
