“O Vengeance!—Why What an Ass Am I?”


By: Derek Waller, Volume 102 Staff Member

Even before the Department of Justice (DOJ) sued to block the AT&T’s merger with Time Warner (CNN’s parent company), reporters and pundits speculated that President Trump’s notorious rivalry with CNN could put the proposed deal in jeopardy.[2] After all, the President appears to have a revenge fantasy in which he beats up CNN, or “#FraudNewsCNN,” at a wrestling match. [3] Speculation abounded that DOJ was pressuring Time Warner to offload CNN as a condition of the merger’s approval.[4] After DOJ sued, speculation continued: if anti-CNN animus motivated DOJ’s lawsuit, was it violating the First Amendment?[5] What other explanation could there be for DOJ’s choice to block a vertical merger for the first time since 1972?[6]

The fire and fury surrounding the deal has drawn attention away from the substance of DOJ’s antitrust case. AT&T announced its plan to acquire Time Warner back in 2016,[7] long before President Trump appointed a new head of the Antitrust Division in late September, 2017.[8] The case has real merit and creates the potential for a new antitrust strategy that keeps competition fair in the video distribution market.


If AT&T and Time Warner merge, it would consolidate three layers of the television broadcasting supply chain: video production, programming, and distribution.[9] Popular television typically travel through each of these layers. First, studios like Warner Bros. create the show. Programmers, like Turner Broadcasting, then purchase the right to include the show on a network, like TNT or the CW.[10] Distributors, like AT&T and DirecTV, purchase the right to include networks in packages they sell to consumers.[11] AT&T owns DirecTV, making it the nation’s largest multichannel video programming distributor (MVPD) with over 25 million subscribers.[12] Time Warner owns Warner Bros., Turner, and HBO. Turner owns some of the most popular television networks, including CNN, Cartoon Network, TNT, and extensive live sports programming. These networks reach more than 91 million out of the 100 million households that pay for traditional subscription television.[13] Figure 1 depicts these relationships.[14]

Figure 1

Newer forms of video distribution, through on-demand video services like Netflix and Amazon, have disrupted the traditional subscription-based television market.[15] AT&T argues that a merger is necessary to compete against these new forms of video broadcasting.[16] However, MVPDs still dominate because they provide the only way to access popular programming, especially live sports.[17] Contrary to AT&T’s assertions,[18] both it and Time Warner have significant market power: Time Warner owns the most profitable film studio and AT&T has the most subscribers of any MVPD.[19]


The Clayton Act allows DOJ to sue in court to block mergers when “the effect of such acquisition may be substantially to lessen competition, or to tend to create a monopoly.”[20] Because the goal of antitrust law is to prevent anticompetitive effects of mergers before those effects are realized,[21] DOJ need only show a probability that the merger would substantially lessen competition.[22] The Clayton Act applies to all mergers, but mergers between two direct competitors—that is, horizontal mergers—are more likely to lessen competition because they eliminate a direct market competitor.[23]

Vertical mergers, which involve firms that do not directly compete, can still lessen competition through market foreclosure by creating price and supply squeezes and by increasing barriers to entry.[24] Foreclosure occurs when a supplier firm chooses to only sell to its affiliated customer firm, thereby preventing downstream competitors from acquiring its goods.[25] Related to foreclosure, a supply squeeze occurs when a competitor firm refuses to compete with a vertically integrated firm because it fears that it will be foreclosed from the market.[26] For example, if a distributor lowers its prices to attract DirecTV customers in a particular geographic area, AT&T-Time Warner could decide to stop allowing that distributor to broadcast HBO programs. A vertically integrated firm can also cause a price squeeze by charging arbitrarily high prices for an in-demand product, a cost which the competitor must then pass along to its consumers.[27] A vertical merger can also raise barriers to entry by making it more difficult for new competitors to enter the market.[28]


To block the merger, DOJ will need to show how the unique conditions of the MVPD market, combined with the market power of AT&T-Time Warner, make this merger anticompetitive.

A. Foreclosure

To win its case, DOJ will need to convince the court of its foreclosure theory. This theory is viable because of the unique demand for programming only available on HBO and the Turner networks. As Jeffrey A. Eisenach and Timothy Watts have described, AT&T-Time Warner will have the ability and incentive to foreclose competitors.[29] Analyzing an example from the premium channels sector, Eisenach and Watts explain how AT&T could refuse to carry Starz, a premium cable network that competes with HBO.[30] AT&T would lose some revenue by ceasing to carry Starz, but it could easily make up for that lost revenue by charging higher prices for HBO or increasing subscribership to Cinemax, HBO’s companion channel.[31] This would significantly harm Starz for two reasons. First, AT&T has substantial market power, and Starz would not be able to access the 25 million AT&T/DirecTV subscribers.[32] Second, AT&T/DirectTV subscribers would be highly unlikely to switch to a different MVPD just to get access to Starz.[33]

Foreclosure is more than a theoretical concern here[34]: the government has already needed to address foreclosure risks in the MVPD market. When Comcast merged with NBC Universal, the Federal Communications Commission (FCC) found significant risk that the new entity would engage “in foreclosure strategies” against competitors.[35] FCC only permitted the merger after imposing behavioral remedies that would prevent foreclosure.[36] With the distribution power of AT&T/DirecTV and the content power of Turner, HBO, and Warner Bros., the risk of foreclosure is similarly high should this merger proceed.[37] Rather than prohibit foreclosure through regulatory frameworks, like FCC did with the Comcast-NBC merger, the new head of the DOJ’s antitrust division would prefer to simply block the merger altogether.[38]

B. Price & Supply Squeezes

In addition to threatening a “black-out” of rival networks by refusing to contract with them altogether, AT&T-Time Warner could use its market power to force competitors to raise prices. For example, it could prevent competitor distributors, such as Comcast or Amazon Prime, from broadcasting HBO shows. This “supply squeeze” could lead to more consumers switching from these other distributors to AT&T/DirecTV just to get HBO. Similarly, HBO could charge arbitrarily high fees to its competitors for them to air HBO programs while favoring AT&T/DirecTV, creating a “price squeeze.” By granting this “most favored nation” status to its own subsidiaries, the merged entity could give competitors a tough choice: either lose customers by dropping HBO or raise customer prices (and thereby lose customers) in order to keep HBO.

C. Raising Barriers to Entry

By merging, AT&T-Time Warner can reduce costs and create efficiencies by favoring its own subsidiaries in video creation and delivery. The new firm could create its own content through Warner Bros., program that content on networks like TNT or TBS, and then distribute those networks on DirecTV. For a new firm to effectively compete with that model, it would need low fees to gain any significant market share.[39] However, a new cable or satellite provider is unlikely to emerge, given the high infrastructure costs for those enterprises. Web-based streaming platforms would also struggle to enter this market because they could not offer premium content locked down by AT&T-Time Warner. A new competitor would need sufficient capital to create its own content from a studio and broadcast it to consumers. The cable broadcasting industry has notoriously high barriers to entry already,[40] and this merger would only increase those barriers.[41]

D. Pro-Competitive Effects?

AT&T argues that its proposed acquisition of Time Warner is pro-competitive,[42] and will help AT&T compete in an age of new online competition. AT&T points out that Google recently launched YouTube TV as evidence of AT&T’s lack of market power.[43] However, the Supreme Court has found that pro-competitive effects are not a defense to an antitrust action: “a merger . . . is not saved because, on some ultimate reckoning of social or economic debits and credits, it may be deemed beneficial.”[44] Any potential pro-competitive effects, what AT&T calls “natural synergies of vertical integration,”[45] are simply irrelevant to an action under the Clayton Act.


The DOJ case against AT&T has more merit than the political drama between the President and CNN would suggest. Even if the career officials at DOJ only blocked this merger because the President sought revenge on CNN,[46] the merger has a high potential to reduce competition. Blocking the merger is in the best interests of consumers and a competitive video market.

  1. William Shakespeare, Hamlet act 2, sc. 2.
  2. See, e.g., Michael Calderone, Senator Asks Attorney General for Any Evidence Trump Meddled in CNN Deal, HuffPost (July 7, 2017), https://www.huffingtonpost.com/entry/trump-time-warner-cnn-deal_us_595fc02ae4b02e9bdb0c4e20; Brian Fung, Here’s Why AT&T and the Justice Department Are at Odds over Time Warner, Wash. Post (Nov. 13, 2017), https://www.washingtonpost.com/news/the-switch/wp/2017/11/13/heres-why-att-and-the-justice-department-are-at-odds-over-time-warner/?utm_term=.9fb9aa313424; Michael M. Grynbaum, The Network Against the Leader of the Free World, N.Y. Times (July 5, 2017), https://www.nytimes.com/2017/07/05/business/media/jeffrey-zucker-cnn-trump.html; Bryan Logan, Trump’s Disdain for CNN Reportedly Seen as ‘Wild Card’ Amid Pending $85 Billion Time Warner-AT&T Merger, Bus. Insider (July 6, 2017), http://www.businessinsider.com/trump-vs-cnn-time-warner-att-merger-2017-7; Amol Sharma, Snag in Media Merger Stirs Tensions over Trump-CNN Feud, Wall St. J. (Nov. 10, 2017), https://www.wsj.com/articles/snag-in-media-merger-stirs-tensions-over-trump-cnn-feud-1510354324.
  3. Donald J. Trump (@realdonaldtrump), Twitter (July 2, 2017, 6:21 AM), https://twitter.com/realdonaldtrump/status/881503147168071680?lang=en (tweeting a video that depicts the President physically assaulting a person with the CNN logo for a head).
  4. Hal Singer, Spite Doesn’t Make Right: The DOJ’s Revenge Case to Force a CNN Spinoff, Forbes (Nov. 10, 2017), https://www.forbes.com/sites/washingtonbytes/2017/11/10/spite-doesnt-make-right-the-dojs-revenge-case-to-force-a-cnn-spinoff/ – 4b9bdea2647d.
  5. Mark Joseph Stern, Nice Merger You Got There. Shame If Something Happened to It, Slate (Nov. 21, 2017), http://www.slate.com/articles/news_and_politics/jurisprudence/2017/11/the_first_amendment_case_for_the_at_t_time_warner_merger.html.
  6. The last time the DOJ blocked a vertical merger in court was in Ford Motor Co. v. United States, 405 U.S. 562 (1972), a fact AT&T has focused on. See DOJ: Vertical Merger Precedent, AT&T, https://about.att.com/content/dam/sitesdocs/AT%26T_TimeWarner/FINAL DOJ Merger Precedent One Pager 11.19 3pmET.PDF (last visited Jan. 31, 2018). However, this statistic is somewhat misleading because other government agencies have extracted behavioral remedies from merging entities to alleviate antitrust concerns. See, e.g., Joel Rose, Comcast Wins FCC Approval for NBC Merger, NPR (Jan. 18, 2011), https://www.npr.org/2011/01/18/133029202/Comcast-Wins-FCC-Approval-For-NBC-Merger (describing how the deal was approved with specific conditions).
  7. Alina Selyukh, The AT&T-Time Warner Merger: What Are the Pros and Cons for Consumers?, NPR (Oct. 25, 2016), https://www.npr.org/sections/alltechconsidered/2016/10/25/499185907/the-at-t-time-warner-merger-what-are-the-pros-and-cons-for-consumers.
  8. On September 27, 2017, the Senate confirmed Makan Delrahim as the new head of DOJ’s Antitrust Division, 73 to 21. US Senate Confirms Delrahim to Head Justice Department’s Antitrust Division, Reuters (Sept. 27, 2017), https://www.reuters.com/article/usa-congress-delrahim/us-senate-confirms-delrahim-to-head-justice-departments-antitrust-division-idUSL2N1M82H5.
  9. Complaint at ¶ 11, United States v. AT&T, Inc., 2017 WL 5564815 (D.D.C. Nov. 20, 2017) (No. 1:17-cv-02511).
  10. Id.
  11. Id.
  12. Id. ¶ 21.
  13. Id. ¶ 24.
  14. Figure 1 is a graphic depiction of the relationships described in id. ¶¶ 11, 20–26. Special thanks to Benjamin Olsen, M.Arch. Candidate at Yale School of Architecture, for designing the diagram.
  15. Harold Stark, Amazon Wants to Disrupt the Television Industry All Over Again, Forbes (July 13, 2017), https://www.forbes.com/forbes/welcome/?toURL=https://www.forbes.com/sites/haroldstark/2017/07/13/amazon-wants-to-disrupt-the-television-industry-all-over-again/.
  16. Answer ¶¶ 1–2, United States v. AT&T, 2017 WL 5761148 (D.D.C. Nov. 28, 2017) (No. 1:17-cv-02511).
  17. Complaint, supra note 9, ¶¶ 24, 35.
  18. Answer, supra note 16, ¶ 4.
  19. Jeffrey A. Eisenach & Timothy Watts, Effects of the AT&T-Time Warner Transaction on Competition in the Premium Channels Industry: White Paper for the U.S. Department of Justice, 3, 8 (2017), https://www.washingtonpost.com/blogs/the-switch/files/2017/11/NERA-ATT-TW-Study-Redacted.pdf.
  20. 15 U.S.C. § 18 (2016).
  21. Brown Shoe Co. v. United States, 370 U.S. 294, 317–18 (1962).
  22. Id. at 328.
  23. See Fruehauf Corp. v. FTC, 603 F.2d 345, 351 (2d Cir. 1979) (explaining that vertical mergers do not eliminate a competing buyer or seller from the market and are not automatically anticompetitive like horizontal mergers).
  24. Brown Shoe Co., 370 U.S. at 323–24 (“The primary vice of a vertical merger or other arrangement tying a customer to a supplier is that, by foreclosing the competitors of either party from a segment of the market otherwise open to them, the arrangement may act as a clog on competition . . . which deprives rivals of a fair opportunity to compete.”) (internal quotations omitted).
  25. Id.
  26. See United States v. Bethlehem Steel Corp., 168 F. Supp. 576, 612–13 (S.D.N.Y. 1958).
  27. See id.
  28. U.S. Steel Corp. v. FTC, 426 F.2d 592, 604 (6th Cir. 1970).
  29. See Eisenach & Watts, supra note 19, at 19–20.
  30. Id.
  31. Id. at 22.
  32. Id. at 20.
  33. Id.
  34. But see Larry Downes, Why Mergers Like the AT&T-Time Warner Deal Should Go Through, Harv. Bus. Rev. (Nov. 16, 2017), https://hbr.org/2017/11/why-mergers-like-the-att-time-warner-deal-should-go-through (articulating a Chicago-school theory that rational economic actors, like AT&T, would not engage in foreclosure because it would hurt their bottom line).
  35. Memorandum Opinion & Order, In re Applications of Comcast Corp., General Elec. Co. and NBC Universal, Inc., 26 FCC Rcd. 4238, 4284–85 (2011), https://apps.fcc.gov/edocs_public/attachmatch/FCC-11-4A1.pdf.
  36. Eisenach & Watts, supra note 19, at 20. Senator Richard Blumenthal of Connecticut and FCC commissioner Mignon Clyburn have recently argued that the behavioral remedies secured in the FCC’s approval of the Comcast-NBC merger should be extended. See Richard Blumenthal & Mignon Clyburn, It’s Too Soon to Unleash Comcast, Bloomberg (Feb. 5, 2018), https://www.bloomberg.com/view/articles/2018-02-05/it-s-too-soon-to-unleash-comcast.
  37. AT&T appears to agree to stipulate that it won’t foreclose any competitors in its Answer. See Answer, supra note 16, ¶ 8. However, it appears to have had little effect because settlement talks between DOJ and AT&T failed. Dawn C. Chmielewski, AT&T, Justice Department Settlement Talks over Time Warner Deal Fail, Deadline (Dec. 15, 2017), http://deadline.com/2017/12/att-justice-department-settlement-talks-fail-1202228185/.
  38. Interestingly, the new head DOJ’s antitrust divison, Makan Delrahim, described this approach to antitrust as a more market friendly solution. Questioning the effectiveness of imposing behavioral remedies, like DOJ did with the Comcast-NBC merger, Delrahim has argued that such remedies require the ongoing regulation of private entities. Rather than focusing on maximizing profits, merged entities that must comply with behavioral remedies must deal with long-term government oversight. By simply blocking a merger that will have anti-competitive effects, the government can avoid expensive and long-lasting oversight. See Makan Delrahim, Assistant Attorney General, Dep’t of Justice Antitrust Div., Address at American Bar Association’s Antitrust Fall Forum (Nov. 16, 2017), https://www.justice.gov/opa/speech/assistant-attorney-general-makan-delrahim-delivers-keynote-address-american-bar.
  39. Ali Yurukoglu, Challenges Faced by Multichannel Video Programming Distributors, at 6 (Mar. 11, 2016) (unpublished presentation for Public Workshop on the State of the Video Marketplace at FCC), https://pdfs.semanticscholar.org/91ab/c8744e16bb203b47c47c951f93897295d023.pdf.
  40. See, e.g., Complaint at 8–9, In re Time Warner et al., Dkt. No. C-3709 (FTC 1997), https://www.ftc.gov/enforcement/cases-proceedings/9610004/time-warner-inc-turner-broadcasting-system-inc-tele.
  41. Complaint, supra note 9, ¶ 41.
  42. Answer, supra note 16, ¶ 6.
  43. Id. ¶ 5.
  44. United States v. Phila. Nat’l Bank, 374 U.S. 321, 371 (1963).
  45. Answer, supra note 16, ¶ 6.
  46. If the suit is a strategy to exact revenge on one of the President’s “many enemies,” it seems like a foolish way to do it—there is no evidence that blocking the merger will harm CNN. Donald J. Trump (@realdonaldtrump), Twitter (Dec. 31, 2016, 5:17 AM), https://twitter.com/realdonaldtrump/status/815185071317676033?lang=en.