Why This $85 Billion Deal Really Matters
The last time Time Warner merged, it was with AOL. Back then, the only losers were the investors and stockholders. Is this deal any different?
AT&T’s proposed $85 billion acquisition of Time Warner would combine, under one roof, DirecTV, CNN, HBO and Warner Bros. Victor Pickard, associate professor of communication at the Annenberg School for Communication, thinks there is reason to worry. He tells WhoWhatWhy’s Jeff Schechtman that he thinks the merger would create a media behemoth with dangerous concentrations of political and economic power.
AT&T and Time Warner say they are simply competing with the merged Comcast/NBCUniversal and the proposed merger of Yahoo and Verizon. But how do these corporate consolidations actually affect the average viewer and the country as a whole?
With millennials “cutting the cord” to traditional cable offerings, with TV viewership in general down, is this deal just a fantasy of overpaid executives who don’t understand that greater consolidation will not solve their future problems?
We’ve already seen how mergers did not solve the problems of the radio business or the music business. Netflix has put pressure on cable providers. Amazon and Spotify have pretty much sounded the death knell in the music business.
Is the real problem that these giant media companies are not just getting bigger, but that they — and their thinking — are getting increasingly older?
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Full Text Transcript:
Jeff Schechtman: Welcome to Radio WhoWhatWhy. I’m Jeff Schechtman.
There’s no question that the media landscape is changing; just look at the degree to which Twitter or Facebook Live is being used in the 2016 campaign. Far less power is in the hands of traditional media. How many millennials, the largest demographic group we have, are getting their news from CNN? For millennials, cord cutting is the order of the day so unless they’re using their parent’s’ account, fewer and fewer are watching HBO and when they do, it’s usually on their phone. Given this trend beyond the deal itself, what are the specific questions raised by the proposed $85 billion merger of AT&T and Time Warner? We’re going to talk about that today with my guest Victor Pickard. He’s an associate professor for communications at the Annenberg School, he’s taught at NYU in the media, culture and communication department. Previously, he worked on media policy in Washington as a senior research fellow at the Media Reform Organization Free Press. He’s the author of numerous books and articles and scholarly journals, including America’s Battle for Media Democracy. It is my pleasure to welcome Victor Pikard to the program. Victor, thanks so much for joining us.
Victor Pikard: Thanks for having me, Jeff.
Jeff Schechtman: Is all this talk about this merger of AT&T and Time Warner, is it much ado about very little? I mean, we all remember all the hype that went into the deal when Time Warner and AOL merged, and we see how that worked out.
Victor Pikard: Yeah, that was somewhat disastrous. But I think this time, it is absolutely worth all of our concern and all the discussion that’s going on right now. It’s definitely a big deal.
Jeff Schechtman: When we look at it in the context of some of the other deals that we see happening; Comcast, NBC Universal, which already happened, Verizon buying AOL and trying to buy Yahoo now, how does it fit in into that overall landscape?
Victor Pikard: Well, it is a similar trend in that you’re seeing a lot of these big media mergers happening right now, definitely that’s the trajectory we’re on. It remains to be seen whether this will be some sort of test case where this trajectory might change, but we have to take into consideration that we’re talking about AT&T, which is the largest pay-TV operator in the US after it acquired DirectTV; it’s the second largest wireless data provider, and it’s the third largest broadband provider, and now it’s about to acquire one of the largest media companies, not only in the US but in the world. So that creates this powerful combination, and there’s all kinds of concerns that come up and some of them are more technical, some of them might have to do more with democracy concerns but it’s definitely worth all the attention it’s getting right now and I hope to see a lot more discussion about it.
Jeff Schechtman: To what extent is this deal different in any way, either substantively or in economic terms, from the Comcast NBC Universal deal that already happened and that the government allowed to happen?
Victor Pikard: Right. Well, that, I think, was a very important parallel to look at and, of course, that’s what’s being referred to often in today’s discussion because there again, you had what’s known as a vertical merger, vertical integration, where a large media distributor like Comcast purchases a large media creator like NBC. The theory is, at least in recent years, that because those two entities weren’t directly competing, then that’s okay; that passes regulatory muster. There might be a lot of merger conditions put onto it but generally that’s not seen as problematic as a horizontal merger, when two similar companies merge. But paradoxically, it’s exactly that kind of merger that raises all kinds of potentials for, you might say, perverse incentives, where the company that’s distributing the media will want to give its own media content preferential treatment. So this is why I think there is a lot of concern about it right now.
Jeff Schechtman: There is also the issue of competition though. If you’re going to allow Comcast NBC Universal, in a way the only way you’re going to get competition to that is by allowing something like AT&T Time Warner or Verizon Yahoo.
Victor Pikard: Yes, exactly. I mean that’s definitely one of the justifications, but I think what you’re also pointing to there is another danger, which is once you have one of these big mergers, it tends to set off a kind of arms race and can trigger other big mergers. So what we might see is an already highly concentrated media system becoming even more so and for many people, that’s a grounds for legitimate concern.
Jeff Schechtman: How does it relate to the needs that these companies have, given the changing media landscape as I talked about in the introduction? In many ways, they’re fighting a rearguard action against so many changes that are taking place in the media landscape, particularly among millennials.
Victor Pikard: Yes, I think that’s a very good point and as you know, people are increasingly getting their media via their cellular device. People are increasingly cutting the cord and in young people in particular, we’re seeing these changes in media consumption habits. So, you can understand why AT&T is trying to do this. It’s a rational move, but I think the question then becomes from the point of view of benefits to larger society, is this a good thing? That’s what I think we should be focusing on.
Jeff Schechtman: It’s interesting that if we look at the history of media consolidation and we were talking about AOL Time Warner before, but certainly in this business, in the radio business, we saw quite a number of years ago, huge consolidation take place where basically two or three companies controlled most of the radio stations in the country. That didn’t work out very well for them at all, partly because what it did is that it stymied, not encouraged innovation.
Victor Pikard: Yes, and that’s another recurring critique that you hear; that with this kind of concentration, you see less innovation, less choice for consumers, higher costs for consumers. We’ve been here before in different sectors, but also even going back to the Comcast NBC merger, we were supposed to see all kinds of consumer benefits arise from that and there’s very little evidence that suggests that actually panned out the way it was promised. I think you’re absolutely right, it’s important to look at our history, especially recent history, to get an idea of what could come out of this merger if it were to go through.
Jeff Schechtman: Talk a little bit about that, what history tells us in terms of what could be some of the downsides of a merger like this?
Victor Pikard: Well, I think one general lesson from history, whether we want to look at what happened, as you know in the early 2000s following the 1996 Telecommunications Act that allowed radio broadcasters to concentrate so much, there are often unintended consequences. In some cases, you might be even more cynical and say actually those were intended consequences, although they weren’t articulated as such at the time. But aside from just what we’ve already talked about, about how this could lead to tremendous concentration, often times in one way or another, these costs get passed on to consumers. I could think of two general reasons for that. One is that AT&T has to raise a lot of capital to afford this acquisition and therefore it is now under tremendous debt, so it has to find a way to offset that debt and one way is to try to pass it on to consumers in various manifestations. The other thing too, is that they might start charging other cable companies more for their programming and then in turn, indirectly those cable companies will now charge their consumers more. So you can see how, in one way or another it hits people in their pocketbooks and I think that’s what’s generating the most concern right now.
Jeff Schechtman: Except the other side of that, and you referred to this before as well, is that we’re seeing all this cord cutting go on and alternative ways for people to access even their favorite shows without needing AT&T or Comcast or anything else, and that if prices continue to rise, it’s only going to accelerate the cost cutting and drive profits down for the AT&Ts and Comcasts of the world.
Victor Pikard: That’s a potential. I think you’re right. I guess it’s almost a defensive measure, but they keep finding new ways to generate new revenues so I don’t think they’re hurting too bad financially in terms of finding ways to extract money from consumers. But you’re right; now they’ll only be able to realize TV everywhere and people are increasingly getting their media through different screens and platforms and there will be synergies from all this. I guess the question is, to whose benefit?
Jeff Schechtman: I mean when you see something like – and it’s really in its infancy right now – things like Facebook Live and some of the other innovations and some of the other experimentation going on in Silicon Valley, one wonders if it isn’t a very defensive move on the part of these companies.
Victor Pikard: I think it is. I mean it is always an overused term, there is always technological disruption happening. That disrupts markets and these companies have to adapt and react to it, but also what gets lost at least in the discourse around this is that there are still concerns – public interest concerns, concerns about how healthy is it for a democratic society if we have one company that owns so much of our media and information system.
Jeff Schechtman: Well, talk about that. What are the dangers from a democracy point of view, from a journalism point of view to a merger like AT&T Time Warner?
Victor Pikard: Yeah, so those are definitely interrelated. From a democracy point of view, I would say two reasons at least. One is that with this merger, AT&T would now own CNN. So when we’re talking about this merger, we’re talking about HBO and all the programming that they would get, our favorite shows, we’re thinking entertainment media, but also by acquiring CNN now they have a major news outlet under their control and that should raise the stakes. That should be part of our consideration here. But the other thing too is that whenever a corporate entity becomes so powerful, the larger it becomes, the more lobbying power it has, the more influence it may have over governance and regulation. There’s always concerns about regulatory capture going on, so I think those are two broad areas where I think democratic society should be concerned.
As far as journalism goes, now we’re talking about the broader context where increasingly, we’re seeing less and less journalism actually happening and it’s hard to see how this would help that in any way. If anything it’s going to increase the commercial pressures that are driving journalism into the ground in many ways.
Jeff Schechtman: I want to talk about the first part of that. People talk about concern about CNN being under this kind of control of a large corporation like this, but at the end of the day, CNN at its best, we’re only talking about 1.7 million viewers in a country of 125 million people.
Victor Pikard: That’s true. Market share audiences are becoming increasingly fragmented and I think it’s important to put that into perspective but at the same time, we need only to consider our recent election season to see what an outsize role CNN has played: Anderson Cooper. It definitely has a tremendous impact on our politics, on our political discourse throughout the country, so I think that has to be taken into consideration as well.
Jeff Schechtman: Do you think that we’re seeing, or beginning to see more and more disruption now in the journalism space, in the news space?
Victor Pikard: Oh, without a doubt. We’re seeing what many people are discussing as an implosion of the traditional business model for journalism, which was print-based newspapers relying on traditional advertising. As readers and advertisers migrate to the web, where you see pennies to the dollar that digital ads pay compared to traditional, dead-tree version of those advertisements. That just blows out the revenue model for professional journalism. And you do see news outlets scrambling. They’re trying to monetize their digital content, but thus far there’s very little evidence that they’re able to offset the losses they’ve experienced in recent years. They’ve lost 40% of their overall news staff just since 2007, so it’s pretty remarkable. Their advertising revenue has plummeted, circulation has plummeted, so there are some deep concerns for the state of American journalism.
Jeff Schechtman: Is it your sense, there’s been a lot of talk lately that it’s beginning, particularly in the revenue side and also the personnel side, in terms of the cuts happening, that it’s beginning to stabilize a little bit?
Victor Pikard: Not really. In the last couple of years there were some moments, I’ll give you just one general sense how this has been developing. The Pew Research Center puts out an annual report, “State of the News Media,” which is sort of the gold standard of the health of our news media industries. In recent years, they’ve really tried hard to find some positive aspect to what’s happening. A couple of years ago, they noted that there were about 5,000 new jobs in the digital journalism sector but that of course, didn’t offset the tens of thousands of jobs that had been lost but in this recent report, in their executive summary, they said that given all that’s happening right now, the industry may have reached a point of no return and for PEW Research Center to say that, I think speaks volumes. It’s pretty dire. Even digital advertising revenue, which is one of the few upticks, has started to plateau and in some cases, like for the New York Times, it’s even started to decline.
Jeff Schechtman: What we’re seeing though is a landscape that is changing really constantly. If we had had this conversation two years ago, one of the things people were talking about at that point is the degree to which television and cable numbers were going down but live programming, some news events, sports in particular was going up. Now we see that going in the opposite direction as well.
Victor Pikard: Yeah, I know it does fluctuate. The very moment we think we see a solid trend, suddenly it reverses. But unfortunately, one trend that has not been reversing is this decline in the traditional newspaper industry and that’s where still, even in its beleaguered state, that’s where most of our original reporting is coming from. Even when we watch cable news, most of that commentary is in one way or another being derived from the reporting being done at newspapers. Certainly when you look at the news that people are getting from Twitter, Facebook, we now know that most young people are getting their news from Facebook and most of that information is at least indirectly coming from newspapers. So that’s sort of the feeder for our news and information system, and if that feeder withers away, that’s very problematic.
Jeff Schechtman: And given that nobody has really figured out the economics of exactly what you’re saying, that people are consuming news, young people are consuming news on Facebook, but that it is in fact being fed by traditional media sources who are not really being compensated for the degree to which that’s appearing on Facebook and Twitter.
Victor Pikard: This is so true. I mean all of us, in one way or another, are kind of free riders. We are benefiting from this news production, but we’re not paying for its entire costs. Newspapers keep striking deals with Facebook, but Facebook and Google are reaping a huge majority of the digital advertising revenue and that’s expected to even increase. So the money that is – even these pennies to the dollar – … all the digital advertising revenue that’s being generated online is disproportionately going to those two entities: Google and Facebook. So you’re right, we don’t really have a model here. I try to be cautiously optimistic, regardless of what I’m looking at, and yet I’m having a hard time being optimistic about this one.
Jeff Schechtman: Given that there isn’t a model that really effectively compensates the sources of the news and information, whether it’s newspapers or whether it’s cable and television news, does that provide a kind of argument for these mergers in some way because they have to be defensive and they have to grow larger and be more vertically integrated in order to survive?
Victor Pikard: That certainly comes up sometimes. To give a more specific example, back in 2009 when the journalism crisis was first really blowing up and it was being accelerated by the financial collapse at that time, you had a lot of news media owners coming out saying we have to change media ownership laws now, we have to be able to merge and share content and coordinate on pricing, although they usually wouldn’t phrase it exactly like that, but pretty quickly, a lot of these plans were shot down on the basis that it would be a type of collusion that would not pass antitrust muster.
Jeff Schechtman: And do you think that that attitude has changed?
Victor Pikard: Well, we’re going to see. I mean that’s what everyone is asking right now about this AT&T Time Warner proposed merger. It was announced as a sort of fait accompli and it hasn’t even begun the regulatory review process yet. Most of that is going to be determined at the Justice Department based on these antitrust, anti-competition concerns. But the Federal Communications Commission will play an important role here as well. Initially, people weren’t quite sure how much the [Securities Exchange Commission] would get involved right now, it’s looking like they will and that really complicates things because the SEC has what’s called public interest considerations that it will apply to this merger. So it remains to be seen. I’m not sure if they’re going to be able to pass this.
Jeff Schechtman: It’s interesting to look at this, though, in the context of precedent because vertical mergers have really been pretty much allowed over the past several years, I mean that’s been policy for the Justice Department.
Victor Pikard: You’re absolutely right. That has been the trend but to complicate that narrative a little bit, after the Comcast NBC merger, where all these promises were made and there were various merger conditions that many people argue still have not truly been met, this helps bring down the proposed Time Warner Comcast merger just in the last year or two, so I think that things might be shifting there as well, that some of these concerns about potential hazards with vertical mergers might drive this in the other direction. Certainly the politics of this have changed on this. You see this with people like Donald Trump coming out dead-set against this merger.
Jeff Schechtman: What is the nexus between this discussion we’ve been having about these potential mergers and the whole net neutrality debate?
Victor Pikard: Yeah, well I think there are number of tie-ins there. One is that this merger would be a lot scarier if we didn’t have net neutrality because without net neutrality, AT&T would be able to slow down competitors programming, speed up HBO, Time Warner programming, have different costs for different types of content. But because there is net neutrality, they’re not able to do that. However, there are some clever ways to get around it and one concern right now is that AT&T would be able to basically allow Time Warner content to freely stream. So for example, HBO could stream without costing data caps, basically being free content, and that’s a kind of preferential treatment, and a lot of people say that that kind of move is actually anti-net neutrality. So that’s going to be a real debate. And one last thing that I’ll say about that is I lso think the recent net neutrality battle where you say four million people write letters to the SEC, shows that people are ready to engage around these kind of wonky technical issues. I don’t know if it’ll be as galvanized for this merger, but I think you’ll see a lot of grassroots activity around this.
Jeff Schechtman: It’s going to be interesting also, as you referred to before, the politics of it, how it’s going to play out post-election which is where this all will play out, in a new administration one way or the other.
Victor Pikard: Yes, you’re absolutely right. I mean that’s what it comes down to as well. A lot of this will be decided by what personnel are appointed at the Justice Department and the SEC, which the next president will have the power to do that. There will be congressional hearings and a lot of political posturing. So whoever takes the Senate and grabs the House, that will have some effect on the way this plays out, at least at the symbolic level, but the real decision will come down to those regulatory agencies, the Justice Department and the SEC.
Jeff Schechtman: Is it your sense the merger will get approved?
Victor Pikard: I have to say that right now, if I were to bet on it, I would say probably not. Now, most people are hedging their bets and saying 50/50. Maybe I should do that and play a little more safe but I just think the political winds are shifting dramatically on this. I think people have already been surprised just in the last few days about the universal condemnation of it, so we’ll see. It’ll be interesting. It’s going to take many months before it’s decided.
Jeff Schechtman: It’s also interesting to think about the timing of it. I mean obviously the CEOs and the boards of AT&T and Time Warner know what the political landscape is. They’re all people that are very plugged into the politics of the moment and this could have happened after the election, it could have happened after the New Year but it happened now. One wonders what they thought was advantageous, perhaps, about the timing before the election.
Victor Pikard: Yes, that’s a great question. I think it does suggest a real sense of confidence on their part. They also have something like a hundred million dollars riding on whether this goes through or not that they would lose if the merger fails. I think they vetted it carefully, they considered the political situation and they thought, I don’t know if they’re assuming it will be a Hillary Clinton administration but I think they were banking on the idea that it will be smooth sailing. And yet both political camps have come out against this to varying degrees. Leading politicians in both parties as well as obviously grassroots activists, public interest groups. So I’m not sure. This might have been a miscalculation on their part.
Jeff Schechtman: We’ll see. Victor Pikard, I thank you so much for spending time with us today here on Radio WhoWhatWhy.
Victor Pikard: My pleasure, Jeff, I enjoyed the conversation.
Jeff Schechtman: Thank you. Thank you for listening and joining us here on Radio WhoWhatWhy. I hope you join us next week for another Radio WhoWhatWhy podcast. I’m Jeff Schechtman.
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