Let’s read 170 pages of dunking on Professor Carl Shapiro together
Jun 15, 2018, 8:47 PM UTCAT&T and Time Warner won a historic court victory this week, convincing Judge Richard Leon in the US District Court for the District of Columbia that they should be able to merge over the antitrust objections of the Department of Justice. The deal, now finalized, combines one of the world’s largest telecom carriers with one of the world’s largest media organizations.
Then the government’s own expert witness bafflingly cuts down his side’s arguments repeatedly, claiming the merger will save AT&T customers hundreds of millions of dollars. And from the jump, it’s pretty clear Judge Leon thinks AT&T’s ideas about the future of content are pretty good, while the DOJ’s complaints about antitrust are pretty boring.
Tech companies might have vertically integrated the creation and production of content with consumer-facing apps and services, but they all depend on internet connections to reach their audiences. And those connections are increasingly wireless. AT&T and Time Warner aren’t trying to catch up to Netflix by merging; they’re trying to step ahead of them in line by marrying Time Warner’s content to AT&T’s network.So, right away, Judge Leon has conflated internetlike AT&T.
The Department of Justice relied heavily on one expert in making its case: Professor Carl Shapiro, an economics professor at the University of California, Berkeley. It’s pretty clear Judge Leon doesn’t think much of Professor Shapiro; two separate sections of the opinion are specifically dedicated to tearing apart his arguments. But it’s also incredible that Shapiro gave AT&T the absoluteto AT&T customers.
Leon spends several pages describing the difference between traditional cable, “virtual” cable services like DirecTV Now, and subscription services on demand like Netflix. But at the end, read his discussion about why services like Netflix have thrived, and see if you can spot the same error yet again.
to the extent SVODs incorporate advertising into their platforms, data allows those ads to be more targeted and thus more lucrative. , “because it means that ‘the financial support for all this programming on all these different channels gets pushed over toward subscription prices. And that’s a problem, because we think consumers are up to here with subscription prices.”
And how has Turner tried to solve this problem? “In an effort to break out of its ‘trapped wholesaler’ role, Turner has made recent efforts to launch its own direct-to-consumer content offerings. The most notable of those offerings are FilmStruck, Boomerang, and Bleacher Report Live.” In each case, the end-customer accesses HBO by way of a distributor — even for HBO Now, which is sold by digital distributors like Apple and Amazon.
Look, I don’t know Carl Shapiro, but I am very curious if he has ever once in his life experienced a cable bill goingAnyway, did AT&T offer any innovative new ideas at trial about what they’d do to compete better with Netflix after they buy Time Warner? At the same time, new, tailored forms of mobile content delivery — like the CNN clips teased above — will create additional advertising opportunities.To sum it up, in the words of AT&T Chairman and CEO Randall Stephenson, defendants view the proposed merger as a “vision deal.”We can pick up again with the judge noting that this is a “vertical” merger as opposed to a “horizontal” deal. In a horizontal deal, one competitor buys another and increases overall market power.
the Government’s chief economic expert, Professor Shapiro, predicts that the merger, if consummated, would lead to $352 million in annual cost savings on the part of AT&T’s customers.
According to the Government, the challenged merger would give AT&T the “ability to harm competition by slowing the growth of emerging, innovative online distributors” — that is, virtual MVPDs. AT&T could do so, the Government asserts, either acting on its own or in coordination with Comcast- NBCU . Defendants counter that the evidence does not support the Government’s virtual MVPD theories.
Here is where it’s pretty clear the DOJ made a bad case. AT&T and Time Warner don’t harm Sling or YouTube TV by withholding CNN and other channels. It can license the channels, collect the fees, and still prioritize DirecTV on the AT&T network and excuse it from data caps. But this argument does not appear to have been made.
Unfortunately for the Government, however, neither that expert testimony nor its other evidence is even close to sufficient to support its coordination claim.When questioned at trial about the Government’s coordinated effects theory, Professor Shapiro conceded that he had no “way of accessing [sic] the probability” of coordination and thus had not attempted to “quantify any risk whatsoever” that the predicted coordination “could occur.
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