DOJ Set To Block AT&T Takeover Of Time Warner

Nov 8, 2017
Originally published on November 8, 2017 6:31 pm

The U.S. Justice Department has informed AT&T that it will block the telecommunications giant's planned $85 billion takeover of Time Warner unless it sells off CNN — a network frequently targeted for derision by President Trump. The move has therefore triggered concerns within CNN that the administration is taking action against a media outfit simply because it has angered the president with its coverage, raising First Amendment implications.

The government's stance seemingly flies in the face of decades of precedent: Federal authorities routinely approve deals involving so-called vertical integration — the consolidation of companies in related fields that are not competitors. And it contradicts the current federal antitrust chief's past statements a year ago after this deal was announced.

The government's position was first reported by the Financial Times. NPR confirmed the development in interviews with three people with knowledge of negotiations with the government who spoke on condition of anonymity because they were not authorized to speak about the deal. Justice Department antitrust officials offered AT&T a choice to keep the deal alive: Get rid of Time Warner's Turner Broadcasting division, which includes CNN, or dispose of DirecTV, AT&T's giant satellite television provider. But the sticking point appears to have been CNN, according to two informed sources at Turner Broadcasting.

"I am just frankly mystified by the rationale here," said University of Pennsylvania law professor Herbert Hovenkamp, a leading authority on antitrust issues. "You need to know where competitive harm is threatened. So far, I don't see it."

Trump previously indicated he might seek to thwart the AT&T-Time Warner deal over antitrust concerns. Yet Trump has been far more vocal about his anger at CNN — both as a candidate and as president. For example, earlier this year, at a formal press conference in Poland with that nation's president, Trump said, "They have been fake news for a long time. They have been covering me in a dishonest way."

As a result, within Time Warner, the Trump administration's stance is being seen as a direct strike against CNN. "There isn't any precedent," says one executive at Turner Broadcasting, the television subsidiary that would have to be sold off. "It's one thing to say, 'Fake news'! It's another to reverse governmental policy because you object to a company's journalism."

AT&T Chairman and CEO Randall Stephenson said Wednesday the company never offered to sell CNN and has no intention of doing so to win approval of the Time Warner deal.

Without Turner Broadcasting, which includes such channels as TNT, TBS and the Cartoon Network, the deal would be a nonstarter; according to the company's 2016 annual report to shareholders, Turner Broadcasting contributed nearly 60 percent of Time Warner's profits. (Turner does not include HBO, Time Warner's premium cable channel.)

The Justice Department would not confirm its stance, saying it does not discuss matters under review. Federal regulators are separately reviewing Sinclair Broadcasting's proposed acquisition of Tribune Media, which would give it control of more than 200 stations nationally. And John Malone's Discovery Communications is in the process of acquiring Scripps Network Interactive Inc., which would combine two families of cable networks. Those deals are "horizontal integration" — the blending of competitors — which is usually given far rougher scrutiny. Yet the concessions demanded by the federal government for the AT&T package are significantly greater than those expected to face the Sinclair or Discovery deals. Indeed, the Federal Communications Commission changed regulations that make it easier to approve the deal for Sinclair, a conservative chain of local stations that has emerged with coverage and commentaries supportive of the president.

"The one reason that doesn't fly for blocking the deal is, 'Don't approve it because it's CNN, and CNN annoys the president,' " said Craig Aaron, president and CEO of the consumer advocacy group Free Press. "It's legitimate for the federal government to say this is just too big. The only question is: Is this legal reasoning? And I think there's an antitrust case to make there."

"If the reason that's coming down is, 'Punish CNN,' then that's a real problem," Aaron told NPR. "We don't really know, and because of everything Trump has said, you can't help but ask the question."

The head of the department's antitrust division is Makan Delrahim, who served as deputy to the antitrust chief under President George W. Bush. That Justice Department blocked a small number of horizontal integration deals blending competitors — such as the thwarted merger of US Airways and United. Republican administrations are typically even less willing to intervene in corporate actions.

In an interview with a Canadian television network when it was proposed, Delrahim discouraged talk that the AT&T-Time Warner deal would be a tough sell.

"Just the sheer size of it and the fact that it's media I think will get a lot of attention," Delrahim told BNN in October 2016. "However, I don't see this as a major antitrust problem."

AT&T has signaled that it intends to challenge the administration in court over the requirement.

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The Justice Department has told AT&T it will block AT&T's takeover of Time Warner unless the company sells off its TV properties, including CNN. President Trump of course is no fan of CNN. Here's what he said about CNN on a recent trip to Poland.


PRESIDENT DONALD TRUMP: They have been fake news for a long time. They've been covering me in a very dishonest way.

MCEVERS: And now there are questions about the role, if any, President Trump played in the Justice Department's decision. NPR media correspondent David Folkenflik is with us now from New York City. And David, what exactly does the government say are its objections to this AT&T-Time Warner deal?

DAVID FOLKENFLIK, BYLINE: Well, the government hasn't said anything publicly. It said today that it, you know, reviews such things privately and won't talk about it. But privately, it has spoken with AT&T executives and said that they'll have to either sell off Turner Broadcasting, which is the television division of Time Warner that includes CNN, TNT, TBS, Cartoon Network. I don't think there's too much concern about how many reruns they show of "Law & Order" but that they have to spin that off, or they have to sell off AT&T's satellite TV division, DirecTV. Both of these are major components of each of these two companies part of the - that are part of the merger.

MCEVERS: I mean, these are two huge companies - right? - one telecommunications platform. The other creates the content that people consume on these platforms. I mean, why wouldn't the government object to such a corporate consolidation?

FOLKENFLIK: Well, the government typically has great concerns about what's called horizontal integration - that is, two companies that do business in the same field. So US Air and United talked about merging, and that was blocked a little over a decade ago because it was too close. There was too much consolidation. In this instance, you've got something called horizontal integration. They might be - excuse me - vertical integration.

These companies might be involved in related fields, but they don't have any real areas of direct competition. And for about four decades - I talked to an expert - media executives - for four decades, basically the federal government has been hands-off. Republican administrations are usually exceptionally hands-off about such mergers. This really comes as a reversal of government policy.

MCEVERS: Well, since CNN, as we said, has been central to the discussion of this deal ever since the merger was proposed, what is the role of CNN here?

FOLKENFLIK: It's very hard to know, you know? There are people who are concerned about great consolidation in media generally. And yet the question of the motivations of the government are real as they have not yet set them out, the question of whether President Trump, who's shown himself, has even said publicly that when he took office, he thought he directly controlled the Justice Department, which typically operates with a strong degree of autonomy.

And obviously he's been willing to sort of publicly issue directives to the Justice Department about how he wants certain investigations of his own campaign's conduct to be investigated. It's hard to totally credit the idea that he wouldn't in some ways be involved here. But we don't know. And you know, his anger at CNN is palpable. He talks about it a lot. But we don't know what role that played.

MCEVERS: So what could happen next?

FOLKENFLIK: Well, this looks very much likely to be headed to court. The - Randall Stephenson, the CEO and chairman of AT&T, has said today he has no intentions of spinning off or selling off CNN to get approval of this deal, which is what the regulators, the Justice Department say would be required.

So what we're going to have to see if this goes forward is a challenge in court. And you're going to see government antitrust regulators have to lay out what their legal objections are on paper to this, you know, absent some sort of concrete reasons that just haven't been made public and that we don't know yet. The questions of government political interference, particularly by President Trump himself, loom very large.

MCEVERS: That's NPR media correspondent David Folkenflik from New York. Thanks so much.

FOLKENFLIK: You bet. Transcript provided by NPR, Copyright NPR.