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How the AT&T and Time Warner deal might affect Minnesotans

AT&T wants to pay $85.4 billion for Time Warner. Could this mean higher prices for Minnesota cable customers?
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Time Warner's content arm owns HBO, CNN, Warner Bros. Studios, Turner Sports, and whole lot of other assets.

AT&T wants to buy that content arm, and on Saturday announced it had agreed to purchase it for $85.4 billion.

The deal prompted immediate responses from officials, including Sen. Al Franken. Franken said the deal raises "immediate flags" about media consolidation, rising prices and restricted choice for consumers.

GoMN spoke to two experts about how this could affect Minnesotans:

  • Ellen Mrja, associate professor in the Minnesota State University-Mankato Department of Mass Media
  • Christopher Terry, associate professor of the University of Minnesota's School of Journalism and Mass Communication

Here's what they had to say.

What's being sold, exactly?

Mrja describes the deal as a "vertical merger" – meaning a merge of two companies that don't make the same product, but which buy and sell services to each other. She likened it to a fruit and vegetable grower merging with the company that delivers it to grocer

AT&T owns the infrastructure that allows it to sell internet, phone and cable bundles to American households. Time Warner owns companies that produce content that is sent over those lines, and into our living rooms (or sparsely decorated apartments).

Higher cable and internet prices?

Terry predicts that with AT&T taking on a significant amount of debt to push through the purchase, the company would immediately try to claw some money back. It could do that by making rival cable companies, such as Comcast, pay more to have access to channels like HBO, CNN and TBS.

If Comcast, the dominant cable provider in Minnesota, wants to keep these channels in its TV bundles, it could have to pay more. Terry predicts this could mean price hikes get implemented almost immediately by Comcast and others, to offset those costs.

"I cannot see a way in which prices do not rise. They are putting so much money on the table," he told GoMN. "Comcast has to absorb the cost of higher-priced content, with channels like HBO getting more expensive, and I think they'd be very likely to pass that cost on to consumers."

He added that rural Minnesota providers like Frontier would be similarly impacted.

"The debt load is amazing," Terry said, "and the content they [AT&T] are buying is worth a fortune. But they will have an immediate need for cash to pay for this deal. We probably won't see the effects until next year, but when they come, they'll be fairly dramatic."

Possible benefits: The end of cable bundles?

The Los Angeles Times argued the immediate skepticism over the deal may overlook the possible benefits.

The newspaper said the FCC could implement a series of stipulations about pricing for competing channels and broadband internet on AT&T, much like it did when Comcast completed a similar deal to buy NBC Universal in 2009.

In this instance, the Times argues the FCC should insist that AT&T offer "smaller, reasonably priced programming packages" – and even break off popular channels on an "a la carte" basis.

So rather than paying for a whole cable bundle of channels you mostly don't watch, consumers would be able to pick and choose from a suite of individual channels they watch the most often.

The Verge agrees, saying the two companies could work together "building a streaming video service that offers an alternative to traditional cable packages."

Next month it is launching DirecTV Now, an online-only service offering a slimmed-down version of traditional cable channel bundles.

This could be a sign of AT&T's intentions going forward, which if the deal goes through would be backed by a company like Time Warner – which has a huge content library.

The Verge wrote: "For consumers, that would mean that instead of paying $14.99 a month for HBO Now or about $16 a month for NBA League Pass, they might get HBO, basketball from TNT, news from CNN, and a library of films from Warner Bros. for a single monthly fee."

The impact on competition

Mrja said mergers like this are designed to improve efficiency between the companies, but argues that it makes it very difficult for competitors to enter the market. That's because under this deal, AT&T would have control of both infrastructure and content (the veggie growing and delivery).

She contended that having content providers under the umbrella of a major cable and internet provider like AT&T "would make it extremely difficult for any small cable system to have its products picked up."

"Goodbye, competition," she said.But competition in the television market is increasingly coming from online streaming upstarts like Netflix, Hulu and Amazon Prime which, although they still buy a lot of shows from traditional TV channels, are ramping up their original content.

Billionaire businessman Mark Cuban told Fortune that the AT&T/Time Warner deal could actually increase competition – in the online sphere at least – as it would give Time Warner the opportunity to boost its online presence and digital content

So will it go through?

Again, much of the immediate reaction to AT&T's proposed merger was that the deal would be blocked much in the same way Comcast's attempt to buy Time Warner was last year.

But there's a difference in opinion between the two Minnesota media experts we spoke to.

One thing to clarify is that AT&T is not buying the Time Warner Cable – the pay-TV and internet service Comcast tried unsuccessfully to scoop up. Time Warner Cable has since been bought out by Charter Communications.

Mrja, who said she knows of "no other media merger even close to this in scope or cost," notes that Time Warner's stock price has dropped below the price AT&T is offering since the announcement was made. In English: It's a sign that investors believe AT&T will have to "jump through a number of high regulatory hoops" placed by federal officials.

"If I had to guess, this merger will not be approved. Even if it's approved, the merger might end up going before what looks to be a Liberal U.S. Supreme Court," she said.

But Terry suggested there are significant differences between the Comcast deal and AT&T deal.

Comcast's purchase of Time Warner's content and cable arms would have resulted in it being in 40 percent of American homes, he said. AT&T however is buying only the content – not the infrastructure.

"What Comcast tried to do was buy up cable franchises and the content. That would have given it insurmountable market power," he said. "AT&T is trying to get onto a comparable level to Comcast, so it will be harder for the regulatory bodies to torpedo this deal."

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