Key Points from U.S. Senate Hearing on AT&T-Time Warner Merger
By SBE Council at 7 December, 2016, 11:36 pm
INNOVATION AND COMPETITION IS THRIVING
by Raymond J. Keating-
On December 7, the U.S. Senate Judiciary Committee’s Subcommittee on Antitrust, Competition Policy & Consumer Rights held a hearing looking at the competitive impact of AT&T acquiring Time Warner.
A Review: The Benefits
In a November 3 analysis, SBE Council explained the potential benefits for small businesses from the completion of this deal, namely, enhancing incentives for investment and innovation, expanded opportunities for content providers, more competition and choices in terms of advertising, and additional benefits as content consumers and network users.
It also was noted in that piece how the market is changing in an exciting way, with larger businesses increasingly working to better serve entrepreneurs and small businesses: “Finally, it’s worth keeping in mind how much technological advancements have changed the way things work in the marketplace. Not long ago, the assumption was that it was big business that mattered most, and small businesses popped up around those larger firms. Does that still happen? Of course it does. But on the cutting edges of our economy, many of the best of the big firms also are trying to figure out how they can better serve the entrepreneurs and small businesses that drive our economy forward. This proposed deal between AT&T and Time Warner fits this new, emerging paradigm.”
At the hearing, key witnesses touched on important points that reflect the reality of the marketplace, and must be kept in mind as this merger gets debated in political and policy circles.
Randall Stephenson, AT&T CEO and President, pointed out that innovation by one leads to innovation by all. As stated in his written testimony, “We will offer more competitive packages that give consumers more of what they want. Big cable companies will have no choice but to respond in kind or with innovations of their own. We welcome that competition because it makes us try harder and to come up with even better, more innovative options.”
Jeff Bewkes, CEO and President of Time Warner, also spoke about the merged entity accelerating innovation in video services and improving customer affordability. In his written testimony, for example, he remarked:
“We believe that combining Time Warner’s ability to create great video content with AT&T’s physical distribution in satellite, broadband, and mobile, will help us bring consumers more choices in how they enjoy their favorite TV shows, films, video games, and other content from Time Warner and a vast array of other creators – and do so more quickly. By joining forces, we will accelerate the development and delivery of the next generation of video services that provide consumers with greater choice, convenience, value, and affordability.”
Bewkes later added: “But what has become increasingly clear to us is that, in this rapidly evolving world where we are competing for consumers’ attention with all forms of video content – not just other television networks, but subscription-based services like Netflix, Amazon, and Hulu, and ad-based video on YouTube and Facebook, not to mention emerging virtual reality – it is not enough to deliver great content. You must also deliver great consumer experiences. That means providing video content, on demand, on multiple devices, with great interfaces and, increasingly, in an interactive environment. And, importantly, you need to continuously improve the experiences you’re offering consumers.”
Those comments pointed to an observation about the market by another panelist, Mark Cuban, tech entrepreneur, investor, owner of the Dallas Mavericks, and one of the sharks on ABC’s Shark Tank. Cuban noted that AT&T and Time Warner, even as a merged entity, cannot be categorized as a big, dominant player in the market, but rather that the merged entity would be in a better position to compete against the big boys, like Google, Facebook and Apple.
In his written testimony, Cuban zeroed in on the dynamism of this market:
TV is experiencing a declining share of content consumption. It is losing viewers to the other dominant content players in Netflix, Amazon with Prime, Twitch (an acquired property), Apple with Music (Beats is an acquired property), and finally Google with YouTube (an acquired property), and the ultimate programming guide, Search.
Given our time constraints, I will pick another time to discuss the impact of having only 2 companies, Google and Apple that act as the sole gatekeepers to the app ecosystem.
You may have noticed I have not mentioned AT&T or Time Warner yet, because neither is in any sort of dominant position. By themselves, ATT & Time Warner will have a very difficult time controlling their own destinies, let alone trying to exert influence on a market.
This merger is not only one of survival and opportunity, but one that is needed by consumers.
We need more companies that with the ability to compete with Apple, Google, Microsoft, Amazon and Facebook. Delivering content to consumers in this app driven world is not easy, it is very expensive and difficult.
Apple, Google, Amazon, MicroSoft, and Facebook are 5 of the 7 most valuable companies by market cap in the world. All have established their dominant positions in the app and content worlds by making important, strategic content acquisitions.
That is exactly what the Time Warner acquisition is for AT&T, an important, strategic content acquisition.
Alone, it will be very difficult, if not impossible for either AT&T or Time Warner to compete with any of the companies I’ve mentioned. Together it will still be difficult, but a combined entity at least gives them a chance to battle the dominant players in the market place and increase consumer choice and competition for consumer attention.
Who Wields the Power in the Marketplace?
Despite the misguided assumptions and assertions of Progressives and populists, so-called big business does not wield great power. That’s especially the case today. In fact, it’s the exact opposite.
The consumer wields the ultimate power in the marketplace. That reality was clear at the Senate hearing, not by what was said by the elected officials or by the other panelists, but by what was said time and again by Stephenson, Bewkes and Cuban. If one was listening, the message was unmistakable: We have to invest, innovate and compete in order to meet the demands of consumers, and to offer those consumers new services. Indeed, that’s what businesses of all types and sizes – from the startup to the long-established firm – must do in order to survive and thrive.
Indeed, given the realities of this market, the very idea that this agreement for AT&T to acquire Time Warner warrants any kinds of serious antitrust review regulation makes no sense. Backward looking politicians and regulators should step away, and let consumers decide if this deal works or does not – just as consumers decide the ultimate fate of every new and existing business venture.
Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.
Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: The Role of Intellectual Property in Driving Entrepreneurship, Innovation and Investment and it is available free on SBE Council’s website here.