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1 [1] (January 26, 2018)

handle is hein.crs/govcewx0001 and id is 1 raw text is: AT&T-Time Warner Merger Overview On October 22, 2016, AT&T Inc. and Time Warner Inc. announced that they had entered into an agreement under which AT&T will merge with Time Warner. As of September 30, 2017, the total transaction value was about $105.8 billion, including $84.5 billion for the purchase of Time Warner stock, and $21.3 billion for the assumption of Time Warner's debt. The U.S. Department of Justice (DOJ) filed a civil antitrust lawsuit in the U.S. District Court for the District of Columbia to block AT&T's proposed acquisition of Time Warner on November 20, 2017. The trial, overseen by U.S. District Judge Richard Leon, is set to begin on March 19, 2018. Judge Leon said the trial would last about three weeks. . o k_ , M-,,a -, AT&T is the largest U.S. multichannel video program distributor (MVPD). It provides programming to subscribers through three subscription services: (1) DIRECTV, a satellite-based service with 20.6 million subscribers, (2) U-Verse, a service that uses the AT&T fiber optic and copper infrastructure and has 3.7 million subscribers, and (3) DIRECTV NOW, an online video service with 787,000 subscribers. (Subscriber figures are as of June 30, 2017.) AT&T is also the second-largest wireless carrier in the United States, and has a substantial, although diminishing, wireline telephone business. Time Warner's three operating divisions, Home Box Office Inc., Turner, and Warner Bros. Entertainment, create television programs and movies as well as operate cable networks. The company sold its music division, Warner Music, in 2003; spun off its MVPD service, Time Warner Cable (now owned by Charter Communications Inc.), in 2009; and spun off publisher Time Inc. in 2014. The television industry is in the midst of structural changes driven by a combination of competitive pressures, technological developments, and consumer preferences. Time Warner is one of four major U.S. media conglomerates that own film studios, television studios, and cable networks. The others are Comcast, 21t Century Fox (Fox), and the Walt Disney Company (Disney). On December 14, 2017, Disney announced an agreement to purchase Fox's movie and television studios and several of its cable networks. Government approval of that transaction is pending. The conglomerates' studios license movies and television programs to cable networks, broadcast networks, MVPDs, and subscription video on demand (SVOD) services such as Netflix, Amazon Prime Video, and Hulu. The p\w -- , gnomgo mppm qq\ , q I as 11LIANJILiN, Updated January 26, 2018 conglomerates' cable networks license bundled packages of programs to MVPDs such as Comcast, Charter, DIRECTV, and DISH. Changes in the way consumers watch television are having profound effects on the television industry. Table 1 illustrates this trend. Growing numbers of households have dropped their MVPD service or chosen not to subscribe in the first place. Instead, many are subscribing to SVODs and/or other online video services, which, even after the cost of separately purchasing broadband service, can be less expensive. Table I. Television Distribution Sources (% of U.S. television households) 2014 2015 2016 2017 Broadcast only 10% 11% 12% 13% MVPD 88% 86% 85% 82% Broadband only 2% 3% 4% 5% Total number of 115.5 116.4 116.4 118.4 TV households million million million million Source: CRS analysis of data from the Nielsen Company. Notes: Television household estimates are as of January of each year. Distribution source estimates are as of the second quarter of each year. Consequently, MVPDs have lost subscribers. As subscriber numbers fall, networks such as Time Warner's HBO, TBS, and CNN earn less revenue from MVPDs, which pay them on a per-subscriber basis to carry their programming, and from advertisers, which pay them fees based on the number of viewers. To combat this trend, Time Warner has launched its own SVODs, including HBO Go and FilmStruck. It also has 10% ownership of Hulu. Moreover, several firms, including the parent companies of MVPDs, have launched or intend to launch virtual service providers (VSPs). VSPs deliver feeds of scheduled or linear packages of television programs at the same time as they air on cable or broadcast networks. Some may offer programming on an on-demand basis as well. They mimic traditional MVPD services, but are generally less expensive and do not require long term commitments. Table 2 describes these services. D 0 ' ....c w th M The Antitrust Division of the DOJ reviewed the transaction to determine whether it would substantially reduce competition, as prohibited by Section 7 of the Clayton Antitrust Act of 1914. DOJ sought to stop the transaction by requesting a preliminary injunction, claiming that the transaction would violate Section 7. K~:>