A new twist has emerged in AT&T’s quest to acquire Time Warner: the revelation that the telecom giant paid President Trump’s personal lawyer Michael Cohen $200,000 for consulting services at the time the company was seeking regulatory approval for the merger.
Sometime within the next five weeks, a federal judge is expected to rule on the proposed $85.4 billion deal, one of the biggest proposed media tie-ups in U.S. history. The merger isn’t mammoth only in monetary terms: a combination of AT&T, the No. 2 wireless provider and owner of satellite TV provider DirecTV, with Time Warner, a content powerhouse including HBO and the Turner Networks including CNN, would transform the entertainment and streaming media landscape for years to come.
The drama has only heightened with news that AT&T paid Cohen, a development revealed late Tuesday in documents released by the attorney for Stormy Daniels, the porn star whom Cohen paid for her silence about a tryst Daniels said she had 12 years ago with Trump.
AT&T has confirmed that it paid Cohen for “insights into understanding the new administration.” However, the company said the contract ended in December 2017. That would be just weeks after the Justice Department in November 2017 sued to block the merger, which AT&T had announced in October 2016.
Of obvious concern to AT&T was the opposition to the merger from then-candidate and soon-to-be President Trump, who said at the time of the deal’s announcement that the combination would concentrate too much market power in a single company.
Trump’s animosity against Time Warner’s CNN is well-known, as he has repeatedly called the network “fake news.”
Prior to the DOJ’s case going to court in March, AT&T sought records to buttress a legal argument that the Trump administration’s opposition to the merger was politically motivated. But a judge denied the legal move.
A six-week trial ended April 30. Judge Richard Leon is expected to rule on the DOJ’s case against the merger by June 12.
Should the judge deny the merger or require AT&T to divest major assets such as DirecTV or Turner networks, which include CNN, AT&T likely plans to argue its merger was treated differently for political reasons.
But this revelation about the payment to Cohen could cause “AT&T to reconsider whether it wants to press that issue on appeal,” said Henry Su, a former Federal Trade Commission trial attorney who is now a partner at Constantine Cannon, an antitrust and litigation firm in Washington, D.C.
Whatever the outcome, consumers will be affected in some fashion, say observers. “AT&T is huge. They are a phone company. They are an ISP (Internet service provider) and they are also a satellite company,” said Jonathan Schwantes, senior policy counsel with Consumers Union. “So, they have all these ways to get into consumer’s homes. … When you combine content with a distribution network as big as AT&T’s, the concern for consumers is the potential for mischief is there.”
During the trial — and in post-trial documents filed this week—the Justice Department maintained that the merger increases the likelihood AT&T harms competition. A combined AT&T-Time Warner could withhold Turner networks or HBO from other pay TV services, demanding higher fees, which would lead to higher bills for consumers, the government argued.
“That was the major thrust of the government’s argument — that prices will go up,” Schwantes said.
AT&T countered that, with Time Warner in the fold, the buffed-up company could better compete in a transforming video delivery landscape with a growing roster of Internet video young guns such as Netflix, Amazon, Apple, Facebook and Google—all of which have their own content and connect directly with subscribers.
And the companies dismissed the U.S. government’s argument that the combined company would withhold from other pay TV services content such as premium channel HBO or popular networks such as TBS and TNT, which broadcasts much of the NCAA men’s basketball tournament.
AT&T is acquiring Time Warner to distribute its content, the companies said.
If AT&T-Time Warner succeed, what would the deal mean for consumers — from those who remain faithful to traditional pay-TV services to those who only stream their entertainment, and the growing number of cord-shavers and cord-cutters in between?
•Higher pay-TV prices? Experts disagree on whether prices will rise and for whom. The Justice Department suggested that the combined company would charge hundreds of millions of dollars more each year for Time Warner’s networks, thus increasing monthly bills across the pay-TV and streaming video ecosystem.
But the government could not rule out “the possibility that this merger would generate a zero-price effect,” said economist Hal Singer an adjunct professor at Georgetown’s McDonough School of Business.
Still, it just makes sense that consumers’ prices will go up, Consumers Union’s Schwantes says, and that could hurt the newest video players by causing potential cord cutters and cord shavers to say “why cut the cord when I may as well stick with my cable package.”
AT&T and Time Warner has agreed to not remove content from competing video providers and instead will join in “baseball-style” arbitration to solve such conflicts, Georgetown’s Singer says. “Consumers shouldn’t be worried if we get the protections in place,” he said.
•More consolidation. The merger is likely to lead to more deals, as well as a bidding war between Comcast and Disney, which in December 2017 made a $52.4 billion bid for Fox assets including the Fox movie and TV studios, Fox’s one-third stake in Hulu and Fox’s 22 regional sports networks.
“With Fox the last remaining global asset at scale on the media industry chessboard and a Disney/Fox combination posing real long-term risk to Comcast’s cable and film business, Comcast must bid aggressively,” Rich Greenfield, a media and technology analyst with financial services firm BTIG in New York said in a note to investors Wednesday.
Other smaller media consolidation deals could come to pass, too, he says. A “domino effect” is being caused by Netflix, Amazon, Facebook and Google’s growing video powers, Greenfield says. “I think it is changing consumer behavior and that is essentially causing the consolidation,” he said.
Beyond that, T-Mobile and Sprint’s merger is more likely to be OK’d, says Joel Espelien, an analyst with Plano, Texas-based research firm The Diffusion Group. “Given how powerful AT&T becomes in that scenario, I think it becomes more inevitable to say, ‘OK, T-Mobile and Sprint you can battle it out together’.”
•More cutting the cord offerings. AT&T has already said it will soon launch AT&T Watch, a $15 monthly streaming service with fewer channels than DirecTV Now and no sports channels. The service would be free for AT&T Unlimited wireless subscribers.
Disney, which has its own streaming service featuring TV, movies and original content from Disney, Lucasfilm, Marvel and Pixar in the works for 2019, could merge that with Hulu, making it an even stronger service. Or Hulu could be ceded to Comcast and NBCUniversal should the media giants divvy up the Fox assets.
Again, AT&T and Time Warner are expected to appeal, should the judge rule against it or approve it only with the forced divestiture of DirecTV or the Turner networks. The DOJ, should it lose, may not appeal, Espeilien says. “At the end, I don’t think this is the fight they want or need.”