In a highly-anticipated and widely-publicized ruling announced on Tuesday, Senior U.S. District Court Judge Richard Leon approved plans by AT&T to proceed with its proposed acquisition of Time Warner (TW), proclaiming that the Justice Department (DOJ), in seeking to block the $85.4 billion merger, “failed to meet its burden to establish that the proposed transaction is likely to lessen competition.” The companies proceeded to close the merger yesterday.

Representing the first of two major media-related developments this week, Judge Leon issued his decision on the eve of Comcast’s unsolicited offer to acquire film, cable, broadcast television and other assets held by Twenty-First Century Fox (see story below). When the merger was first announced in October 2016, AT&T CEO Randall Stephenson heralded the union of AT&T and TW as the “perfect match of two companies with complementary strengths.” Combining TW’s extensive portfolio of media content with the reach and capabilities of the AT&T fixed and mobile broadband networks as well as with AT&T’s global base of pay TV subscribers, the merged entity—in the words of the companies’ joint merger announcement—“will strive to become the first U.S mobile provider to compete nationwide against cable companies in the provision of bundled mobile broadband and video.”

Last November, the DOJ’s Antitrust Division brought suit against the AT&TTW merger in the U.S. District Court for the District of Columbia. In his Memorandum Opinion handed down on Tuesday, Leon cited the DOJ’s argument that allowing the merger to proceed “is likely to substantially lessen competition in the video programming and distribution market nationwide by enabling AT&T to use [TW’s] ‘must-have’ television content to either raise its rivals’ programming costs, or . . . drive those same rivals’ customers to its subsidiary, DirecTV.” As he highlighted the DOJ’s concessions that the proposed merger is likely to bring about millions of dollars of annual cost savings to AT&T and its customers and that “no competitor would be eliminated by the merger’s proposed vertical integration,” Leon spotlighted the companies’ claim that their merger plan is driven by an ongoing “revolution” in the U.S. video programming and distribution market in which “high speed Internet access has facilitated a ‘veritable explosion’ of new, innovative video content and advertising offerings” fueled by the emergence of verticallyintegrated online video distributors such as Netflix, Hulu and Amazon. 

Concluding that the effects of such “tectonic” marketplace changes are declining video subscriptions and falling advertising revenues which have impacted video programmers such as AT&T and TW, Leon declared: “I simply cannot evaluate the government’s theories and predictions of harm, as presented by the government at trial, without factoring in the dramatic changes that are transforming how consumers view video content.” Leon further stated that, because the DOJ “has not pointed to any prior trials in federal district court in which the Antitrust Division has successfully used . . . increased leverage theory to block a proposed vertical merger,” the DOJ thus failed to show “that the proposed merger is likely to increase [TW]’s bargaining leverage in affiliate negotiations.” Accordingly, Leon proclaimed that the government’s request to enjoin the proposed merger was denied.

After thanking the court Tuesday for “its thorough and timely examination of the evidence,” Stephenson announced yesterday that the companies had completed the transaction. As he anticipated that the combination of TW’s “content and creative talent” with AT&T’s “strengths in direct-to-consumer distribution” will provide customers with “a differentiated, high-quality, mobile-first entertainment experience,” Stephenson vowed: “we’re going to bring a fresh approach to how the media and entertainment industry works for consumers, content creators, distributors and advertisers.”