The Trump administration probably won't prevent AT&T from buying Time Warner, but it might force the company to sell some key assets.
Wednesday, multiple sources reported that the Department of Justice may ask AT&T to sell either DirecTV, which AT&T acquired for $49 billion in 2014, or Turner Broadcasting, the Time Warner division that includes CNN, TBS, Cartoon Network, and much of the media conglomerate's sports holdings. If AT&T refuses to sell either, Justice could sue to block the merger on antitrust grounds.
In a statement, AT&T CEO Randall Stephenson denied reports that he had offered to sell CNN to get the deal approved. “Until now, we’ve never commented on our discussions with the DoJ," the statement says. But given the news reports, he continued, "it’s important to set the record straight. Throughout this process, I have never offered to sell CNN and have no intention of doing so."
The Department of Justice did not respond to our request for comment.
It's not clear whether Justice could successfully block the merger if AT&T balks at its conditions. "I’m not sure how selling CNN addresses any antitrust concerns so I would expect AT&T to challenge that requirement," says Allyn Arden, an analyst at S&P Global Ratings.
But if the company is forced to choose, analysts say AT&T should dump Turner Broadcasting. It's easy to see why AT&T might prefer to ditch DirecTV. Traditional pay-TV providers like DirecTV are losing subscribers to digital-streaming services, according to research from MoffettNathanson. But it would be much easier for AT&T to do without the Turner Broadcasting family of stations than DirecTV.
"DirecTV is already part of AT&T and there’s deep integration that’s already been done, whereas Turner hasn’t even been acquired yet," says Jan Dawson of Jackdaw Research.
Barry M. Sine of Drexel Hamilton says it would be nearly impossible for AT&T to divest DirecTV at this point, given how tightly it has integrated the marketing for the brands.
Dawson also points out that although AT&T has its own pay-TV business called U-verse, the company has been de-emphasizing the service since it proposed to buy DirecTV, and it would be hard to resurrect the brand now.
Arden says that losing CNN and the rest of Turner Broadcasting would be a setback for AT&T since the assets are core to its strategy, but it would probably help the company save money on the planned $85 billion acquisition and trim its debt burden.
Critics are already calling the pressure on AT&T to sell or spin off Turner Broadcasting a capitulation to President Donald Trump, who has long feuded with the news network. "Wait, are we really going to make the @TheJusticeDept use antitrust law to force the sale of a cable channel because the President doesn't like its news coverage?" Democratic Federal Communications Commission commissioner Jessica Rosenworcel tweeted Wednesday. "You can dislike consolidation but still find this extremely disturbing if true."
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But Sine thinks the DOJ might be doing AT&T a favor by forcing it to ditch CNN. "I don't think AT&T would relish either getting into interfering with the journalistic independence of CNN or having to bear the wrath of the White House," he says.
Besides, Sine says, HBO and Warner Brothers are the most valuable parts of the Time Warner portfolio. Cable-network viewership in general is declining, but those two brands would provide AT&T with television series, movies, and other content that the company could distribute elsewhere, such as streaming-video services.
But Sine suspects that AT&T might be able to get away with only divesting CNN, not the entirety of Turner Broadcasting. "Any negotiation begins with egregious demands and after some time looks more reasonable," he says.
