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Nearing the one year anniversary of Discovery and AT&T’s WarnerMedia merger, four Democrats in Congress are calling for the Department of Justice to reassess the deal.
In a letter to the Justice Department’s top enforcers, the lawmakers say that the merger has enabled Warner Bros. Discovery to “adopt potentially anticompetitive practices” that prompted numerous layoffs and reduced programming options for consumers. They allege that “current competition in the media and entertainment industry is inadequate.”
Months before the $43 billion deal was blessed, 30 members of Congress warned the agency in a letter in Dec. 2021 that the resulting competition vacuum would harm workers and consumers. Among the concerns they advanced was that it could dampen “economic opportunity for workers” on top of diverse programming, which became a common criticism after the company canned its $90 million HBO Max film Batgirl, the first DC movie led by a Latina, for a tax write-off.
The movie was shelved in the pursuit of $3.5 billion in cost-savings after the company was saddled with more than $50 billion in debt due to the merger. WBD has taken a content and development write-off of $2.8 billion to $3.5 billion, reflecting an additional charge of up to $1 billion more than expected. While the securities filing didn’t indicate what the increased impairments were tied to, the company in the preceding weeks cancelled or pulled from its services several titles that it said would be packed in a bundle to be sold to ad-supported streaming services.
The lawmakers call out “product cancellations that would limit consumer and worker choice,” including the cancellation of Batgirl, which was deep into postproduction, Gordita Chronicles, Demimonde, and The Time Traveler’s Wife. The group also cites WBD abruptly nixing development of Moisés Zamora’s Whistleblower after a “competitive bidding process with multiple outlets.”
“The damage to content creators whose projects are cancelled in deep development and post-production cannot be overstated,’ reads the April 7 letter from Rep. Joaquin Castro, D-Texas, Sen. Elizabeth Warren, D-Mass., Rep. David Cicilline, D-R.I., and Rep. Pramila Jayapal, D-Wash. “Such cancellations stain these projects, making them less appealing and marketable to other buyers — consumers will likely never be able to watch shows purchased then cancelled by WBD. WBD’s conduct amounts to a de facto ‘catch and kill’ practice, vastly limiting consumer choice.”
Antitrust laws seek to promote innovation, choice and product variety. One consideration of whether a deal is approved is if it would incentivize a company to “withdraw a product that a significant number of customers strongly prefer,” according to the DOJ and FTC merger guidelines. Because of the reduction in competition due to the merger, the lawmakers argue that WBD will continue to make unpopular moves without harm to its bottom line.
To incentivize cost-cutting measures, WBD in March tweaked its executive compensation packages for top executives to offer bonuses in the form of performance stock units based on their success in generating cash and reducing debt. WBD board chairman Samuel A. Di Piazza Jr. said in a statement to The Hollywood Reporter at the time that the change was necessary to achieve “key near-term financial objectives of increased free cash flow and reduced leverage.” CEO David Zaslav’s performance restricted stock units, which have a target value of $12 million, could see their valued doubled if he overdelivers on cash flow efforts. His pay for 2022 totaled nearly $39.3 million, mostly coming from a cash bonus of $21 million.
WBD declined to comment on the lawmakers’ letter.
The letter also point to layoffs to realize the company’s lofty cost-savings target. WBD shut down CNN+ less than a month after it was launched as it reconsidered its streaming strategy after spending roughly $300 million on the service, affecting an estimated 350 employees. Four months later, CNN laid off another 400 workers on top of terminating another 100 employees in its ad sales department in another cost-cutting effort related to the merger.
The deal has enabled the company to “take aggressive measures, harming workers and creatives in the media and entertainment industry while eliminating the disciplining forces of competition that provide workers with the freedom to change jobs or negotiate for better pay and working conditions,” the letter reads.
While antitrust enforcers have historically focused solely on harm to consumers when considering a merger, they’ve turned to also considering effects on labor. The Justice Department last year blocked Paramount Global from selling its Simon & Schuster publishing unit to Penguin Random House after convincing a judge that the merger could harm workers by giving the newly merged entity outsized influence in how much authors are paid for their work. On April 3, the agency brought and settled a lawsuit against Activision for imposing rules that illegally restricted competition for players in two of its esports leagues and suppressed wages.
Antitrust agencies maintain that they’re allowed to revisit mergers they approved when there’s evidence of anticompetitive effects to the relevant markets. The Federal Trade Commission has sued to unwind Facebook’s acquisition of WhatsApp and Instagram. The Justice Department seeks to do the same with Google’s acquisitions of AdMeld and DoubleClick due to the company’s alleged monopoly in online advertising.
The media industry has seen unprecedented levels of horizontal and vertical consolidation in the past 12 years. That includes Comcast and NBCUniversal (2011); AT&T and DirecTV (2015); Charter, Time Warner Cable and Bright House (2016); AT&T and Time Warner (2018); and Disney and Fox (2018). WBD was a result of AT&T spinning off WanerMedia to Discovery after the telecom giant’s failed bet on the media business.
The lawmakers say “WBD’s new ownership is hollowing out an iconic American studio.”
April 7, 6:43 p.m. This story has been updated to say that WBD declined to comment.
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