WarnerMedia/Discovery Not Expected to Get FCC Review

AT&T's spinoff of WarnerMedia and combining it with Discovery (see 2105160003) isn't likely to go through FCC review, we've learned, even though some interest groups critical of media consolidation hope the agency will get involved. FCC acting Chairwoman Jessica Rosenworcel told reporters no application is pending. In some past mega-deals of this sort, the regulator also didn't get very involved. The agency didn't comment now.

“Certainly, parties would prefer to avoid FCC review,” said media mergers and acquisitions lawyer Burt Braverman of Davis Wright. The agency reviews a deal when control of licenses is transferred for such operations as broadcast TV studios or other communications facilities, he said. Deals that don't involve FCC licenses, such as sale of production studios, cable networks or content libraries, may not trigger a review, he said. A transaction also can be composed to exclude FCC licenses when those licenses aren't a principal part of the deal's value, such as by structuring it as an asset purchase agreement rather than a stock purchase agreement, he said.

WarnerMedia/Discovery -- involving programming distributed by cable systems and streaming -- doesn't involve a transfer of ownership of FCC-regulated assets, agreed media M&A lawyer Eric Greenberg of Perkins Coie. Even with the programmers' earth station licenses, it's hard to make a public interest argument those are justification enough to object to a transfer, unlike broadcast TV licenses, said former Commissioner Robert McDowell, now at Cooley. AT&T didn't comment.

Michael Copps of Common Cause said the FCC should review the deal because of its role in protecting the public interest and opposing media monopolies. “I always favor it getting involved,” said Copps, also a former commissioner, adding the Media Bureau could at least send a letter of inquiry asking about the deal's scope, structure and reach.

Public Knowledge has “mixed feelings” about WarnerMedia/Discovery because it's happy about the AT&T divestiture, but the result is a significant new programming concentration, said Senior Vice President Harold Feld. He said PK wants AT&T out of the content business, given the harms that came from AT&T/Time Warner, such as higher pricing and programming being pulled from competing platforms, but PK also would like conditions on WarnerMedia/Discovery.

Since the FCC wasn't involved in AT&T/TW, it's hard to see how the agency would assert jurisdiction in WarnerMedia/Discovery unless additional assets are transferred along with Warner, Feld said. But even earth station license transfers would give it that authority, as the agency reviews cable acquisitions using its authority under Title III of the Communications Act, he said. Feld said WarnerMedia/Discovery also could trigger an FCC reexamination of Charter/Time Warner Cable, given John Malone's big ownership stakes in Charter and Discovery, Feld said. With WarnerMedia/Discovery, Malone has an attributable interest in such must-have programming as CNN, which could be a route to revisiting the conditions on Charter/TWC, Feld said. He said the FCC probably won't revisit that on its own initiative, but a smaller or cable operator or streaming service might push for it.

“Clearly, when merger-happy AT&T made the mistake it's now trying to undo by unloading these properties, the FCC declined to review the deal,” said Free Press Vice President-Policy Matt Wood. “To the extent this spinoff includes exactly the same assets and the same legal questions, the new FCC could plausibly make the same choice. But while we understand that'd certainly be AT&T's preferred route, it's not the only option, so we hope and trust that the new FCC leadership in place today will be asking tougher questions about its jurisdiction over this deal.”

The deal won't slow cable cord cutting, but “it makes it less likely that the whole system completely implodes,” MoffettNathanson's Craig Moffett wrote investors Thursday. New Discovery, with so many linear cable networks, will have the incentive not to put all its best content strictly into direct-to-consumer channels, preserving the cable status quo, he said.