The government’s theory of the case was that if AT&T bought Time Warner it would raise the price of the Turner channels and HBO to other MVPDs (multichannel video programming distributors). The merged firm would make more money that way and if instead another cable company just dropped Turner channels given the price increase, the customers of the cable company might leave it and switch to an AT&T property like DirecTV. The merged firm would benefit either way.

Judge Leon basically rejected every aspect of that theory. The first critical problem was that there was no credible evidence that the Turner properties would actually “go dark,” meaning that for an extended period of time they would be dropped from distribution. That just had not been the history of the industry. It is just too important to maximize the number of viewers with access to the channels. And that meant, in Judge Leon’s view, that the threat to raise prices was an empty threat.

The question then became how we should think about bargaining in the face of that threat. The government’s economics expert attempted to quantify that using a Nash bargaining model and a series of data assumptions, but Judge Leon didn’t really buy any of it. As to the theory, his conclusion was “that the Government has failed to provide sufficient evidentiary support to show the Nash bargaining theory accurately reflects post-merger affiliate negotiations ….” And he found the government’s data on harm wanting for a variety of case-specific reasons, which, given that the government had the burden of proof on possible harms from the merger, was fatal. And the defendants also offered evidence from prior media merger cases suggesting the bargaining leverage theory was not borne out and the government didn’t meaningfully challenge that evidence.

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