22 February, 2022 Chile

Chile clears Discovery/WarnerMedia with behavioural remedies

Competition

The Chilean antitrust watchdog has imposed conditions on Discovery’s acquisition of AT&T’s WarnerMedia, on the same day that the companies announced the $43 billion deal received no antitrust opposition in the US.

Chile’s National Economic Prosecutor’s Office (FNE) yesterday cleared the purchase subject to several behavioural remedies, including restrictions on bundling TV channels and a ban on sharing certain commercially sensitive information. Its full decision has not yet been published.

The acquisition, which was first announced last May, is expected to be completed later this year. It would see Discovery, the owner of Animal Planet, HGTV and The Oprah Winfrey Network, take over the Warner Bros film and television studios, the HBO network, CNN and TNT.

The tie-up aims to establish a streaming service large enough to challenge industry leaders like Netflix, Amazon and Disney+, the companies said in May.

The deal is being reviewed by agencies in over 20 jurisdictions. The European Commission unconditionally approved it in December after a Phase I review, while the waiting period for the US Department of Justice to challenge the tie-up expired yesterday.

The Chilean agency today said its investigation into the deal revealed that, without remedies, the acquisition would make Discovery dominant in the domestic pay-TV market.

The enforcer therefore ordered the companies to commit to several remedies for the next seven years, including preventing Discovery from bundling its TV channels with those of WarnerMedia.

It further banned any cross-termination clauses that allow either Discovery or WarnerMedia to end a contract early based on the contracting party’s decision to end its agreement with the other. It also ordered them to adopt an arbitration clause in contracts with their pay-TV operators.

Additionally, the FNE ordered the companies to prohibit key Discovery shareholder John Malone, the chairman of Liberty Media Group, from accessing certain commercially sensitive information from the merged company about Warner Bros’ operations in Chile.

Malone currently indirectly controls Chile’s largest provider of subscription TV – VTR Comunicaciones – through Liberty Media, and the agency said he could also be appointed director of Warner Bros.

FNE, Discovery and WarnerMedia did not respond to requests for comment.

Sofía O’Ryan, a counsel at DLA Piper in Santiago, said the FNE’s proposed commitments are “reasonable” as they ensure Discovery, as the buyer, can’t increase its bargaining power too much.

O’Ryan added that this deal probably won’t harm the country’s pay-TV market with the agreed remedies. The authority has imposed similar requirements on deals in this sector before and its choice of behavioural over structural remedies suggests it is aiming to help the market evolve competitively, she said.

The tie-up comes three years after AT&T bought WarnerMedia, then known as Time Warner, for $85 billion (€75.5 billion). The Chilean authority also reviewed and cleared that deal in 2017, subject to the companies granting non-discriminatory access to Time Warner and AT&T products to competitors, and restricting access to information within the new company.

The FNE also imposed similar remedies on the Walt Disney Company’s purchase of 21st Century Fox when it approved that deal in 2019. However, Disney last June agreed to pay €200,000 for failing to fully comply with them.

Counsel to AT&T and WarnerMedia

Cariola Díez Pérez-Cotapos

Partner Juan Cristóbal Gumucio in Santiago, assisted by Catalina González and Cristobal Lema Abarca

Counsel to Discovery

Philippi Prietocarrizosa Ferrero DU & Uría

Partner Ignacio Larraín Jiménez in Santiago, assisted by Catalina Montero and Matías Palma

Source: Global Competition Review (GCR)

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