WASHINGTON — Time Warner CEO Jeff Bewkes took the stand in the AT&T-Time Warner antitrust trial on Wednesday, calling one of the government’s claim’s “ridiculous” and saying that others “make no sense.”
Bewkes is so far the highest profile executive to testify. His counterpart at AT&T, CEO Randall Stephenson, with whom they forged a merger agreement in 2016, is expected to take the stand later this week.
Under direct examination from AT&T-Time Warner’s lead counsel Daniel Petrocelli, Bewkes was asked about the government’s claim that the combined companies would gain increased leverage over distribution rivals, and would be able to demand more money for carriage of Turner networks like CNN, TBS, and TNT because of the blackout threat in a negotiating dispute.
“I think it is ridiculous,” Bewkes said. “It is not how this works.”
He suggested that Time Warner would have a great deal to lose in an extended programming blackout in lost advertising revenue and subscription fees, calling such a scenario “catastrophic for us.” He said that a 2014 blackout of some of the Turner channels from Dish Network ended up costing Time Warner $150 million in lost revenue and in the settlement of what he said were billing disputes “manufactured” by Dish’s co-founder, Charlie Ergen.
Bewkes, wearing a charcoal gray-colored suit and blue tie, would often talk directly to U.S. District Judge Richard Leon as he answered Petrocelli’s questions, as if he were ready to engage the jurist in conversation. He also didn’t seem to take it for granted that the judge understood some of the dynamics of the business, making a point of explaining some of its jargon. At one point, he explained what video on demand, as a preface to his testimony on how it was adopted for HBO’s programming when Time Warner still owned a cable distribution unit, Time Warner Cable.
Bewkes said that another government argument, that AT&T-Time Warner would coordinate with Comcast in an effort to undermine “virtual” multichannel platforms like Dish’s Sling and YouTube TV, “makes no sense.” He said that it is in the interest of Turner to be on such new platforms.
He also said that it also “doesn’t make sense” that the company would try to restrict the use of HBO as a promotional tool by AT&T’s rivals, another claim by the government in its lawsuit. “We need to be in every outlet,” he said. “We need to have as many subscribers as we can get.”
He described how he and Stephenson had lunch one afternoon in the summer of 2016, and talked about the changing nature of the distribution business. By the end of the lunch, they realized that it was “clear to both of us” that “while we didn’t overlap, we had complementary assets.” Months later, in October, a merger agreement was reached.
He denied, though, that they discussed the merger as a way to gain programming leverage over distribution rivals.
That was a contrast to what 21st Century Fox’s rationale was when it made an offer in 2014 to buy Time Warner, an overture that was rejected. Bewkes said that the thinking by 21st Century Fox at the time was that content providers needed to bulk up to counter consolidation among distribution companies. “We did not agree with that,” Bewkes said, arguing that such a horizontal merger did not solve the “problem” posed by the changes in the business.
He talked of two “tectonic shifts” in the industry — the new competition from internet streaming, and the growth of targeted digital advertising, that have left Time Warner at a disadvantage when it comes to the collection of consumer data.
He also said the shift in the business toward targeted advertising is “really bad for TV companies” that have depended on traditional spots. He pointed to flat advertising growth, and increased pressure on Time Warner’s Turner cable channels to raise more from carriage fees to make up the difference. That is a coming at a time when consumers have “had it up to here with subscription prices.”
AT&T and Time Warner have pointed to the changes to the media business model as a key reason for their merger, particularly when it comes to competing with internet giants like Google and Facebook.
Bewkes’ appearance has been among the most anticipated moments of the trial, now in its fifth week. The government called more than a dozen witnesses, including AT&T rivals who warned of the increased leverage that the combined company would be able to exert in negotiations.
The Justice Department is trying to block the merger, arguing that it AT&T-Time Warner’s ability to command higher carriage rates from rival distributors for Turner networks will ultimately lead to higher prices for pay-TV subscribers.
On cross examination, Claude Scott, representing the Justice Department, tried to highlight that Time Warner has been pursuing new business models on its own, including the streaming services FilmStruck and Boomerang, along with the availability of HBO as a standalone online option. He even asked about plans in development for a streaming service based on DC Comics properties.
“I think they are trying to figure out if they can do that,” Bewkes said.
Scott seemed to be trying to show that the future of the TV advertising business was rosier than Bewkes made it out to be, but Bewkes insisted that figures from 2012 to 2017 showed they were “flat.”
Scott finished his cross examination by pointing out his compensation package once the deal closes and Bewkes retires. Asked about a payout estimated at a value of about $200 million, Bewkes said that it was “probably true.” But he also countered that he would make more if he were to say on through the end of his contract in 2020.
Some of the most critical moments of the trial have also been the most complicated, as the Justice Department presented an expert economist, Carl Shapiro, last week to testify on the harm that the transaction will have on consumers. AT&T-Time Warner countered with their own expert, Dennis Carlton, who challenged Shapiro’s methodology.
Leon announced on Tuesday afternoon that the government rested its case. AT&T-Time Warner then called AT&T Mobility’s David Christopher, who testified about a key calculation that the company provided to the expert witnesses that was used in economic projections of the merger’s impact.