WASHINGTON — The first witness in the AT&T-Time Warner trial, an executive from Cox Communications, testified that the combined company would gain increased leverage that would allow it to demand onerous terms in carriage negotiations over the Turner networks.
Suzanne Fenwick, vice president of content acquisitions for Cox, said that they are “very concerned that we are going to be faced with a horribly ugly deal.”
“The leverage changes,” she said of what happens if the two companies combine. “They have a different incentive.”
She said that the Turner networks, including CNN, TBS, and TNT, were the type of prized content that it needed. If Cox failed to reach an agreement with Turner in carriage negotiations, it would face a loss of subscribers because of the loss of those channels, she said. She added that they believed it was a “large number.”
One of the key claims that the Justice Department is making in its antitrust case is that the combined company would have the incentive to raise prices on rivals for the Turner networks. Without that “must have” Turner content, competitors like Cox would face losing subscribers, some of whom would go to AT&T-owned DirecTV.
“If we didn’t have the Turner networks it could significantly impact the viability of our business model,” she said.
But Fenwick was challenged by Dan Petrocelli, the lead counsel for AT&T-Time Warner. In a rigorous cross examination, he asked why Cox had never done any type of economic analysis on what would happen if they actually lost the Turner networks.
In one heated exchange, Petrocelli pointedly asked her, “You think you can come in here and just give your opinion, when you have never done a single bit of quantitative analysis?”
Fenwick answered, “Sure,” but that her point was that the leverage in carriage negotiations changes.
Petrocelli argued that it doesn’t, as AT&T-Time Warner would face the loss of carriage fees as well as advertising if it no longer appeared on Cox’s platforms.
The trial will resume on Monday, with Warren Schlichting, the group president of Dish’s Sling TV, and John Martin, the chairman and CEO of Turner, scheduled to testify.
Shortly after the Justice Department sued to block the merger, AT&T-Time Warner announced that its Turner networks were offering to go into “baseball style arbitration” with rival distributors in carriage disputes. The offer is contingent on the merger’s approval, and would last for seven years.
Fenwick testified that Cox received the offer but thought it was “a little bit of gamesmanship.”
“We viewed it as a one-sided agreement in favor of Turner.” She noted that it did not cover HBO, was too “narrowly defined” and would force Cox to take “all or nothing” offers at the whim of the arbitrator.
Petrocelli challenged her characterization of the arbitration offer, and asked her why she did not contact any Turner executives with her concerns.
“We didn’t think [the offer] was something real that we could respond to,” she said.
(Pictured: Time Warner CEO Jeff Bewkes entering courthouse on Thursday.)