AT&T-Time Warner Trial: CEO Grilled on 2015 Email Predicting Sling TV Would Be ‘Crap’ Without Turner Channels

Randall Stephenson Jeff Bewkes
Sipa USA via AP

WASHINGTON — Turner Networks CEO John Martin was on the stand again in the AT&T-Time Warner antitrust trial, and was at one point grilled about a 2015 email in which he wrote that Dish’s new Sling TV service would be “crap” without the Turner channels.

The Justice Department is trying to show that Turner networks are such “must have” channels that AT&T-Time Warner will be able to demand onerous fees from rivals, and ultimately drive up the cost to consumers. Without the Turner networks, the Justice Department says, rival distributors would face the loss of subscribers.

Martin wrote the email to Time Warner CEO Jeff Bewkes on Jan. 6, 2015, and he was making a point about the soon-to-be-launched virtual MVPD service. The attorney for the Justice Department, Eric Welsh, said that the term that Martin used actually was a profanity.

But Martin said that at the time, he thought that the Sling TV offering was “so skinny that it would have benefited from” having the Turner networks. He added that he tried to get the new service to take all eight of the Turner networks, but they would only take four.

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He also said that he was trying to “rally” his boss as he was negotiating with Charlie Ergen, the co-founder of Dish Network, which introduced Sling TV. Ergen’s comments in the midst of carriage negotiations have come up repeatedly in the past two days of testimony.

Much of Martin’s testimony was devoted to the value of March Madness and NBA rights in making TBS and TNT essential for cable, satellite and internet distributors.

Welsh showed how Turner has been willing to shell out billions to obtain sports rights. TNT carries March Madness and shares the Final Four with CBS, and also has the rights to the NBA All-Star Game and 64 games.

Martin said that Turner spends about $2 billion annually on sports rights. The most recent NCAA contract has Turner paying about $770 million.

Martin acknowledged that premium sports events were “scarce” in the industry, and as live events they are prized by advertisers.

Welsh tried to establish that Martin sought out the sports rights as a way to drive up affiliate revenue, which would offset their high cost for the rights.

Welsh presented an internal document showing that Turner projected increases in affiliate fees through 2019.

“We made assumptions about affiliate fees and we attributed them, somewhat arbitrarily, to March Madness,” Martin said.

Welsh also introduced an email in March, 2015, when Turner was in the midst of carriage negotiations with Dish. In the email, Martin told Bewkes and other executives that he warned Ergen that he was prepared to start to go to Dish customers and warn them that they could lose March Madness in a blackout.

Asked if he was using March Madness as “leverage” in the negotiations, Martin said, “We were going to use March Madness to warn customers that they may not be able to see the Final Four.”

Also brought up was an email exchange between Martin and another Turner executive over the prospect of huge audiences for March Madness in the midst of negotiations with Dish and Ergen. One of the executives wrote, “The Sweet 16 starts Thursday,” followed by a smiley face. “I’m sure Charlie knows how many subscribers will be watching.”

Welsh also asked about a document showing that there was some study of the impact on subscribers should Turner Networks go dark on Dish.  Martin responded that he didn’t know if Dish would lose subscribers or not.

U.S. District Judge Richard Leon seemed to marvel at the cost of the sports contracts. When Welsh introduced a memo from 2014, in which Martin was seeking Time Warner board approval for the NBA rights, the price was mentioned as $1.1 billion.

“Did you say billion?” Leon asked.

“Yes,” Welsh responded.

Later in the afternoon, Martin was cross-examined by Dan Petrocelli, the lead attorney for AT&T-Time Warner, and talked of how much pressure the business was facing in the midst of changing consumer habits and an explosion of content. He said that he feared that Turner networks would be at a huge disadvantage in the next five to ten years without the ability to do data-driven advertising now used by Google and Facebook.