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AT&T-Time Warner Trial: DOJ Focuses on Turner’s Negotiation With YouTube TV

UPDATED: WASHINGTON — As the AT&T-Time Warner antitrust case entered its third week on Monday, the Justice Department zeroed in on the hard-charging negotiating tactics between Turner Networks and distributors, often with the looming threat of channels going dark.

The government is trying to show that the combined company will have increased leverage to demand onerous rates from rival distributors, along with new online upstarts like YouTube TV that offer a “skinny bundle” of channels to subscribers at cheaper prices.

On the stand for much of Monday was Coleman Breland, now president of Turner Classic Movies and Turner’s former president of content distribution.

As an adverse witness for the government, he was asked questions about a series of blackouts or near-blackouts, including when, in 2012, a Turner channel almost went dark on Time Warner Cable over a single penny-per-subscriber increase.

Breland agreed that Turner has been able to secure “significant” rate increases with distributors over the past five years.

“We’ve done well, yes, on our rate increases,” he said, but added that, in some cases, they had been looking to “catch up” to what they saw as the true value of the networks.

YouTube TV initially launched without popular Turner channels like TBS, TNT, and CNN. Breland said that when YouTube TV sought a deal to carry Turner networks that year, it wanted rates that were “some of the lowest I have seen in the industry,” among other proposals. It also wanted to split up Turner networks so less desirable channels would be on an “optional tier,” rather than the basic offering to potential subscribers.

Breland wrote in an email at the time that YouTube TV’s proposals would cause “irreparable harm” to the Turner business model. He informed Time Warner CEO Jeff Bewkes of the proposals, and Bewkes then instructed that HBO, another Time Warner unit, to stop negotiating with YouTube TV for the carriage of that network.

The Justice Department’s attorney, Dylan Carson, noted that a 1997 Federal Trade Commission consent decree for Time Warner’s acquisition of Turner included a condition that prohibited aligning HBO with the Turner channels in carriage negotiations. But the condition expired after 10 years.

Carson asked Breland whether this was part of a bargaining “strategy” or “goal” to align Turner networks and HBO carriage negotiations at the same time — ultimately giving Time Warner more leverage.

Breland said that he was “not aware” that it was a “strategy,” but said that in “some situations” they have aligned the timing of Turner and HBO negotiations.

Later, under questioning from AT&T-Time Warner’s attorney Kevin Orsini, Breland said that he has “never seen an HBO contract” and does not negotiate with them. He said that Bewkes’ concern has been that Turner and HBO negotiations is a matter of communication, that they “know what each other is doing.”

He also said that a concern in the case of YouTube TV was that if Turner agreed to those terms, they would have to also give them to other distributors, given the prevalence of “most favored nation” clauses in contracts.

YouTube TV started carrying the Turner networks this year, but it does not carry HBO.

Other highlights:

Going ‘Dark.’ Breland acknowledged that in negotiations with almost all major distributors in recent years, Turner’s networks have gotten close to going dark. Among the instances was in December 2016, when Turner’s channels came within 10 minutes of going off of Charter’s cable systems until Charter paid higher rates.

Breland said that carriage negotiations across the industry have gotten more contentious since 2010, when growth in the industry peaked. That has put more pressure on programmers to boost carriage revenue. The negotiations “always come down to the last day, sometimes to the last minute,” he said.

He also challenged the idea that Turner was looking to withhold content from upstart rivals, saying that the goal was to obtain wide carriage across platforms, especially with increasing competition for viewers’ attention.

“The disruption is like Mount Vesuvius on top of Pompeii,” he said.

“If a skinny bundle is launched and we’re not part of it, then we get left behind,” he added.

Dish Network blackout. In October, 2014, all of Turner’s channels except TBS and TNT were pulled from Dish Network. It ended about a month later, when Turner and Dish extended their agreement for four months, to the following spring.

The DOJ focused on Turner’s preparations for the possibility of another blackout in April, 2015, which would have occurred in the midst of March Madness, something that inevitably would have made Dish customers irate.

Carson presented documents showing that Turner representatives even went to the NCAA to get approval for language they could use in public announcements in the event of a blackout. At the time, it was referred to as “Turner’s NCAA leverage.”

But Breland said that Turner also stood to lose license revenue and more lucrative ad dollars during a March Madness blackout. It already lost “north of $30 million” from the Dish blackout the previous year.

Package deal. An issue in the trial has been whether distributors are forced to take a bundle of Turner channels as a price of getting the most desirable ones, like TBS, TNT and CNN. Breland said that the channels were available on a standalone basis, but acknowledged that no distributors actually license one Turner network.

Consumer data. A 2016 internal email suggested that Turner networks would get access to consumer data as part of an agreement with Hulu. Time Warner owns 10% of the streaming service, which also offers a slate of channels.

A key rationale for the merger has been that Time Warner will be better able to compete against Google and Facebook for targeted advertising because it will now have access to AT&T’s consumer data. The DOJ has been trying to show that this information is available elsewhere.

Breland said that Comcast offered to sell set-top box data to Turner networks, but the information was deemed “no valuable” and available elsewhere.

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