WASHINGTON — Turner Networks CEO John Martin, testifying in the AT&T-Time Warner antitrust trial on Wednesday, highlighted a key argument for the merger: The threat coming from Google and Facebook for advertising dollars.
“We are not even playing in the same arena,” Martin said under cross-examination from Daniel Petrocelli, the lead counsel for the two companies.
His point was that Google and Facebook have gained a foothold on the type of targeted advertising that sponsors crave, but that Turner networks was still selling spots based on broad demographic information and dayparts.
“We’re a wholesaler, sort of stuck in the middle,” Martin said. “We don’t know who our viewers are.”
AT&T, with its information on usage by mobile and satellite subscribers, “would give us a tremendous head start” in building a data-driven ad model.
He said that this was especially important as Turner tries to reduce the number of ads it runs, in part as a response to competition from platforms like Netflix that offer on-demand programming with no commercials.
Martin said that they have approached distributors about purchasing their data, but have been told that it is proprietary or that it is not the type that is useful. He said that Turner networks looked into acquiring data collection companies that gathered information from smart TVs, but it still did not have personalized information.
“We’re starting from a position where we are very far behind,” he said.
The issue is important in that U.S. District Judge Richard Leon will have to weigh what the relevant market is in the merger in assessing the antitrust case. The Justice Department argues that the pay-TV universe is the market, not Google and Facebook, which are still a small piece of the pie when it comes to professionally produced video delivery.
Eric Welsh, attorney for the DOJ, ran through a series of figures that showed that, despite the competition in the marketplace, Turner’s affiliate revenue, or the amount it has collected in subscriber fees, has been growing at double-digit rates through the end of 2017. He cited a figure that advertising revenue increased 3% in 2016 over 2015. He also cited Turner’s 2018 budget, and the projected margins into the future.
“Pretty steady, aren’t they?” Welsh asked Martin.
“That’s correct,” Martin responded.
Petrocelli later noted that Turner’s ad revenue declined 2% in 2017 over 2016. Martin also noted that the double digit growth in affiliate rates would slow to the “low single digits” this year.
Welsh also ran through some of the new online video subscription services that Turner has launched in recent years, including Film Struck and Live VR. His point was that the company was innovating even without the AT&T merger.
“AT&T would allow us to do it much more quickly,” Martin said.
Welsh pointed to a comment that Martin made at the Recode conference in February, in which he said that Turner’s future “is really bright no matter what happens.”
“I think I said we’d be fine,” Martin said in response. “I would aspire to be better than fine.”
Leon asked Martin about data was collected and how advertisers even know if their spots are being watched.
Martin responded by noting that advertisers are looking to get rid of inefficiencies, or paying for advertising that reaches audiences that aren’t the target.
He cited an adage in the business, which drew laughs in the courtroom. “I know I am wasting half of my money. I just don’t know which half.”
Martin also gave more testimony over what happened in October, 2014, when Turner networks were blacked out from Dish Network during a carriage dispute. TNT and TBS remained on the air, but CNN and other Turner networks did not, and the dispute lasted for 41 days.
Petrocelli asked about a conversation that Martin had with Charlie Ergen, the co-founder of Dish, an hour before the channels went dark on Oct. 21. Martin said that he offered to fly to Denver to meet with him, but it was to no avail. At the time, he said, Ergen also was upset that Time Warner had decided to launch HBO Now, the first premium channel to offer subscriptions via internet streaming without having a cable or satellite subscription.
Martin said that Ergen told him that his experience was that “going dark is a way to put pressure” on content providers, and a way “to get a deal done.”
The blackout ended the next month, after both sides extended an agreement to the following April. But there still was a fear that the Turner networks would go dark on Dish again. He said that Ergen was trying to prevent any portion of Time Warner from becoming an internet distributor. Martin wrote at the time that it was a “go dark” issue.
“We never agreed to that,” Martin said. They did study the idea of a “plan B,” in which DirecTV would be the exclusive satellite distributor of Turner networks, but “the math just didn’t work,” he said.