Judge in DOJ case against AT&T and Time Warner warns both sides to speed it up
The judge overseeing the government’s antitrust trial against AT&T and Time Warner warned both sides Wednesday to speed things up.
The companies have extended their merger agreement, originally entered into in October 2016, until June 21. If the case is not decided by then, either company could terminate the deal and Time Warner — parent company of CNN — could be in line for a $500 million breakup fee from AT&T.
“If we want to get this case done prior to that deadline, we’ve got to move,” Judge Richard Leon told lawyers in federal court in Washington, DC.
Leon said he will need time to write his opinion, which he said could be 200 pages long because of the “level of detail, the level of accuracy” it will require. The judge told lawyers on both sides to spend the weekend looking at their lists of upcoming witnesses to make sure they are all “need versus want.”
Earlier on Wednesday, the fourth day since opening statements, government attorneys presented internal emails between Turner and Time Warner executives. Their aim was to try to establish that the companies view their programming as vital and a tool to be used in negotiations with distributors.
In one email between Turner CEO John Martin and Time Warner CEO Jeff Bewkes, Martin said: “Dish’s OTT is (crap) without Turner,” referring to Dish Network’s streaming service SlingTV. Martin made the comment amid tense negotiations with the distributor in January 2015.
Another email from Martin in 2014 notes that negotiations with Dish were occurring during the NCAA tournament.
“The Sweet 16 is Thursday (smiley face) … I’m sure Charlie knows how many subscribers will watch,” Martin wrote, referring to Dish co-founder and chairman Charlie Ergen.
The government has sued to stop AT&T’s $85 bilion takeover of Time Warner, arguing that it violates antitrust law because it will raise prices for consumers, harm competition and stifle innovation. The trial is expected to last nearly eight weeks.
Martin took the stand on Wednesday as an adverse party witness for the Justice Department to help prove how valuable Turner programming is to Time Warner.
Prosecutors may use cross-examination style questioning when calling a hostile witness like Martin, enabling the government attorney to ask leading questions that typically calls for a yes or no response.
Justice Department prosecutor Eric Welsh harped on the executives’ use of the phrase “must-have” to refer to their programming in promotional materials and in negotiations for subscription fees with distributors, pointing to numerous emails where the phrase was used.
Martin pushed back, explaining “Must-have is a term that is often used in the industry. Do we absolutely need the program? I don’t necessarily agree with that. Must have is another way to say popular programming.”
The government’s theory is that if AT&T acquires Time Warner — which includes HBO, Warner Brothers Studios, and Turner, which is the parent company to CNN, TBS, and TNT among others — AT&T will have an incentive to charge other distributors, like Dish, more for Time Warner programming or to use it as leverage in negotiations. The government alleges that this will increase costs for customers, stifle competition or prompt customers to cancel their cable or other distribution package in favor of AT&T’s DirecTV.
AT&T and Time Warner’s lead attorney Dan Petrocelli worked to refute the government’s theory by asking Martin about his experience as chief financial officer of Time Warner Cable, which like Turner was a part of Time Warner.
“Did you ever hear anyone suggest Turner should use its relationship with Time Warner Cable to blackout programming in order to get higher prices? Did that ever occur to you as the chief financial officer of Time Warner Cable? Did you ever hear anyone say Turner would have more leverage?” Martin answered “no” to all of those questions. Time Warner Cable was spun off from parent company Time Warner in 2009, and Martin later became chairman and CEO of Turner.
Martin further added that a programmer like Turner wants its content to be distributed on as many platforms as possible since it gets paid per subscriber.
Martin also testified about the changing media landscape, noting that Turner needs a partnership with a distributor like AT&T to derive more advertising revenue. Martin explained that advertising revenue is decreasing for Turner, down 2% last year. Viewership is declining because “of the explosion of choices that viewers have,” leading to less advertising dollars, Martin said.
In order to increase ad revenue, Martin said programmers like Turner need data from distributors to better understand viewer habits and to tailor programming and advertising to specific segments of viewers. Martin said Time Warner’s merger with AT&T would be a “tremendous jump start to improving advertising capabilities.”
Companies like Facebook and Google are operating at such a large yet personalized scale in advertising that “we at Turner aren’t even playing in the same league,” he added.
During questioning by Petrocelli, Martin revealed details about the negotiations with Dish after its 2014 blackout.
“(Ergen) threatened to be out of business with us forever,” Martin said. “That would have been economically catastrophic.”
The government lawyers hinted earlier at a “nuclear option” during Turner’s negotiations with Dish as a way to show that Turner was previously willing to shut out other distributors — making AT&T-owned DirecTV the only satellite provider for Turner content. But during cross examination, Martin said the option was never even presented to DirecTV because after an economic analysis, they realized “it was a silly idea.”
Judge Leon asked Martin several questions that focused on how important data compilation is to programmers looking to sell advertising. Judge Leon asked, “You don’t know what people are actually watching?” Martin said distributors are reluctant to share data with programmers like Time Warner and Turner.
Leon also inquired about how set-top cable boxes work, about how much information Turner collects on viewers and about how advertisers figure out if people are actually paying attention to ads during live sporting events.
“There’s no way to prove that someone actually watched the ad?” Leon asked. Martin responded with a common refrain among advertisers, saying, “I know I’m wasting half of my money, I just don’t know which half.”
Leon’s questions are important because he is the sole arbiter in this antitrust case. Since it’s a bench trial, there is no jury and the judge makes the final ruling.
The government called Cox Communications executive Marty Hinson as a witness late Wednesday, and will continue with questioning on Thursday.
Correction: An earlier version of this article incorrectly described the relationship between Turner and Time Warner Cable when Time Warner Cable was part of Time Warner.