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Spotlight turns to CEOs in AT&T antitrust trial

Time Warner CEO Jeff Bewkes made the case for his company to be acquired by AT&T as he took the stand on Wednesday i...

Posted: Apr 18, 2018 7:32 PM
Updated: Apr 18, 2018 7:32 PM

Time Warner CEO Jeff Bewkes made the case for his company to be acquired by AT&T as he took the stand on Wednesday in the antitrust trial over the proposed $85 billion merger.

Fielding questions from lead AT&T and Time Warner attorney Daniel Petrocelli, Bewkes depicted Time Warner as a company that is quickly losing ground to tech giants.

Those companies, Bewkes said, are swallowing up an ever-growing share of advertising dollars that used to go to television programmers like Time Warner and their Turner networks, which include CNN, TBS, TNT and others. And Bewkes said the likes of Google, Facebook and Amazon are able to exploit their technological supremacy to gain information on Time Warner's own customers that even Time Warner doesn't have.

"They can offer more effective choices. They can recommended programming based on what you watch. They can sell you a better package," Bewkes said. "They have a lot of advantages."

That has been one of the primary arguments made by AT&T as it defends the merger from the Justice Department in the first major antitrust trial since the late 1990s -- and the first time the department has sued to stop a vertical merger like this one since the 1970s.

The Justice Department has argued that post-merger, AT&T would be able to use Turner content as leverage to extract higher prices from their competitors like cable, satellite or streaming TV services. That could lead to temporary "blackouts" when Turner content is pulled from those platforms, which could prompt customers to switch to AT&T. The government has also alleged that AT&T would prevent distributors from using Time Warner-owned HBO as a promotional tool and could coordinate with another vertically integrated media company, Comcast-NBCUniversal, to raise prices.

But Bewkes called the government's theory "ridiculous," saying "It's not how this works."

"[A blackout] is catastrophic, we lose a lot of money ... hundreds of millions of dollars," he said, noting that by going dark they lose subscriber fees from the distributor and the advertising revenue from commercials.

Bewkes, who at one point ran HBO as CEO, also said it would not make sense for AT&T to prevent competitors from utilizing HBO, since HBO only makes money off of subscriber fees and relies on distributors to sell the channel as an upgrade.

Bewkes described the "two big tectonic changes" he said have made the playing field more advantageous for Time Warner's new competitors.

The first was the ability of companies like Netflix to go directly to consumers with its content, rather than through a wholesaler.

That, Bewkes said, has been good for consumers, but it's made the environment challenging for Time Warner, which has traditionally reached consumers through wholesalers like a local cable company. Netflix, he said, has tons of information and data on its customers -- who they are, what they watch and how -- which can help Netflix determine what new content to create and what offers they can use to incentivize subscribers to stay.

The other shift has come in what Bewkes described as a "major change in advertising." Digital platforms like Google and Facebook have allowed companies to get more sophisticated in their targeting of consumers, which is far more preferable to advertisers than the less-targeted advertising offered on TV.

"They can sell a Chevy ad just to people who are trying to buy a car," Bewkes said. The result is that companies are "moving away from television advertising in general."

Bewkes claimed that Time Warner doesn't have the engineers or technology platform to keep up with a company like Google, which he said is "taking the lion's share of advertising."

The testimony from Bewkes marked a pivotal juncture of the trial, which started last month. Randall Stephenson, the CEO of AT&T, is expected to testify on Thursday.

AT&T announced its intention to acquire Time Warner and its robust content portfolio back in October 2016. Shortly thereafter, Bewkes said he would step down after the deal closed.

But the Justice Department threw a wrench in those plans when it sued to block AT&T's bid in November of last year. Over the last four weeks, lawyers for the government have argued that AT&T would use Time Warner content to exert unfair leverage over its competitors in the pay TV arena in an effort to draw consumers to DirecTV, which is owned by the telecommunications giant.

Bewkes said he never discussed the idea of using Turner content as leverage to benefit AT&T while planning the merger with Stephenson or any other AT&T representative.

"I think we need competition," Bewkes said Wednesday, adding that he believes leveling the playing field with Google, Amazon and Facebook would be good for consumers.

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