Turner CEO Tells Court Vertical Integration Fears Unfounded, With Old Time Warner as Proof

When Time Warner was a vertically integrated company, encompassing both programming and Time Warner Cable, the notion of blacking out other distributors to get higher prices or to drive subscribers to TWC, or that Turner enjoyed more leverage due to that vertical integration, never came up, Turner CEO John Martin testified Wednesday in the U.S. v. AT&T/TW trial. An adverse witness for DOJ, Martin under questioning from AT&T/TW counsel attacked many of Justice's central tenets in the case.

Martin said New AT&T would help with stressed ad revenue by giving "a tremendous jump-start" toward more-relevant, targeted ads and thus relieving the pressure on consumers. He said ad revenue was down 2 percent last year due to declining viewership trends from the eroding MVPD subscriber base and the explosion of programming alternatives. Under questioning from defense outside counsel Dan Petrocelli of O'Melveny, Martin said Turner is embracing virtual MVPDs as a route to as wide a distribution as possible, especially since its subscriber numbers are growing while traditional MVPD subscriptions erode.

DOJ, in direct examination of Martin, walked him through an array of internal TW emails and memos showing the strength and power of Turner programming in relation to rivals. DOJ antitrust attorney Eric Welsh also cited a 2015 internal TW email on negotiations with Dish Network that recapped a warning supposedly made to Dish Chairman Charlie Ergen about a blackout being possible with March Madness playoffs soon. That internal email also said Dish's Sling TV is "crap without Turner," Welsh said. The defense argued Turner content isn't must-have (see 1803270020).

What "must-have" means also came under fire Wednesday. Martin said there's no programmer standard on the definition of the term but that it means popular programming. Welsh pointed to a 2017 email from TW's research group to Martin and other executives indicating that several Turner networks had particularly high reach and high viewing time and that Turner gets 93.5 percent of its revenues from that set of networks. The research group concluded viewers see those networks -- including TBS, TNT, Headline News and Cartoon Network -- "as essential," Welsh said.

Martin said Turner unsuccessfully tried to buy viewer data from third parties, like Comcast, that it could use toward such goals as more targeted advertising, but to no avail due to such issues as price or the data not being available in ways usable to the company. Having set-top and mobile data via New AT&T would let it "try to replicate the best of what Facebook and Google do," Martin said. The defense also walked Martin through a 2016 memo he prepared laying out challenges facing Turner and strategies for addressing them, asking him whether New AT&T would help tackle those issues; he said yes.

The defense, through Martin, also challenged the idea raised by DOJ economic expert modeling that a Turner blackout could potentially cost a rival MVPD 12 percent of its subscriber base (see 1803220033) -- a figure Martin called "preposterous." With Turner having only 6 percent market share of video viewing, "We're just not that big," he said.

On redirect of Martin, DOJ challenged Turner assertions of needing AT&T data, pointing to public statements from the company about it already using data for targeted advertising. Marty Hinson, Cox Communications vice president-marketing strategy and intelligence, also was called as a Justice witness.

Martin said Turner spends roughly $2 billion annually on sports rights, with such content as its NBA and March Madness programming playing a major role in what it can charge in affiliate fees and advertising rates. U.S. District Judge Richard Leon of Washington interjected briefly, seemingly incredulous at the amounts being paid for those sports broadcast rights. Turner's rights for March Madness run through 2032, NBA rights through 2024 and MLB rights through 2021, Martin said. Leon later directly questioned Martin about issues such as how viewership is measured and how concerned the company is about ad skipping.