HBO Became Negotiating Tool for Turner in MVPD Talks, Antitrust Trial Hears

Turner has used HBO as leverage in MVPD affiliation negotiations, Turner Classic Movies President Coleman Breland testified Monday in U.S. v. AT&T and Time Warner. Breland -- who until last year was Turner's head of content acquisition and negotiations, was called by DOJ as an adverse witness. The agency spent part of the day walking Breland through Turner emails covering such topics as strategy and the array of near-blackouts the company saw in recent years.

Breland acknowledged HBO in 2016 quit negotiations with YouTube TV after the virtual MVPD pushed for not having to carry all the Turner networks. He acknowledged HBO did that at the direction of TW CEO Jeff Bewkes and that the FTC 1997 consent decree on the TW/Turner prohibited TW from tying Turner and HBO but that those conditions expired after a decade. Breland testified Turner and HBO have been aligned in some other negotiations, though that alignment generally has been about the TW networks keeping one another apprised of talks and information sharing. Under cross-examination by companies' lawyer Kevin Orsini of Cravath Swaine, Breland said HBO/Turner coordination doesn't make sense, at least from an HBO standpoint, because of the work it has to undertake to rebuild its subscriber base after a blackout ends.

The defense assailed the idea New AT&T would withhold programming from rivals. Breland testified Turner's strategy is to be on every platform possible. "You don't know who is going to be successful," he said.

DOJ antitrust trial attorney Dylan Carson asked questions about the supposed must-have nature of Turner content, which AT&T/TW has denied (see 1803280025). He pointed to a November 2016 Turner email after AT&T/TW was announced indicating Turner drives as much viewer demand as Fox or NBCUniversal. He also cited a 2013 Cable One blackout that ended after a month with the MVPD dropping its stance that it wanted only some Turner networks. Turner came close to blackouts with DirecTV in 2013, Dish Network in 2015, and Altice and Charter Communications separately in 2016, Breland said.

Carson asked about personally identifiable information on subscribers that Turner gets from Hulu and about Turner opting not to buy such PII from Comcast because it had access to much of that same information via other means. The companies have argued the deal would open the door to targeted advertising through PII data that TW doesn't have access to today.

Under questioning from Orsini, Breland disputed the idea of must-have programming, saying there's no single network today that an MVPD needs to have to be successful, given the plethora of options and alternatives. The government said Turner programming would give New AT&T too-powerful leverage over rival MVPDs (see 1711220005). Breland said a Turner blackout on one of the big four MVPDs -- Comcast, Charter, Dish or DirecTV -- would cost it $75 million a month in lost advertising money and affiliate fees. He said a monthlong Cable One blackout in 2013 ultimately cost Turner $4.5-$5 million, and the MVPD supposedly lost 15,000 video subscribers, or about 2 percent of its subs base. And he said the MVPD lost less than a tenth of a percent of its subs during one month of a Dish/Turner blackout in late 2014 -- about the same it lost the same month a year earlier, when no blackout was going on.

Breland said even a blackout time around a major event, like March Madness, carries big problems for the programmer in terms of that lost income, plus jeopardizing relationships with bodies like the NCAA. Lining up affiliation agreements to expire around the time of major events might be prudent in some ways, but it also chains the programmer to that event, Breland said.

Also called as an adverse witness Monday: Turner Vice President-Content Distribution Richard Warren acknowledged that in an internal email about Dish negotiations in 2015, following Dish's subscriber losses the previous year from the Turner blackout and a Fox blackout, he wrote that Turner has "massive power here," and Dish's Sling TV virtual MVPD without Turner networks would be "terrible." He's scheduled to be further questioned Tuesday.

In a note to investors Monday, Raymond James analyst Frank Louthan said that when looking at past blackouts, the lost subscriber effect is typically far less pronounced than the numbers DOJ has alleged. It said the 2013 Time Warner Cable/CBS blackout -- which lasted a month, on the verge of the NFL season airing on CBS -- caused a 4.8 percent increase in incremental churn vs. the prior and post Q3 averages, notably less than the 8.2 percent DOJ has modeled for a one-month blackout of Turner. He said so far in the trial, DOJ witnesses "do not appear to be bringing out significant points in their favor" and that AT&T still looks likely to prevail since it's not clear it is to New AT&T's benefit to disadvantage other MVPDs for short-term content pricing.