Matt Daneman

AT&T isn't buying Time Warner to use that content to drive value to its distribution business but the opposite, with aims of using its distribution arm to get more value out of the content, AT&T CEO Randall Stephenson testified Thursday in U.S. v. AT&T and TW. Limiting content "is not a good strategy," he said, saying when he first presented the TW idea to the AT&T board in September 2016, one of the issues discussed was how to do such a deal without hurting TW's wide distribution. AT&T/TW rested after Stephenson's testimony, with DOJ then calling a rebuttal witness, Ron Quintero of Chartered Capital Advisers, to testify on the deal's claimed efficiencies.

The idea that being part of New AT&T would give Turner leverage to raise its affiliate fees on distributors is like speaking Greek to the programmer universe, Time Warner CEO Jeff Bewkes testified in the U.S. v. AT&T and TW antitrust trial Wednesday. “It’s not how this works,” he said, saying any blackout of Turner would be “catastrophic” in lost advertising revenue and lost affiliate fees. He likened increased incentives to a Turner blackout under New AT&T to the equivalent of a 950-pound weight falling on that company’s head versus a 1,000-pound weight on TW’s head. AT&T CEO Randall Stephenson is scheduled to testify Thursday.

Citing Comcast/NBCUniversal using NBC content as a competitive cudgel to whack broadband competition, RCN CEO Jim Holanda testified in U.S. v. AT&T and Time Warner that he fears New AT&T doing likewise. Turner content is "significantly viewed" by RCN subscribers, with three of its networks among the 10 most watched, judging by set-top box data, he said. A DOJ attorney asked Holanda about an RCN offering that pairs broadband with a video tier of only TV stations and public access, and how his company can't offer that to its entire subscriber base because Comcast contracts prohibit it in some areas without selling the entire cable giant's bundle of content due to penetration requirements. He said those limits came up after Comcast bought NBCU, and the operator has since come into some RCN markets with a roughly analogous offering. He worries New AT&T would similarly use Turner programming as competitive leverage against RCN when competing for double- and triple-play customers in markets where it overlaps with AT&T. RCN programming costs have been going up five to eight times the rate of inflation over the past five years, Holanda said. He said major MVPDs have a 25 to 40 percent price advantage for programming due to their size, which puts RCN at a $10 to $15 a month cost disadvantage. Also Tuesday, DOJ's lawyer and an AT&T/TW expert witness -- UCLA economics professor Peter Rossi -- locked horns repeatedly as Justice challenged Rossi's criticisms of research that played a big role in the government's model (see 1804160030). DirecTV filed a docket 17-2511 motion (in Pacer) Tuesday in U.S. District Court for the District of Columbia asking that it be dismissed from the DOJ suit, as expected (see 1803190023). It said government failed to state a claim against it, since it's not a party to the challenged deal.

The government's chief economic expert's predictive model actually shows AT&T's buy of Time Warner as a net plus to consumers if that model takes into account Turner's arbitration offer to MVPDs and the FCC's program access rules, testified University of California, Berkeley economics professor Michael Katz Monday in U.S. v. AT&T and TW. That DOJ expert Carl Shapiro didn't account for those is "a fatal error," Katz said.

Faced with competing scenarios of what happens to consumers and the video market if AT&T and Time Warner combine, the judge overseeing U.S. v. AT&T and TW is likely trying to see which set of predictions best lines up with the facts, experts told us. How U.S. District Judge Richard Leon of Washington weighs DOJ and AT&T/TW economic expert predictions is "the $64,000 question," emailed Konkurrenz Group founder Allen Grunes. DOJ expert economist Carl Shapiro (see 1804110025) and companies' expert economist Dennis Carlton (see 1804120023) testified last week.

Actual empirical evidence from past vertical mergers and splits shows consumer pricing ultimately goes down, the exact opposite of the harm DOJ is projecting in the proposed AT&T buy of Time Warner, the companies' economic expert testified Thursday. DOJ hasn't rested, but U.S. District Judge Richard Leon of Washington said he was letting University of Chicago economics professor Dennis Carlton testify out of order so his testimony comes a day after that of Justice's own economics expert, University of California, Berkeley economist Carl Shapiro (see 1804110025).

NBCUniversal, when doing affiliation agreements with MVPDs and virtual MVPDs, doesn't think about how such deals might affect Comcast's MVPD business and never has been asked by corporate to make that part of its negotiating strategy, NBCU Content Distribution Chairman Matt Bond testified Tuesday in U.S. v. AT&T and Time Warner. NBCU never withheld content from an MVPD so as to drive subscribers from that distributor to Comcast, and Comcast corporate never asked it to do so, Bond said. "We're interested in getting the most ... distribution we can get."

DOJ and AT&T/Time Warner counsel continued to joust Monday in U.S. District Court in Washington over Turner's alleged market power. Meanwhile, citing unspecified legal issues with confidential business information, Judge Richard Leon Monday afternoon held proceedings behind closed doors and said there wouldn't be any witness testimony until Tuesday. John Harran, Turner senior vice president-business development, digital distribution and strategic partnerships, acknowledged under DOJ questioning that he wrote a March 2016 internal Turner email indicating Turner believed it could "ignite or diminish" interest in the burgeoning field of virtual MVPDs by being in programming bundles or not. He also acknowledged writing an October 2017 internal email indicating "we have the leverage" in talks with YouTube TV, and an October 2016 internal email saying Hulu's virtual MVPD service without Turner or NBCUniversal content would be a recipe for disaster for that service. He said it was possible NBCU would pull its content from Hulu after the expiration of the Comcast/NBCU consent decree. But Harran, under AT&T/TW questioning about the October 2016 email, said he wasn't predicting Hulu's business failure but the failure of its business goal that hoped to have as many networks as possible. The sides also disagreed about AT&T Vice President-Digital Strategy and Experience Devin Merrill's emails and what they say about AT&T strategy for highlighting its DirecTV satellite service over its less profitable DirecTV Now streaming service. Merrill denied he was ever instructed to de-emphasize DirecTV Now and said with its 2016 launch he had "crystal clear" objectives to market and grow the service. DOJ and AT&T/TW have repeatedly battled over the supposed must-have nature of Turner content (see 1804020019 and 1803280025).

The judge overseeing U.S. v. AT&T and Time Warner might be considering reworking or amending the arbitration and no blackouts affiliation offer Turner made to MVPDs (see 1711280063). At the end of testimony Wednesday by Charter Communications Executive Vice President-Programming Acquisition Tom Montemagno, U.S. District Judge Richard Leon of Washington asked Montemagno if different arbitration terms, such as "non-baseball-style arbitration," might assuage some fears about the Turner offer. DOJ witnesses raised red flags about perceived shortcomings (see 1803260047 and 1803220033).

Turner's arbitration and no blackouts offer to distributors to assuage government antitrust concerns of AT&T's planned buy of Time Warner (see 1711280063) leaves Turner at a significant disadvantage in negotiations, Turner Vice President-Content Distribution Richard Warren testified Tuesday in U.S. v. AT&T and TW. An adverse witness for DOJ, Warren under cross-examination said he didn't find Justice's belief that New AT&T would use Turner blackouts against rival distributors "a realistic perspective."