Time Warner CEO blasts “ridiculous” federal anti-trust argument

Time Warner CEO Jeff Bewkes said in testimony Wednesday that the government is "ridiculous" to argue a combined Time Warner/AT&T would seek to hurt AT&T’s cable and satellite competitors by denying them Time Warner content.

Why it matters: The heart of the Department of Justice’s argument in suing to block the proposed $85 billion merger for suing to block the merger is that vertically integrating AT&T (a content distributor) and Time Warner (a content creator) would give Time Warner incentive to withhold its content from AT&T’s competitors — or to jack up the price.

Bewkes says doing this would be “catastrophic” for his business, because denying distributors access to its content —Time Warner cable channels like CNN, TNT, and TBS, as well as the premium subscription channel, HBO — would also harm Time Warner's advertising revenue, subscription income, and overall viewership.

“We try to keep all channels,” Bewkes said.

Bewkes also said he disagreed with the DOJ’s case that the merged company would also be incentivized to pull HBO from other pay TV companies so that they couldn’t use it to market their “virtual MVPDs” or digital skinny bundle packages.

• “It doesn’t make sense,” he said. “HBO’s whole business model is it needs as many people to subscribe to it as we can get. If we stop marketing HBO, our subscriber base goes down."
• "Why would we do that? That’s self-harm.”

Dan Petrocelli, the lawyer for AT&T and Time Warner, kept coming back to the defense’s flagship argument that the merger is necessary for Time Warner and AT&T to compete with data-driven ad businesses, like Google and Facebook.

• Bewkes said internet companies have become incredibly difficult to compete with, because they are taking TV ad dollars from marketers who would rather spend them on cheaper, targeted ads— and because they are creating their own premium content that is luring viewers away from cable programming.
• “It’s a double whammy,” Bewkes said.

Our thought bubble: The DOJ needs to prove that the proposed merger could be harmful to consumers, and that will require hard evidence of a negative effect on consumers, like rising cable subscription fees.

On the other hand, AT&T and Time Warner's argument that a merger will help them compete with tech companies for ad dollars — whatever truth it may hold — doesn't say much about the impact on consumers, either.