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Time Warner chief Jeff Bewkes testified Wednesday that the media-entertainment giant needs to merge with AT&T because of ‘tectonic changes’ in the television industry that favor big internet firms.
Bewkes appeared in a federal court trial as a key witness defending the mega-merger in the face of a US government antitrust effort to block the tie-up on the grounds it would create an industry titan which is too powerful.
In two hours of testimony, Bewkes maintained that Time Warner is challenged by ‘two big tectonic changes’ in the television sector – delivering programming and advertising.
He said traditional TV players are being overtaken by fast-growing direct-to-consumer video services like Netflix and Amazon, and that advertising dollars are shifting to online platforms like Google and Facebook, which can deliver personalized, targeted messages that are more cost effective.
The US Justice Department is seeking to block the $85 billion merger of AT&T, one of the largest pay TV and telecom operators, with Time Warner, which includes CNN, Turner cable networks, Cartoon Network and the HBO premium channel.
Bewkes testified that the internet ‘has allowed giant new competitors which offer television directly to consumers’ – a reference to Netflix and Amazon.
He said these kinds of services have an edge over players like Time Warner because they have more data on their consumers.
‘They know what customers watched … They can sell you a better package.’
‘They know a lot’
By contrast, Bewkes said, Time Warner operates as a ‘wholesaler’ of programs to cable and satellite operators and knows very little about who is watching which programs.
‘We don’t know who they are, we don’t have their names,’ he said.
AT&T, meanwhile, has relationships with some 150 million US consumers through its DirecTV service and other operations.
‘They know what people are watching,’ he said.
He noted that AT&T is moving in the direction of getting ‘the very rich information’ about consumers that online platforms have, to be more effective in programming and in advertising.
Traditional TV advertising ‘is pretty much the same as it was 25 years ago,’ Bewkes testified. ‘Everybody watches the same ad.’
That is a problem, he argued, because ads for automobiles, for example, will be shown to millions of people who may not be interested in cars.
‘Places like Google and Facebook can show you that ad to people who are primed to buy a car,’ he said.
Bewkes said Time Warner ad revenues have been essentially flat in recent years while Google and Facebook have scooped up more marketing dollars.
This means Time Warner has to get more revenue from cable and satellite fees, which are often passed on to consumers.
Bewkes’s testimony was aimed at blunting the government argument that a powerful merged company would seek to raise prices for consumers and would end up pushing up TV subscription costs.
He also disputed the notion that a merged group would have more leverage with other carriers by threatening to withhold Turner programming.
Bewkes said it would be ‘ridiculous’ to withhold Turner networks from rival pay TV operators because it would hurt both subscription and advertising revenues.
‘We want to be in every bundle, everywhere,’ he said.
A test for traditional media
The trial – which began last month in Washington before Judge Richard Leon and is likely to end next week, with a decision several weeks later – is seen as a test for the traditional media sector in the face of rising power of tech firms.
The government maintains that most Americans still watch traditional television through cable bundles, and presented an expert who claimed fees could rise by some $400 million a year if the merger goes ahead.
The case is the highest-profile antitrust battle to hit the courtroom since the Microsoft trial in the 1990s and the first involving a ‘vertical’ merger of companies which are not direct competitors in an industry sector.
Many consumer groups have backed the Trump administration’s decision to challenge the merger, but some analysts say the move could chill other big corporate tie-ups and possibly create problems for dominant tech firms.
Most antitrust investigations are settled with an agreement calling for divestitures or other actions to preserve competition, so the court showdown represents a risk for both sides, analysts said.
Adding a political dimension to the trial is the feud between President Donald Trump and Time Warner unit CNN – which the White House regularly attacks as ‘fake news.’
Leon, however, has refused to hear evidence showing AT&T was singled out for prosecution.
AT&T CEO Randall Stephenson is expected to testify as early as Thursday.