Arbitration Offer Tips Affiliation Leverage Toward MVPDs, Turner VP Testifies
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."
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Charter Communications minus Turner content could expect a 9 percent drop in subscribers, testified Stefan Bewley of San Francisco consulting firm Altman Vilandrie. That estimate was the result of a 2017 study Altman did for Charter -- using online surveying and set-top box data -- about the relative value of various networks and programming groups. DOJ has tried to make the case about the must-have nature of Turner content.
Altman's estimate and methodology and Charter's rationale for the study itself came under fire by AT&T/TW outside counsel Dan Petrocelli of O'Melveny. He questioned why, if the study was for affiliation negotiation purposes instead of to be used as part of Charter's opposition to the AT&T/TW deal, Altman had no contact with Charter Executive Vice President-Program Acquisition Tom Montemagno. Petrocelli repeatedly hammered at why Altman -- after it submitted an initial report to Charter indicating a 5 percent departure rate -- sought more time and tweaked its methodology, with the subsequent study and those 9 percent results being a big part of subsequent findings by DOJ lead economic witness University of California, Berkeley economics professor Carl Shapiro.
Bewley said only that the Turner results seemed off and necessitated tweaking the methodology, though he later testified Altman did freshen up the results for the other networks and programming groups studied, though after Charter provided its Turner results to DOJ. Petrocelli also questioned why, if the Altman study added real-world benchmarking from a Viacom/Suddenlink blackout -- especially since that data was used to lower the estimated Charter/Viacom departure rate -- similar real-world data wasn't used from past Turner-related blackouts.
That only 20 small MVPDs have accepted Turner's arbitration terms of the roughly 1,000 offers made isn't surprising, since many others may have decided to accept the terms but wouldn't invoke them until the next renewal talks, Warren said. He said there aren't ways for Turner to circumvent terms of the arbitration offer by, for example, moving content to newly created networks, since many existing contracts Turner has with MVPDs include commitments that content fall into particular networks. He denied Turner could force conditions that tie carriage of HBO and Turner networks; DOJ argued HBO could be used as leverage to affect arbitration (see 1803260047). He said the arbitration terms favor distributors, since they can walk away from arbitration any time, while Turner can't. He also said the cable programmer faces a big risk with arbitration since the deal an arbitrator chooses could have "a ripple effect" on other MVPD affiliation agreements due to any most favored nation clauses those agreements might contain.
On redirect, Warren acknowledged the arbitrator decision is to be based on fair market value, but that's not defined. He said DOJ is "looking at it too myopically" and fair market value isn't a single number but a totality of items.
AT&T/TW cited virtual MVPD YouTube TV, which launched without Turner content, as proof of the holes in the government's case, but DOJ questioned Warren about YouTube TV's subsequent adding of Turner content. "They were anxious to add us," he testified.
U.S. District Judge Richard Leon of Washington, who urged the sides to narrow their witness lists and to move faster in the case, at one point Tuesday chided DOJ antitrust trial attorney Peter Schwingler for repeating an answer of Warren's.