The government’s lead witness in the Department of Justice lawsuit against AT&T derided an arbitration offer designed to show good faith to cable programmers as it looks to close its $85 billion acquisition of Turner parent Time Warner. In his relentless cross-examination, defense attorney Daniel Petrocelli scoffed that she “should have done some homework” before testifying.
Suzanne Fenwick, VP of content acquisition for Cox, said an offer to allow any carriage disputes go into arbitration — an offer made to all operators — was not regarded as “real” by executives at the privately held Atlanta company. “It’s a very one-sided agreement in favor of Turner,” she said. One objection is that it is “baseball-style arbitration,” giving an outside arbitrator significant power to set terms, and another is that it only covers Turner networks, not HBO, long a major subscriber draw for cable operators.
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Petrocelli tore into Fenwick’s comments during about 45 minutes of intense questioning. She conceded that Cox had not done a “drop analysis,” examining the economic impact of a carriage impasse. Instead, she maintained throughout her testimony that if AT&T withheld Turner networks from Cox, in an effort to compel customers to switch to AT&T’s own DirecTV or DirecTV Now services, it would cause customers to drop Cox. She did not offer any projections for how many customers could be lost, or an estimate for what the financial harm to could be.
“Did you think you could just come in here and give your opinion that the leverage would change, not having done a single bit of quantitative analysis?” Petrocelli asked, his voice rising. “Don’t you think, with a merger this important, that you should have done some homework? … Does your boss know you are giving this testimony?”
Fenwick kept her composure, affirming that her bosses did fully support her, but said, “I don’t have a number” for what a Turner impasse would cost Cox. Execs hadn’t conducted an analysis as they do in other scenarios, she explained, because they deemed the offer to be one that was “thrown into the marketplace” in desperation.
Another point of sharp disagreement came on the topic of digital companies and their relationship to traditional players like Cox. Asked during the government’s questioning about how Cox regards two major companies, Fenwick said Facebook is “certainly not one that we worry about” and insisted the company does “not view Netflix as a competitor.” Petrocelli, whose opening argument pointed out how much viewing SVOD services like Netflix have leeched away from traditional TV, introduced an internal Cox document that described the streaming giant as a rival.
The testimony came at the end of a high-profile day, effectively the start of the monumental case after a few days of minor hearings and filings. Proceedings began in the late morning, with opening arguments watched by an overflow crowd of more than 200 reporters, investors, third-party attorneys and industry executives. U.S. District Court Judge Richard Leon, who will decide the case without a jury, has forecast a six to eight week duration for the trial, the first major antitrust case with media implications since Microsoft faced legal challenge in the late-1990s.
The government, which is presenting its case first, is expected to call a series of witnesses from the executive ranks of networks, MVPDs as well as skinny-bundle services like Sling and YouTube TV. The intent, as with Fenwick’s testimony, is to establish that industry figures see anti-competitive risk in the merger. Petrocelli has countered that other companies overstate the “must-have” nature of Turner programming. In questioning Fenwick, one of his lines of inquiry was asking about ratings. For example, he asked how many of the 500 top-rated shows of 2017 were broadcast by Turner networks, according to Nielsen. “What if I told you the answer was ‘zero,’ would that surprise you?” he asked.
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