After sitting in Courtroom 18 of the U.S. District Court in Washington for the past month, AT&T exec John Stankey finally had his chance to testify late today about the motivation behind the companies’ $85 billion merger.
“The market we are competing in is for time and attention,” he said under direct questioning from lead defense attorney Daniel Petrocelli. “Facebook, Google, Netflix — they are all distracting people from other things they used to do” like tune in linear TV, he said. “That’s the battle here.” The comments amplified arguments from the defense that any advantage from the deal in the traditional TV sphere is far outweighed by the rapid incursion of deep-pocketed tech giants. Joining forces, the defense insists, will unlock both efficiencies and customer benefits. The Department of Justice contends that the merger will harm rival companies and consumers through higher carriage fees given the companies’ merged might.
Stankey took the stand late in the day’s action. His two hours of testimony followed about three hours on the stand for Time Warner CEO Jeff Bewkes, whom Stankey would effectively replace if and when the long-gestating deal is approved. AT&T CEO Randall Stephenson, who is poised to run the combined company, will testify on Thursday morning.
A 33-year veteran of AT&T. Stankey since last August has been overseeing the integration of the companies, enabling him to attend the trial daily as a corporate observer seated near the team of lawyers. On the stand, he retraced the path toward the merger proposal in 2016. He said he raised the idea with Stephenson of embracing content as opposed to continuing to build distribution assets. The CEO was “receptive to it,” Stankey recalled. Asked by Petrocelli if the initial goal was a transaction of the magnitude of AT&T, he said, “That wasn’t where we originally started.” Instead, the instinct was to gather what Stankey called a “string of pearls” — a smaller collection of content pieces. Early on in pursuit of that strategy, Stankey recalled, the execs realized “things in the industry had continued to move quickly.” Bigger targets were considered, and the company soon settled on Time Warner.
Petrocelli asked Stankey to offer examples of how the merged company would bring innovation to the marketplace. He cited the reinvention of the traditional ad experience. (Bewkes had offered a strikingly candid assessment of ad clutter and the vulnerability of linear TV ads on Turner networks during his testimony, saying “there are too many of them and that’s part of the problem.”) Stankey said a programmer like CNN could rework its offerings such that a viewer could get a 15-minute dip into the news of the day, delivered on mobile platforms on demand and accompanied by more relevant ads. From the company’s point of view, as long as the content is in demand, it could expand the ad opportunities with more units, he said. “Nobody has built the platform that does what Facebook and Google do to the TV business on the internet.”
Asked about efficiencies from the deal, Stankey repeated earlier estimates of $2.5 billion in annual cost reductions. Originally that figure was projected to kick in after a 2017 deal close, running through 2020. Now, the exec noted, “it may be 2021 by the time we get through this drill.” (Stankey also let slip with a couple of other brief expressions of frustration with the regulatory logjam that befell a deal believed to be on the goal line last October. “Hopefully, at some point we’ll close this transaction,” he grumbled at one point.
The DOJ’s cross-examination, as with Bewkes, yielded little. Stankey was prodded about his compensation package and whether he was driving toward the deal out of self-interest. He also rebutted the ongoing narrative that the endgame of the deal is for AT&T to use the Turner networks as leverage to further its distribution goals, shaking down rivals and consumers.
When Petrocelli pre-emptively raised one government insinuation that AT&T and Comcast on Stankey’s watch may have explored joining forces to squelch internet-delivered competitors, the 33-year veteran grew animated. “I can’t even imagine that,” he said. “I don’t like Comcast. I compete with them.” Asked if Comcast had run local ads that AT&T had objected to during a turf battle for subscribers, Stankey snorted, “Once a quarter. We were constantly playing Whack-a-Mole with them. … I’m not going to co-operate with someone I don’t like.”
Defense witnesses are expected to complete their testimony by next Tuesday, though it will likely be weeks if not a couple of months before a final ruling in the case. The weeks to come will see rebuttal witnesses, closing arguments and summary filings by both sides lasting into May. Judge Richard J. Leon, who is deciding the case solo without a jury, will likely take at least a couple of weeks to then deliver his ruling. The media business writ large continues to count down to that moment.
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