By Drew FitzGerald and Brent Kendall
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (January 12, 2018).
AT&T Inc., a company that has had virtually nothing to do
with show business for most of its history, now faces a court
battle that's all about it.
Early signs suggest the antitrust fight over AT&T's $85
billion takeover of Time Warner Inc. will focus heavily on the
small screen, with much of its evidence coming from the companies'
video rivals. Those competitors argue the telecom company will use
Time Warner's entertainment assets against them, according to
documents reviewed by The Wall Street Journal.
Dish Network Corp., Showtime owner CBS Corp., 21st Century Fox
Inc., Netflix Inc. and Starz Inc. are among the companies that have
provided information that the U.S. Department of Justice could use
to bolster its case that the megadeal would hinder competition in
the pay-TV market, according to people familiar with the
matter.
Government lawyers have subpoenaed roughly 30 third parties for
information in the case, Justice Department attorney Craig Conrath
told federal judge Richard Leon at a pretrial hearing last Friday.
Such requests are typical in high-profile antitrust cases.
AT&T is also gearing up for the legal fight. The company has
drawn up a wish list of 22 potential witnesses, while the
government has requested up to 35, AT&T lead attorney Daniel
Petrocelli said.
"We have agreed to bring them from all over the country to
Washington, D.C., to make it easier on the process," said Mr.
Petrocelli.
The Justice Department surprised many observers in November when
it sued to block the combination, arguing that melding the
country's largest pay-TV distributor with one of its biggest media
companies would put too much power in the hands of a single entity.
AT&T Chief Executive Randall Stephenson said the government's
case "defies logic" and vowed to defend the deal in court.
The trial is scheduled to start March 19, and people familiar
with the matter say it appears unlikely the two sides will find a
way to settle their differences and avoid the court battle.
As the government's investigation has progressed, rivals of both
AT&T and Time Warner have shared information with the Justice
Department -- much of it confidential -- that offers a window into
how entertainment companies and distributors play hardball during
negotiations.
Starz, which competes with Time Warner's HBO, told the Justice
Department in May that AT&T already wielded its hefty
subscriber base against the premium TV channel, according to a
person familiar with the talks. AT&T unveiled its deal in
October 2016 and has been fighting for government approvals ever
since.
A Starz document reviewed by the Journal accused AT&T
management of telling DirecTV call-center workers to stop pitching
Starz channels as add-ons to TV bundles during a contract dispute
between the TV channel and the satellite service. The move caused
Starz monthly sign-ups through AT&T-owned DirecTV to drop from
the hundreds of thousands to fewer than 100, according to the
document.
Starz also told the Justice Department the company can't avoid
AT&T by selling its service directly to consumers because
online distributors haven't yet developed a broad reach. Several
startups and incumbents have launched such services, including
Dish's SlingTV, Alphabet Inc.'s YouTube TV and Sony Corp.'s
PlayStation Vue. Starz also said it can't quickly add subscribers
to its direct-to-consumer app because its contract with AT&T
keeps it from charging a cheaper price, according to the
document.
Perhaps most central to the case is how the AT&T-Time Warner
deal would affect rival video distributors. AT&T, which would
own Warner Bros. as well as cable channels like TNT and CNN, has
said that the television ecosystem is awash in content and that its
deal won't deter the industry transformation that is taking
place.
AT&T has argued that the emergence of newer platforms like
Netflix and the entry of tech giants like Amazon.com Inc. into
video content means that new viewers will still have an ample range
of choices regardless of what the telecom company does with Time
Warner.
The Justice Department sees things differently, arguing that a
postmerger AT&T could force rival TV providers to pay more for
Time Warner content like Cartoon Network and TNT, which broadcasts
many NBA games. It also argues that AT&T's control of Time
Warner could hinder innovation in online TV packages, which
increasingly attract consumers looking to drop traditional cable or
satellite service.
The department continues to examine whether the deal might harm
the development of emerging alternatives to cable and satellite TV,
a key prong of its lawsuit. It has issued subpoenas to online
distributors asking how changes in Time Warner carriage fees would
affect their business, according to a person familiar with the
request.
AT&T late last year said it would offer all TV distributors
terms that would allow them to submit disputes with Time Warner's
Turner unit to arbitration, a move designed to undercut the
government's argument that the telecom company would use Turner's
TV shows to squeeze the competition.
The government will likely poll rival TV distributors in search
of signs that AT&T's proposed fix isn't airtight, according to
Kevin Arquit, a partner at Weil, Gotshal & Manges LLP. The
solution has to cover all the government's allegations to work in
court, Mr. Arquit said, though he added the government still faces
the bigger challenge of meeting its burden of proof in the
case.
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and Brent
Kendall at brent.kendall@wsj.com
(END) Dow Jones Newswires
January 12, 2018 02:47 ET (07:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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