Counsel for AT&T Inc. (T) and Time Warner Inc. (TWX) played up Dish Network Corp. (DISH) chairman Charlie Ergen's aggressive negotiating style and propensity for broadcast blackouts, as their antitrust trial continued Tuesday, March 27.
Daniel Petrocelli of O'Melveny & Myers LLP pulled up quotes from Ergen, as he cross-examined Dish executive Warren Schlichting, who heads Dish's Sling TV online television service.
"Real negotiating begins when we go black," Petrocelli said, quoting Ergen.
Schlichting said that Ergen frequently "negotiated through the press" by downplaying the significance of any single one cable channel.
Judge Richard Leon of the U.S. District Court for the District of Columbia allowed Schlichting to testify for the government Monday, even though the Department of Justice alerted the court that other counsel had provided the Dish executive with transcripts of opening arguments and a highlighted version of testimony from Cox Communications Inc. content buyer Suzanne Fenwick.
Schlichting said Tuesday that he received the transcript in an email while riding on a train. While he read some of the testimony, he said, he had not reached the highlighted comments before receiving a second email informing him not to read the document.
In his Monday testimony for the government, Schlichting compared a blackout to a heart attack. A pay-TV company could partially recover after losing a important network but could not fully regain its strength, he said.
"We negotiate hard," Schlichting said of Dish's history of impasses with content providers.
While Schlichting did not have precise numbers for how many subscribers Dish lost during a blackout lasting from October to November 2014, the company internally uses a round number of 30,000 subscribers. About 13,700 specifically said they switched because of the outage, and the company made estimates on the motivation of others that left. He estimated that about two-thirds of those subscribers jumped to DirecTV.
Petrocelli noted that the full 30,000 would equal less than 1% of Dish's subscriber count.
AT&T and Time Warner have reiterated that they, too, face losses from blackouts. Petrocelli estimated that Turner would lose $150 million or so per month through a blackout with Dish, with subscriber fees accounting for half of the losses and advertising the remainder. On Thursday, he put the monthly losses to a Cox Communications Inc. outage at $48 million per month.
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Sling TV's Schlichting reiterated a theme from his testimony that Time Warner's motivation to reach a deal with pay-TV companies would change if it were owned by AT&T, which owns Dish and Sling rival DirecTV. Ergen's aggressive tactics would change.
"The day after a merger everything is different," Schlichting said. "Charlie is rational, so he'll look at a different set of facts."
Dish's skinny bundles of networks start at $20 to $25 per month and target customers who do not want to pay for channels they do not watch, Schlichting said.
Sling TV carries four Turner networks. Time Warner could press the digital startup to take more, Schlichting suggested. Network groups traditionally push distributors to be "chock full of stuff and we're trying so hard to get rid of stuff," he said.
Judge Leon took a clear interest in bargaining dynamics, and asked Schlichting wether Dish could drop networks that performed badly.
"It's very rare that we are able to unplug any network," the Dish executive said.
"It's a leverage game if they have the content you need," he explained. "That's why you have hundreds of networks in these bundles and what we were trying to avoid with Sling."
Towards the end of Tuesday's hearing, Justice called Turner Chairman and CEO John Martin. DoJ attorney Eric Welsh pushed Martin, who reports directly to Time Warner Chairman and CEO Jeff Bewkes, for details about Turner's top networks, including CNN, TBS, TNT and Cartoon Network.
The government focused on Turner's premier sports coverage, which include rights to the NCAA tournament, which Turner shares with CBS Inc.; the NBA playoffs and All-Star Game; and the Major League Baseball playoffs, which it splits with Twenty-First Century Fox Inc. (FOXA) . Though Turner carries fewer games than Walt Disney Co.'s (DIS) ESPN, the government argues, the Time Warner unit has bulked up on premier games and tournaments with strong demand.
Martin returns to the stand Wednesday.