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AT&T, Time Warner CEOs Invoke Big Tech Threat in Merger Push

Variety logo Variety 12/7/2016 Cynthia Littleton
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There are five new players in the battle to win federal approval of the $85.4 billion merger of AT&T and Time Warner: Facebook, Google, Apple, Amazon, and Microsoft.

The size, reach, and balance sheets of the tech giants were cited as a primary impetus for the AT&T-Time Warner nuptials during a hearing on the merger Wednesday with members of the Senate Judiciary Committee. The nearly three-hour session marked the first real test of how the deal will play in the court of public opinion amid the populist uprising spurred by Donald Trump’s victory in the presidential race.

AT&T CEO Randall Stephenson and Time Warner CEO Jeff Bewkes faced expected questions about the deal’s impact on prices for consumers, the competitive landscape for Time Warner’s content rivals, and whether the enlarged company would be able to squash independent programmers. The scope of the combined company is a bipartisan concern, judging by the questioning from committee members. That concern is especially acute as the incoming presidential administration has vowed to rescind the FCC’s existing net neutrality rules designed to police high-speed data providers like AT&T from erecting tollbooths on the Internet.

In that context, it’s no surprise that the CEOs would invoke the threat posed by the tech giants who, in varying degrees, are becoming increasingly focused on video. Stephenson positioned the enlarged company as angling to drive major changes to television’s status quo before they’re beaten to the punch by Mark Zuckerberg and Jeff Bezos.

“Our intent is to disrupt the existing pay TV model,” Stephenson assured.

The initial warning to the pols about the specter of Google et al hanging over old media came from a friendly witness, the maverick entrepreneur Mark Cuban. In sounding the alarm about the challenging marketplace that even the largest TV players are facing, Cuban cited evidence from his own household.

“Punishment for my 7-year-old son is taking away his ‘Minecraft,’ ” Cuban said. “He could care less about TV.”

As the video business steadily migrates to online platforms, the tech giants will have a gatekeeper status that will dwarf the power of an enlarged AT&T. Looking into the future, Cuban said, AT&T and DirecTV could easily find themselves at the mercy of Apple or Google or Facebook for distribution. “They really can’t control their own destiny,” Cuban argued.

Stephenson and Bewkes defended the merger as being good for consumers in allowing the enlarged company flexibility to innovate and to offer low-cost programming packages. There is no doubt that AT&T’s Nov. 30 introduction of its low-cost DirecTV Now streaming channel package was done in part to prove the company’s good intentions on the consumer-pricing front. AT&T is offering DirecTV Now service to its wireless subscribers free of data charges. That provision sounds consumer-friendly on the surface but it drew questions about whether AT&T could wield its data-free option in some way to discriminate against content or distribution rivals.

Sen. Mike Lee, R-Utah and chairman of the committee that called the hearing, called it “the siren song of zero rating.” Stephenson explained that DirecTV pays AT&T a fee for the right to have its content excluded from a customer’s data cap. Sen. Al Franken, D-Minn., a vocal critic of Big Media mergers, seized on the prospect that AT&T could charge rivals more for the same data-free option.

Stephenson repeated the mantra of the merger that the combination of AT&T’s global wireless business and DirecTV with Time Warner’s blue-chip content would give subscribers more flexibility to watch shows across multiple devices. He boiled it down to the soundbite-friendly notion of allowing people to “pay for their content once, watch it anywhere at any time.”

Bewkes, meanwhile, is looking to turn an old defeat into victory while he’s on the stump. He cited the stalled rollout of TV Everywhere authenticated streaming as an example of why Time Warner needed a big distribution partner to drive change across the industry. Bewkes and Comcast’s Brian Roberts were the frontmen for TV Everywhere when Time Warner and Comcast teamed to introduce the concept in 2009 – just as Netflix was revving up its streaming business.

As many cable operators fiddled around with clunky authentication processes and clumsy navigational systems (if they embraced TV Everywhere at all), Netflix and Hulu took root as the better option for watching TV and fueled cord-cutting, to Bewkes’ dismay. TV Everywhere deals were held hostage to complicated affiliate negotiations, and also hampered by the unwillingness of other content providers to grant broad VOD and streaming access to programs, also to Bewkes’ dismay.

“We need to deliver great consumer experiences and that’s what joining with AT&T will allow us to do,” he said.

Toward the end of the session, Stephenson sought to deconstruct the rationale for the move by major MVPDs to embrace a wider variety of bundling options, including OTT options like DirecTV Now. He cited the all-or-nothing approach to carriage deals taken by big programmers as the biggest menace for consumers’ cable bills. Finally, with skinny bundles like the options offered at DirecTV Now, distributors are drilling down to the channels consumers really want and jettisoning the ‘periphery” channels that only drive up prices.

“The old system is just flat-out broken,” he said.

All in all, the hearing produced few fireworks, and the deal seemed to draw support from Republican members of the committee (a good sign, from AT&T-Time Warner’s perspective). The discussion did veer into surprising territory when Sen. Richard Blumenthal, D.-Conn., elicited vows from Stephenson and Bewkes that CNN would not alter its coverage of Trump despite what Blumenthal described as threats from the president-elect to block the deal because of his disdain for CNN’s reporting.

On Tuesday, as Bewkes and Stephenson made the rounds of investor conferences in New York, the CEOs told the Wall Street crowd that they were optimistic that the incoming Trump administration would be good for the nation’s business climate. Bewkes raised eyebrows with his statement that he believed that Democrats poised a greater threat to free speech concerns than Trump, despite the president-elect’s vows to sue the New York Times and Washington Post, among others, for coverage he deemed biased.

For sure, Bewkes and Stephenson’s words on Trump had to have been carefully considered, just like every point the two made during Wednesday’s hearing. If there was one message they tried to convey, it was that the big-ness of the combined AT&T and Time Warner needs to be measured by a different yardstick than regulators have used for media mergers in the past.

“We have to recalibrate what size means in this new world,” Stephenson said, once again calling out the influence of the tech behemoths. The market cap of AT&T-Time Warner, in the $350 billion range, is still “about half the size of the companies that present the real competitive threat.”

(Pictured: Jeff Bewkes, Randall Stephenson)

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