WASHINGTON _ AT&T chief executive Randall Stephenson has long viewed his company's proposed merger with Time Warner as a "vision deal," dating back to at least the first time he told his board of directors about the possibility of transforming the media world.
"Potentially very powerful," he wrote in September 2016 in notes he prepared on his iPad before that board meeting, according to court testimony. "But will have be proven over time."
That vision _ now fully formed as a $108.7 billion megamerger _ was put on trial Thursday as Stephenson took the stand in U.S. District Court in what could be a career-defining moment.
The boss of Dallas-based AT&T said the equation was simple: The telecom giant needed its own content. Time Warner _ home to the likes of HBO _ had a "deep content library." The pairing would make the combined company a player in the growing world of streaming TV and movies.
"Time Warner was one, every time you looked it, you came back to it," Stephenson said, explaining that key would be taking that prized content and distributing it through AT&T's mobile platforms.
The appearance before U.S. District Judge Richard Leon comes at a critical moment in AT&T's antitrust dispute with the federal government.
The U.S. Justice Department, under President Donald Trump, has sued to stop the merger over concerns that the pairing of AT&T's vast distribution networks and Time Warner's highly desirable content would create an anti-consumer juggernaut.
No one disputes that the deal would rock the media landscape, shaping how consumers get and pay for the growing realm of streaming TV and movies.
But AT&T and Time Warner officials have argued that the deal will benefit the viewing public, with Time Warner chief executive Jeff Bewkes on Wednesday calling the feds' case "ridiculous" and top AT&T executive John Stankey openly mocking the government's assertions.
Stephenson, who will be cross-examined Thursday afternoon, made much the same case.
Premium content needed
He said the industry has been radically reshaped in recent years _ by Amazon and Netflix on the streaming video front and by Google and Facebook on the advertising front. In either case, he said, those companies understand that "engagement is critical."
"One area that drives engagement like nothing else is premium content," he said.
The AT&T boss explained that his company would be able to use its customer data to further customize Time Warner's content, while also improving direct-to-consumer offerings. The "more people who watch your content, the more your content is worth," he said.
Consumers would ultimately benefit from higher advertising yields, he argued.
"It takes the pressure off subscription revenues," he said.
Whether or not AT&T can successfully sell that vision in court holds enormous stakes, both for the company and for Stephenson personally.
Success would mean a triple-play for AT&T in the Trump era. The company has successfully advocated for a tax overhaul that slashed the corporate rate _ saving AT&T some $20 billion _ while also seeing the Federal Communications Commission repeal net neutrality rules.
Failure would continue Stephenson's mixed record in closing big deals. AT&T scored a major win in 2015 by buying satellite TV provider DirecTV. But the company saw its proposed acquisition of cellphone carrier T-Mobile rejected by federal regulators four years earlier.
How the deal came together
The AT&T chief has also started to offer more insight into how the deal came together, including his iPad notes he made before presenting the idea to his board of directors.
Other executives have already provided a peek into those machinations. Stankey, who would run the Time Warner entity, said on Wednesday the origins of the deal came in part from his frustration in trying to negotiate rights for new content after the acquisition of DirecTV.
The longtime AT&T executive recalled leaving a meeting with 21st Century Fox officials and realizing that the "path to cooperation" was not going to happen with AT&T's existing setup. He said he realized that it could be time to rethink whether AT&T should be in the content business.
"We have to build products that command customer's time and attention," he said.
Stankey said he and Stephenson first considered more incremental moves before the AT&T chief "started to explore a more significant step." That led to Stephenson connecting with Bewkes in August 2016 for what the Time Warner boss said "ended up being a pretty long lunch."
"It became clear to both of us that while our companies didn't overlap, we had complementary assets," Bewkes said.
Stephenson is expected to pick up the tale from there. He will face Justice Department attorneys eager to poke holes in AT&T's narrative.
That tension came through in abundance on Wednesday. One area of special interest focused on AT&T's projections, relayed by Stankey, that the merger would produce some $2.5 billion in annual cost and revenue "synergies" by 2020.
Some of those estimates are straightforward, taking into account the savings that would come from eliminating things like duplicate advertising efforts and human resources departments. Others go bigger, touting the potential to get "specific ads to specific people."
Stankey said those moves would be aimed at competing, particularly against heavyweights like Comcast.
"I don't like Comcast," he said, explaining how AT&T planned to use its wireless capabilities to outflank its longtime rival. "I've been competing with Comcast for year."
The Justice Department countered that AT&T's projections are just preliminary drafts intended for discussion purposes. While AT&T cast those estimates as likely to happen, federal attorneys pointed out that the company hasn't always met bullish projections in the past.
Citing AT&T's merger with DirecTV, the feds noted that the company made lofty projections then of how many paid TV subscribers they would add.
"AT&T fell short of that prediction?" one attorney asked.
Stankey responded, "It did."
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