Time Warner Inc.'s chief executive testified Wednesday that the government's assertions that AT&T Inc. wanted to buy the company to use its programming as leverage over distributors "makes no sense" because it would limit viewership.
"I think it's ridiculous. It's not how this works," Jeff Bewkes told a federal judge as the antitrust trial to determine if AT&T will be allowed to purchase Time Warner Inc. headed into the homestretch, with the companies' top executives set to take the witness stand this week.
Their goal is to convince U.S. District Judge Richard Leon that the pay TV industry is changing dramatically and the deal will help the two companies better compete while giving consumers more options.
The Justice Department filed an antitrust suit to stop the proposed $85.4-billion deal, and has told a federal judge that AT&T wants to "weaponize" Time Warner's valuable content, including HBO, CNN, TBS, Warner Bros. to gain leverage over competitors.
But Bewkes, who has been in the media business for nearly four decades, challenged that claim. He testified that Time Warner programming on CNN, TBS and other networks needs viewers to bring in ad revenue and, in the case of HBO, subscription fees.
It would be "catastrophic" to lose distribution of that content, he said.
"We lose a lot of money" if that happens, Bewkes said. "It really creates a whole series of risks we don't want to have."
Justice Department lawyers were set to cross-examine Bewkes later Wednesday.
The Justice Department's lawyers have argued that the combined company would have greater incentive to threaten to withhold Time Warner programming from other cable companies because a blackout could benefit AT&T's DirecTV unit. Consumers who were unhappy with their pay TV provider because of the loss of that programming could switch to DirecTV, and that would give AT&T leverage in programming negotiations if the deal is completed, according to the Justice Department.
That leverage would lead to higher programming costs for pay TV providers, which would be passed on to consumers, the Justice Department said.
Bewkes said the theory made no sense and that Time Warner never followed that strategy when it for years also owned Time Warner Cable, which it spun off into a separate company in 2009. He testified that the leverage theory never came up during discussions with AT&T about the deal and that he had never even heard of the theory until the Justice Department suit.
Although DirecTV might pick up some disgruntled customers in the event of a blackout of programming at a competitor, Bewkes said that only slightly reduced the risk of such a move.
Bewkes also disputed a government expert's estimate that a blackout of Turner programming could lead a competitor to lose 12 percent of its subscribers.
"Half of that wouldn't sound persuasive," he said. Bewkes estimated no more than 2 percent of subscribers would leave a competitor because of a loss of Turner programming.
Bewkes, 65, has been Time Warner's chief executive since 2008, and a year later took on the dual role of chairman of the company's board of directors. Before joining Time Warner's corporate management team in 2002, the affable Bewkes spent more than two decades rising from a marketing and advertising executive at HBO to the top job there.
He spent the first half of his testimony Wednesday discussing what he called the "tectonic changes" that have taken place in the pay TV industry in recent years with the entry of technology companies such as Amazon, Netflix and Google into the media marketplace.
"There has been a huge technological change with the industry that allowed giant new competitors to come into the business ... and go directly to the consumer," Bewkes said.
Targeted online advertising has siphoned off traditional video advertising revenue, while online streaming gives companies such as Amazon and Netflix more detailed information about its customers than Time Warner has because nearly all of its programming goes through distributors.
"We know 'X' amount of people are watching 'Game of Thrones,' " Bewkes said of the HBO show. "We don't know which people."
The merger with AT&T would marry its detailed information about its mobile subscribers with Time Warner's content to allow the combined company to better compete in the new environment.
If the deal goes through, Bewkes is expected to step down after a transition period. John Stankey, chief executive of AT&T Entertainment Group, is set to take over leadership of Time Warner's businesses if they are acquired by AT&T.
Justice Department lawyers have argued that a merger would raise the risk of AT&T coordinating with Comcast Corp. to withhold content to hobble online rivals, which would raise prices for consumers.
A government expert, UC Berkeley economist Carl Shapiro, testified that his study of the deal's ramifications found that consumers could pay $571 million more for pay TV service by 2021 if the deal is approved.
Lawyers for AT&T and Time Warner disputed those calculations. Their own expert, University of Chicago economist Dennis Carlton, testified that Shapiro's study was flawed. Carlton's analysis determined that consumer prices would go down, not up, if the deal goes through.
AT&T Chief Executive Randall Stephenson is expected to testify on Thursday.
jim.puzzanghera@latimes.com
Twitter: @JimPuzzanghera
