Six key takeaways from the AT&T trial so far

Why the AT&T-Time Warner trial matters
Why the AT&T-Time Warner trial matters

A little less than two weeks and eight witnesses into the trial over AT&T's proposed $85 billion purchase of Time Warner, and we already have a good sense of some of the issues the case -- which some are calling the antitrust trial of a generation -- will likely pivot around.

The government sued to stop AT&T's takeover of Time Warner, CNN's parent company, arguing that it violates antitrust law because it will raise prices for consumers and harm competition because AT&T would keep other cable and satellite companies from carrying the networks it would own if the deal goes through. AT&T has argued that prices would not necessarily go up, and that it would have no reason to keep its content from competitors. Attorneys for AT&T and Time Warner have argued that the acquisition is necessary for AT&T to compete with the likes of Facebook, Apple, Amazon, Netflix and Google, as those companies increasingly enter the content markets. Government lawyers have argued that AT&T and Time Warner are not directly competing with those companies in the same way.

Here is what we've learned so far:

1. A lot is riding on surveys

In his opening statement, lead Justice Department attorney Craig Conrath relied on two expert analyses of how the merger could affect the competitive landscape. The first, from MIT Professor John Hauser who the Justice Department hired to create an experiment to see how many pay-TV subscribers might switch providers if they lost access to the networks owned by Turner, a Time Warner subsidiary that includes CNN, TNT and TBS among others.

Based on an internet survey of 1,600 people, Hauser said that around 12% would likely switch if Turner were to be blacked out as a result of an impasse between negotations between the company and a distributor.

Another survey, conducted by the firm Altman Vilandrie & Company on behalf of cable company Charter (which opposes the merger), found that a blackout of Turner networks would cause Charter to lose about 9% of its subscribers. Another expert, Berkeley Professor Carl Shapiro, used that finding as a key part of his own analysis, in which he determined the merger could cause a price increase of around $436 million a year, or about 45 cents per month per subscriber.

But AT&T and Time Warner attorneys have sought to question the credibility of both surveys. Last week Time Warner attorney Peter Barbur said Hauser did not incorporate real world data -- the results of actual blackouts, which in the past, he said, have led to much lower switching rates than what Hauser's study found. Barbur also questioned how the survey was designed.

AT&T and Time warner lead attorney Dan Petrocelli pointed out on Tuesday that initially, Altman Vilandrie & Company found charter would lose 5% of its customers due to a Turner blackout. That number, plugged into Shapiro's analysis, would result in no price increase after the merger. Petrocelli questioned the timing and reason behind Altman Vilandrie & Company chanigng their model, which brought them to the 9% number after adjusting the category Turner would be a part of. Altman Vilandrie & Company said they did so on their own volition and to make the analysis more accurate.

Judge Richard Leon has asked specific questions about the surveys and how they were conducted, asking how the survey can measure what a participant "actually believes" versus a participant just trying to get through the survey to get payment, which all the survey respondents received. He also asked one witness who testified after Hauser, Comcast executive Brian Rigdon, whether the survey results matched his experiences, and Rigdon said they did not.

The government's attorneys are relying on Hauser's survey and Shapiro's analysis to prove what they say will be the negative effect of the merger. But if Leon discounts any of that evidence, the government would lose one of its most valuable data points.

2. No nonsense, and no dawdling

Leon has reiterated time and again the magnitude of the trial and how much is riding on it. And in part because of that, he's trying to keep a tight leash on the proceedings.

Among other things, Leon has been pushing both sides not to dawdle, warning that if the trial goes into May he won't be able to release an opinion in time for a June 21 deadline, after which either Time Warner or AT&T could walk away from the deal. (Both sides could choose to extend that deadline should they need to, and have in the past.) He's noted his opinion on this case will likely be upwards of 200 pages long.

"Both sides need to sit down with their clients and their teams and make sure they have down what they need versus what they want," Leon said last week. "If we are going to get this done prior to that date, we have to move."

Leon has also repeatedly warned counsel on both sides to argue the case in court, not in the press. He warned that he'd be willing to hold attorneys in contempt of court if they inappropriately divulged information to the press. As a result, witness lists have not been made public and both sides have avoided making public statements about the proceedings.

Leon has also shown some of the same toughness toward the many members of the media covering the trial. He's reserved just two rows for the press, which are always full, and has placed strict restrictions on those in the courtroom, prohibiting electronics of any kind including in the overflow room.

3. This case is about much more than AT&T and Time Warner

Sure, AT&T and Time Warner are the defendants in the case. But lots of other companies, in the media and even outside of it, are watching closely because they know the outcome could have a significant impact on any deals they try to make in the future.

Every day the court room is full, with paid line sitters holding spots for hours at a time. The audience of about 80 is made up of press, lawyers for witnesses, AT&T and Time Warner staff, members of the general public and analysts who are closely monitoring the proceedings. An overflow room holds those who don't make it into the main courtroom.

Many in the courtroom took notice when Justice Department antitrust chief Makan Delrahim arrived last week to watch the testimony of Comcast's Rigdon after having previously attended only the opening statements. Comcast's 2010 takeover of NBCUniversal is often cited as the closest parallel to the current situation. The Justice Department approved that deal with certain conditions, but some people -- like Democratic Sen. Richard Blumenthal -- have asked it to go back and take another look.

4. The rise of FAANG

Looming over the entire trial are the new entrants into the video entertainment space: Facebook, Amazon, Apple, Netflix and Google, together often referred to as FAANG. All five, along with other companies like Hulu, are spending millions -- sometimes billions -- creating content for their own proprietary platforms.

Lawyers for AT&T and Time Warner have been arguing that the deal will put the combined company in a better position to compete with the FAANGs, which, they say, currently have a distinct business advantage: Data. Time Warner says it has very little data on who is watching its programming -- just some basic Nielsen ratings. On the other hand, they say, Netflix has reams of personal data on its users, and is able to customize a given viewer's experience, and get more insight into the kinds of content they should carry or make for them. Other tech companies, like Facebook and Google, are able to use their own data to woo advertisers. Under the AT&T umbrella, Time Warner says, it will be better able to compete with the level of granularity the tech companies can get in their data, and re-balance the advertising playing field.

The government has tried to argue that AT&T is overblowing the level to which the FAANGs are competitive with them and Time Warner, saying that few things compare to the live television that traditional cable offers and noting that millions upon millions of Americans are still tuning into traditional pay-tv models like cable or satellite.

It all boils down to a common debate in antitrust cases -- how does one define the industry in which the company is competing? For the defendant in these cases, the larger the competitive landscape, the better it is for their case.

Ultimately this will be up to Leon to decide, and it's clear he recognizes the weight of such a decision. Just over ten years ago, when Netflix was still mailing out DVDs, it was considered a Blockbuster replacement. Now it's competing against networks and studios that had dominated entertainment for decades.

"I always tell people at parties, I don't have a crystal ball," Leon said during opening statements two weeks ago. "In this case I have to get a crystal ball! Maybe at one of those second-hand stores somewhere!"

5. Isn't it ironic

One of the government's primary arguments rests on how valuable Time Warner content is for distributors. The DOJ's lawyers have consistently brought up the term "must-have" as a description for networks like HBO, CNN and TBS.

But as the government talks about how essential those networks are, the lawyers for the networks' current and aspiring owners have been talking them down, trying to downplay the idea that distributors would suffer without their content. While they acknowledge their content is valuable, lead attorney Dan Petrocelli has reminded the court several times that none of the top 500 most watched shows are on networks owned by Turner.

And it's not just the lawyers for the defense who are essentially arguing against their own side. The government's lawyers find themselves in the position of arguing how valuable a network like CNN is to the industry, even while their ultimate boss, the President, derides it as "fake news."

6. Who'll take the stand for the government

The trial is moving slowly, as lawyers for the government are barely getting through two witnesses a day. Here's who we've heard from so far:

Cox Communications executives Suzanne Fenwick and Marty Hinson, Sling TV President Warren Schlichting, Turner CEO John Martin, Professor John Hauser of MIT, Comcast executive Greg Rigdon, and Turner executives Coleman Breland and Richard Warren.

Though neither side has released its full witness list, the government has been calling up a mixture of competitors to testify how they think the merger would affect their business and Turner executives in order to introduce as evidence internal emails and memos that the government says shows the company using the value of its content as leverage over distributors.

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