Dish Backs U.S. Case Against AT&T, Claims Threat to Sling TV

(Bloomberg) -- AT&T Inc.’s acquisition of Time Warner Inc. could cost rival Dish Network Corp. subscribers and hurt its new online web-based Sling TV, an executive of the streaming service testified in the U.S. government’s antitrust lawsuit seeking to block the takeover.

Warren Schlichting, Sling’s president, said Monday the deal would make it tougher for Dish to negotiate for Time Warner programming and leave subscribers unable to see content like CNN if they’re unable to come to terms. That would cost Dish and Sling subscribers, who would likely switch to their main rival, AT&T’s DirecTV, he said.

“It would be severe bleeding,” he said of subscriber losses. “And most of those subs would accrue to their benefit.”

Schlichting is a government witness supporting the Justice Department’s case that AT&T’s takeover of Time Warner would harm new services like Sling, which competes with costly pay-TV packages by providing a smaller number of TV channels online. The government says AT&T wants to slow the industry’s transition to streaming and protect costly pay-TV packages it offers through DirecTV. Schlichting is scheduled to be cross-examined by AT&T on Tuesday.

Tough Talks

The executive said that while negotiations with Time Warner now are hard, the two sides are at least in a “mutual headlock,” where each company ultimately needs a deal. Time Warner needs to sell its programming, and Dish needs programming to attract subscribers.

If the merger goes through, Time Warner’s incentives change, according to Schlichting. It could demand higher rates or onerous terms, such as requiring Sling to buy more channels, and would be less likely to compromise, he said. Either Dish’s costs would go up, or if there’s no agreement and Turner channels “go dark,” the company would lose subscribers who would likely switch to DirecTV or its DirecTV Now online service, Schlichting argued. Gaining subscribers would be more lucrative for AT&T than programming fees, he said.

“I just don’t see them having any motivation to move” to get to a deal, he said of Time Warner.

Schlichting testified after Judge Richard Leon, who is overseeing the case, said the executive’s lawyer violated court rules by giving his client transcripts of opening arguments and earlier testimony before he took the stand. Leon warned lawyers for both sides that if it happened again with another witness, that person would be barred from testifying.

During his testimony, Schlichting dismissed an offer by AT&T not to black out channels during contract negotiations and allow price disputes to go to binding arbitration. He said that scenario was “asymmetrical” for Sling, and that such deals may be too complicated for an arbitrator to fully understand.

“It’s an all-or-nothing proposal so the risk is really high,” he said. “For them it’s a temporary blip if things don’t go well.”

The case is U.S. v. AT&T Inc., 17-cv-2511, U.S. District Court, District of Columbia (Washington).

To contact the reporters on this story: David McLaughlin in Washington at dmclaughlin9@bloomberg.net, Erik Larson in New York at elarson4@bloomberg.net.

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Rob Golum

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