(Bloomberg) -- Time Warner Inc. was ready to pull programming from Dish Network Corp. during heated negotiations over fees in 2015, and used some of its most-watched sports events as leverage, according to evidence in the government’s lawsuit against Time Warner’s sale to AT&T Inc.
Time Warner has the rights to broadcast the men’s college basketball tournament known as March Madness and was in the midst of negotiations with Dish over fees and other terms for Time Warner programming. The talks were hard fought, and Time Warner was ready to pull its content and "go dark" on Dish over an undisclosed issue, according to documents presented in court Wednesday by the Justice Department.
Time Warner estimated that at the time about a quarter of Dish’s subscribers would watch the tournament’s finals. One executive wrote to John Martin, the chief executive officer of Time Warner’s Turner Broadcasting, “I’m sure Charlie knows the subscribers are watching," referring to Charlie Ergen, Dish’s chairman. The executive wrote that the Sweet 16 games were coming up and included a smiley face in his message.
The importance of Time Warner’s sports programming is a central issue in the Justice Department’s antitrust lawsuit against AT&T’s takeover of Time Warner. The government says the deal would give AT&T control over must-have events like March Madness and the NBA playoffs, handing leverage to AT&T in programming talks with pay-TV distributors that will allow AT&T to raise their costs.
That leverage only works if the programming is important to viewers. During his questioning by the Justice Department Wednesday, Martin acknowledged the importance of premium sports to Time Warner’s ability to increase programming fees and advertising revenue.
In 2010, CBS Corp. and Turner agreed to pay $10.8 billion for the rights to broadcast March Madness for 14 years, and in 2016, the two companies agreed to pay $8.8 billion to extend the deal for 8 more years through 2032.
It’s not uncommon for programmers like Turner to set contract deadlines just before major sporting events to give them leverage if negotiations go down to the wire. Turner and Dish reached a deal just a few days before Turner’s TBS channel aired the NCAA Final Four. If Turner had pulled the network, it would have upset Dish subscribers who wanted to watch the games.
Asked whether March Madness was leverage in talks with Dish, Martin said, "I saw that as a way to reach a conclusion" in the negotiations.
During his questioning of Martin, Daniel Petrocelli, AT&T and Time Warner’s lawyer, focused on programming negotiations when Turner was part of the same company as Time Warner Cable before they split into separate companies. At the time, the company combined a distributor and a content company just the way AT&T’s acquisition of Time Warner would.
Martin, who was CFO then, testified that the company never used that relationship to threaten distributors and seek higher prices -- exactly the kind of behavior that the government alleges would happen if AT&T buys Time Warner.
"At any time did you ever have anyone suggest that Turner should use its relationship with Time Warner Cable to threaten to black-out distributors in order to get higher prices?" Petrocelli asked.
"No," Martin responded.
"Did that thought ever occur to you?" Petrocelli asked.
Martin also testified that Turner had only been blacked out twice by a distributor, in 2013 and 2014.
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