UNITED STATES DISTRICT COURT,
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA, a
Plaintiff, ;
v ; Civil Case No. 17-2511 (RJL)
AT&T INC., et al., ;
pe } FILED
JUN 12 2018
te
7 Clerk, U.S. District & Bankre
MEMORANDUMOPINION ds fori Detett Coloma
(June, 18),
If there ever were an antitrust case where the parties had a dramatically different
assessment of the current state of the relevant market and a fundamentally different vision
of its future development, this is the one. Small wonder it had to go to trial !
On November 20, 2017, the U.S, Department of Justice’s Antitrust Division brought
this suit, on behalf of the United States of America (“the Government” or “the plaintiff"),
to block the merger of AT&T Inc. (“AT&T”) and Time Warner Ine, (“Time Warmer”) as a
violation of Section 7 of the Clayton Act, 15 U.S.C. § 18. The Government claims, in
essence, that permitting AT&T to acquire Time Wamer is likely to substantially lessen
competition in the video programming and distribution market nationwide by enabling
AT&T to use Time Wamer’s “must have” television content to either raise its rivals’ video
programming costs or, by way of a “blackout,” drive those same rivals’ customers to its
subsidiary, DirecTV. Thus, according to the Government, consumers nationwide will be
harmed by increased prices for access to Turner networks, notwithstanding theGovernment’s concession that this vertical merger would result in hundreds of millions of
dollars in annual cost savings to AT&T’s customers and notwithstanding the fact that
(unlike in “horizontal” mergers) no competitor will be eliminated by the mergers proposed
vertical integration
Not surprisingly, the defendants, AT&T, Time Warner, and DirecTV, strongly
disagree. Their vision couldn't be more different. The video programming and distribution
market, they point out, has been, and is, in the middle of a revolution where high-speed
internet access has facilitated a “veritable explosion” of new, innovative video content and
advertising offerings over the past five years. Trial Tr. (“Tr.") 1397:1-4 (Montemagno
(Charter)). Vertically integrated entities like Netflix, Hulu, and Amazon have achieved
remarkable success in creating and providing affordable, on-demand video content directly
to viewers over the internet. Meanwhile, web giants Facebook and Google have developed
new ways to use data to create effective ~ and lucrative ~ digital advertisements tailored to
the individual consumer,
As a result of these “tectonic changes” brought on by the proliferation of high-speed
internet access, video programmers such as Time Warner and video distributors such as
ATAT find themselves facing two stark realities: declining video subscriptions and
flatlining television advertising revenues. /d. at 3079:18 (Bewkes (Time Warner)). Indeed,
cost-conscious consumers increasingly choose to “cut” or “shave” the cord, abandoning
their traditional cable- or satellite- TV packages for cheaper content alternatives available
over the internet. At the same time, Facebook's and Google's dominant digital advertising
platforms have surpassed television advertising in revenue. Watching vertically integrated,
2data-informed entities thrive as television subscriptions and advertising revenues declined,
AT&T and Time Warner concluded that cach had a problem that the other could solve:
Time Warner could provide AT&T with the abi
ity to experiment with and develop
innovative video content and advertising offerings for AT&T’s many video and wireless
customers. and AT&T could afford Time Warner access to customer relationships and
valuable data about its programming. Together, AT&T and Time Warner concluded that
both companies could stop “chasing taillights” and catch up with the competition, 2/16/18
Hr'g Tr. 34:16 [Dkt # 67]. Those were the circumstances that drove AT&T, a distributor
of content, and Time Warner, a content creator and programmer, to announce their historic
$108 billion merger in October 2016 (the “proposed merger” or “challenged merger”).
Those are the circumstances that cause them to claim today that their merger will increase
not only innovation, but competition in this marketplace for years to come.
Section 7 of the Clayton Act assigns this Court the “uncertain task” of weighing the
parties’ competing visions of the future of the relevant market and the challenged merger’s
place within it, United States v, Baker Hughes Inc., 908 F.2d 981, 991 (D.C. Cir. 1990).
Nothing less than a comprehensive inquiry into future competitive conditions in that
market is expected. And the Government has the burden of proof to demonstrate that the
merger is likely to lessen competition substantially in that uncertain future.
Since announcing the transaction in late October 2016, defendants have delayed
closing on the merger agreement for about 18 months as a result of the Government's
investigation and suit. The deal is now set to expire if not consummated on or before June
21, 2018 —a turn of events that would require AT&T to pay Time Warmer a “break-up fee”
3of $500 million. The parties have engaged in a highly accelerated discovery schedule to
prepare themselves to try this case in March and April of this year. The tial itself lasted
nearly six weeks. Both sides put on a case-in-chief and the Government put on a rebuttal
case as well. At the conclusion of the trial, | advised the parties I would issue a ruling, if
not an opinion, no later than June 12, 2018 so that the losing side would have the agreed-
upon time remaining to pursue its appellate rights before the merger or the $500 million
break-up fee went into effect,
The following is the Court's Opinion. Initially, I provide context for this suit by
reviewing the background of the video programming and distribution industry, the
proposed merger, and the procedural history of this case, Thereafter, I discuss the legal
standards governing a suit under Section 7 of the Clayton Act, emphasizing in particular
the considerations at play in evaluating vertical mergers. With that in place, I next analyze
each of the Government's three theories of harm to competition, balancing, as appropriate,
the conceded proconsumer benefits of the merger with the consumer harms alleged and the
evidence offered to support them. Ultimately, I conclude that the Government has failed
to meet its burden to establish that the proposed “transaction is likely to lessen competition
substantially.” Baker Hughes, 908 F.2d at 985,
As such, based on that conclusion, and for all the reasons set forth in greater detail
in this Opinion, the Court DENIES the Government’s request to enjoin the proposed
merger.TABLE OF CONTENTS
BACKGROUND 7
The Video Programming and Distribution Industry 7
A. Video Programing and Distribution .....00ssssusnnnnnnnnnnnnnnnss 8
1, Programmers. 8
2. Distributors — u
3. Affiliate Negotiations and “Blackouts” . = ea
B. Industry Trends. ee
1. Rise and Innovation of Over-the-Top, Vertically Integrated Video Content Services... 18
2. Declining MVPD Subscriptions Resulting from an Increasingly Competitive Industry
Tandecepe eee eens Seen ——a 21
G1 Shift Toward Targeted: Digital Advertising ee =)
I. The Parties and Proposed Merger ee
A. AT&T 28
Be Vite W arrict eee eee = 0
1, Turner Networks 31
2. HBO 34
CC. The Proposed Merger. 36
IIL Procedural History... 40
A. The Investigation ...susssmsnsnnnnninnnninnnnnnnnnnnnnninnnnnnnninnnne 40
B. Pretrial Proceedings. 40
The Complaint te ee 40
2. Tumer's Arbitration Commitment......sensensenssensensessen 4
3. Pre-Discovery Timeline... 2
4. Discovery 2
5. Discovery Disputes ...cnnnnnnnnnnnnnin sess 44
6. Evidentiary Disputes : = = 46
C. The Trial 47
IV. Legal Standard.. sssnnnninininunsnnnnnnnnnnnnnnn 50
A, The Clayton Act
B. Baker Hughes Burden Shifting Framework ess
C. Antitrust Analysis of Vertical Mergers... sesntntnness 38ANALYSIS. 59
1, Market Definition, . oo osnsene 61
11. Conceded Consumer Benefits of Proposed Merger o ea 66
Ill The Government Has Failed to Meet Its Burden to Show That the Proposed Merger Is
Likely to Substantially Lessen Competition by Inereasing Turners Bargaining Leverage in
Affiliate Negotiations .....sssssctsessesseetne eects sous 68
A. Background of Increased-Leverage Theory of Harm a
2
B. The Government's So-Called “Real-World Objective Evidence” Is Insufficient to Support
Its Increased-Leverage Theory Of Ham ....onnninnnnntnnnessnnsnnnsnns T4
1. Evidence Regarding the Popularity of Turner Content Is of Limited Probative Value in
Evaluating the Contention That Turner Will Gain Increased Leverage Due to the
Proposed Merger. . oe seen TS
2. Defendants’ Own Statements and Documents Provide Little Support for the Contention
That Turner Will Gain Increased Leverage Due to the Proposed Merger. 719
3. Third-Party Competitor Witness Testimony Provides Little Support for the Contention
‘That Turner Will Gain Increased Leverage Due to the Proposed Metget.n.-rnnnson 91
4. Real-World Evidence Indicating That Prior Vertical Integration of Programmers and
Distributors Has Not Affected Affiliate Fee Negotiations Undermines the Government's
Increased-Leverage Theory of Harm. seccessesesnesee .. 99
CC. The Governments Expert Testimony Is Also Insufficient to Support Its Increased-
Leverage Theory of Harm . on 109
1. The Evidence Is Insufficient to Support Professor Shapiro’s Conclusion That the Merger
Will Increase Turner's Bargaining Leverage and, in Turn, Affiliate Fees ...cununen HT
2. The Evidence Is Insufficient to Support the Inputs and Assumptions Incorporated into
Professor Shapiro's Bargaining Model. . 18
IV, The Government Has Failed to Meet Its Burden to Show That the Proposed Merger Is
Likely to Substantially Lessen Competition on the Theory That AT&T Will Act 1o Harm
Virtual MVPDS Through Its Ownership of Time Warner Content ....:ssseciessssiseineisine 150
V. The Government Has Failed to Meet Its Burden to Show That the Proposed Merger Is.
Likely to Substantially Lessen Competition on the Theory That AT&T Will Restrict
Distributors’ Use of HBO as a Promotional Tool oe 165
CONCLUSION... see 170BACKGROUND
1. The Video Programming and Distribution Industry!
The structure of the video programming and distribution industry generally
resembles the “three-stage chain of production comprised of manufacturers, wholesalers,
and retailers that typifies the distribution of many, if not most, physical goods in the U.S.
economy.” Christopher S. Yoo, Vertical Integration and Media Regulation in the New
Economy, 19 Yale J. Reg. 171,220 (2002). Here, that three-stage chain of production and
distribution involves “content creation, content aggregation, and content distribution.”
Proposed Findings of Fact of the United States (“Gov't PFOF”) § 8 [Dkt. # 128].2
Television content begins at the manufacturing level. Although video programming
is often created by studios (such as Time Warner's Warner Bros.), some networks or
distributors “produce content for themselves” or, in the case of live sporting events, license
the rights to broadcast the events from the various sports leagues. See Tr. 80:12-16
(Fenwick (Cox). At the second level, programmers (such as Time Warner’s Turner or
Home Box Office (“HBO”)) aggregate content into a network or network group and then
For consistency throughout this Opinion, I will use the phrase “video programming and
On that score, defendants argue that “even taken at face value, the Government's projected price
effects do not state a claim under the Clayton Act.” Defs.’ PCOL 159 (capitalization altered); see also
id{4 31-33. In particular, defendants point out that the miniscule per-consumer price increases of
approximately 27-cents per month relied on by the Government would not prevent AT&T's rival
distributors from competing in the marketplace or otherwise “impair(] their ability to discipline” AT&T's
70briefly review the basics of affiliate negotiations and the Government's increased-leverage
theory of harm. With that background established, I will examine the evidence put forward
by the Government to support its argument that the challenged merger would likely
increase Turer’s bargaining leverage with distributors and thereby enable it to secure
the
greater affiliate fees than it could without the merger. Ultimately, as I will expl
Government's proof at trial falls far short of establishing the validity of its increa
leverage theory.
A. Background of Increased-Leverage Theory of Harm
As previously discussed, the terms under which distributors may license and display
programmers’ content are set through a “very tough” series of al
ate negotiations. ‘Tr
1023:2 (Breland (Turner); see supra pp. 14-18. As with any type of bargaining, each party
to an affiliate negotiation attempts to take advantage of its points of leverage, and “reaching
a deal in the end can come down to a battle of the competing bargaining leverages.” Tr.
1025:20-22 (Breland (Turner): Gov't PFOF § 154. In the event an affiliate negotiation is
unsuccessful, the distributor will lose the rights to display the programmer’s content to its
prices: indeed, they claim that competition would be promoted by the challenged merger’s conceded
vertical integration effect of lowering AT&T's prices to its projected consumers. Ld, $f] 31-32: of Comcast
Cable Comms., LLC v. FCC, 717 F.3d 982, 990 (D.C. Cir. 2013) (Kavanaugh, J., concurring) (“Vertical
integration and vertical contracts become potentially problematic only when a firm has market power in the
relevant market.”)
For the reasons given by defendants, the Court harbors serious doubts that the Government's
proffered affiliate fee increases to AT&T's rivals or the resulting 27-cent per-month subscriber cost
increases would, if proven, constitute a “substantial lessening of competition” for purposes of Section 7.
15 U.S.C. §18, As just noted, however, | need not rest this opinion on that legal conclusion. That is
because, for all of the reasons provided in the section that follows, the Government has failed to carry its
burden to put forward adequate evidence to show that there are likely to be any price increases (much less
price increases that outweigh the conceded EDM benefits to consumers) either to AT&T’ rival distributors
or their subscribers under its increased-leverage theory.
7customers, Such a situation is known in the industry as a programming “blackout,” or
“going dark.” Tr. 129:4-9 (Fenwick (Cox))
Blackouts have significant, if not “catastrophic,” negative consequences for
programmers — in the form of lost advertising and affiliate fee revenues. Jd. at 1128:7-12
(Breland (Turner); Defs." PFOF {4 76-77. Distributors, for their part, may lose
subscribers. See generally, e.g., Tr. 2197:4-2198:2 (Shapiro). In “almost every
negotiation,” therefore, programmers and distributors threaten blackouts in an attempt to
gain concessions. /d. at 1026:17-1027:3 (Breland (Turmer)); of. id. at 367:1-22, 376:22-
377:11 (Schlichting (DISH)). Given that blackouts are negative events for both
programmers and distributors, however, deals between programmers and distributors are
invariably struck in order to avoid long-term blackouts. See id, at 138:13-15 (Fenwick
(Cox)); id, at 1027:4-7 (Breland (Turmer)); id, at 1359:14-15 (Montemagno (Charter)); id.
at 3124:4-7 (Bewkes (Time Warner)). Indeed, when it comes to Turner, the record shows
that there has never been a long-term blackout of the Turner networks. See id. at 2357:12-
14 (Shapiro) (“Q: But to be sure there’s never been a long-term blackout of Turner, right?
A: No. .”); Defs.’ PFOF § 94, That fact is by no means lost on either side.
That background brings us to the Government’s inereased-leverage theory.
Notably, under that theory, the Government does nof allege that a post-merger Turner
would be incentivized to start actually engaging in long-term blackouts with distributors.
That is so, as Professor Shapiro concedes, because withholding Turner content would not
be “profitable” to the merged entity given the attendant losses in significant advertising
and affiliate fee revenues. See Tr. 2293:9-17 (Shapiro). In other words, and in contrast to
72a prevalent theory of vertical merger antitrust harm, Turner will not “foreclose”
downstream distributors from accessing Turner content. See id. at 2218:15-16 (“This is
not a foreclosure-withholding story.”); of Brown Shoe, 370 U.S. at 323-24 (stating that
“[t)he primary vice of a vertical merger or other arrangement tying a customer to a supplier
is that, by foreclosing the competitors of either party from a segment of the market
otherwise open to them, the arrangement may act as a clog on competition” (internal
quotation marks omitted)
Instead, the Government's increased-leverage theory of harm posits that Turner's
bargaining position in affiliate negotiations would improve after the merger due to its
That is so, the Government argues, because Turner and its
distributor counterparties would recognize that, should Turner fail to strike a deal and
engage in a long-term blackout with a distributor, Turner would no longer face the mere
downside of losing affiliate fees and advertising revenues. See, e.g., Gov't Post-Tr. Br. 1-
2. Rather, some of those losses would be offset, according to the Government, by new
benefits to AT&T’s video distribution companies via the following chain of events: 1)
some of the rival distributor's customers would depart or fail to join the distributor due to
the missing Turner content; 2) some portion of those lost customers would choose to sign
up with AT&T's video distributors (which would have Turner); and 3) AT&T would profit
from those gained subscribers. See generally Tr. 2197:15-2198:12 (Shapiro). As a result,
the Government predicts that Turner’s downside position in the event of a blackout would
improve as a result of the proposed merger. That improved downside position, according
to the Government, would in turn enable Turner to demand higher prices for its content in
3post-merger affiliate fee negotiations with distributors — price increases that would
ultimately be passed on to consumers. See Compl. § 38.
Attrial, the Government relied on two primary categories of evidence to support its
increased-leverage theory of harm. First, it offered s
alled “real-world objective
evidence” ~ namely, statements contained within defendants’ prior regulatory filings and
internal business documents as well as testimony from third-party competitor witnesses:
Gov't PCOL 21. Second, the Government called an expert, Professor Carl Shapiro, to
testify about its increased-leverage theory, which is based on an economic theory of
bargaining known as the Nash bargaining theory, and to estimate the consumer harm
associated with the increased-leverage theory. Gov't PFOF § 201. For the following
reasons, neither category of evidence was effective in proving the Government's increased-
leverage theory. Accordingly, as to this theory, the Government has failed to meet its
burden of proof to show that the merger is likely to result in a substantial lessening of
competition.
. The Government's So-Called “Real-World Objective Evidence”
Is Insufficient to Support Its Increased-Leverage Theory of Harm
To support its increased-leverage theory of harm, the Government first points to
various pieces of the so-called “real-world objective evidence” it offered at trial. Gov't
PCOL 21. That evidence primarily consisted of defendants’ ordinary course-of-business
documents and excerpts of regulatory filings submitted by defendants in prior
administrative proceedings, as well as the testimony of third-party witnesses from AT&T's
al distribution companies. Of particular importance here, the Government's so-called
74real-world evidence was directed at explaining and establishing two main concepts. First.
the Government sought to establish the importance of Turner content to distributors and
the resulting leverage Turner enjoys in affiliate fee negotiations, Second, the Government
relied on this so-called “real-world objective evidence” to substantiate its prediction that
Turmer’s leverage with distributors would increase as a result of Turner’s post-merger
relationship with AT&T. Neither, however, provided persuasive support for the
Government's increased-leverage theory of harm. How so?
1. Evidence Regarding the Popularity of Turner Content Is of Limited
Probative Value in Evaluating the Contention That Turner Will Gai
Increased Leverage Due to the Proposed Merger
At trial, much time was spent debating the “must-have” status of Turner's
programming content. According to the Government, distributors literally “must have”
Turner’s content in order “to compete effectively” in the video distribution industry. Gov't
Post-Tr. Br. 4; see also id. at 6 (“Distributors don’t just want this specific input to compete
effectively, they truly need it.”); Gov't PFOF 23 (similar). Defendants countered that the
term “must have” is simply a marketing phrase used to mean “popular” and, similarly, that
‘Turner content is not actually necessary to allow distributors to operate their businesses
successfully. See Defs.’ PFOF 179.
Based on the evidence, | agree with defendants that Turner’s content is not literally
“must have” in the sense that distributors cannot effectively compete without it. The
evidence showed that distributors have successfully operated, and continue to operate.
without the Turner networks or similar programming. Cf Tr. 351:5-25 (Schlichting
15(DISH)) (discussing fact that DISH’s virtual MVPD, Sling, offers packages without
broadcast stations and CBS); PX144-121 (listing “[plast [n]etwork [d]rops” by
ributors). Indeed, Stefan Bewley. a consultant who generated a slide deck with
recommendations for Charter’s use in evaluating its relationships with programmers.
indicated that “Charter would be better off and would save a lot of money [by] canceling
Turmer.” Tr. 1336:10-12 (Bewley (Altman Vilandrie)), Sling President. Warren
Schlichting acknowledged DISH founder and chairman Charlie Ergen made similar
statements to the investment community. See, e.g.. id. at 365:17-366:1 (Schlichting
(DISH) (conceding that Ergen stated in investor call that a Turner blackout would be
“slightly cash positive for us from a cash-flow perspective”).
I therefore give little credit to blanket statements by third-party competitor witnesses
indicating that the entire “viability of [their] video model” could depend on whether they
offer Turner programming. /d. at 128:21 (Fenwick (Cox)): see also id. at 697:2-19 (Hinson
(Cox)) (claiming that, without Turner, Cox would lack “the ability to compete” and that
their customers would “go somewhere else”). Such statements were largely
unaccompanied by any sort of factual analyses or. worse, contradicted by real-world
examples from the witnesses themselves. See, e.g., id. at 128:22-129:20 (Fenwick (Cox))
(neither she nor others at Cox had done analysis of potential subscriber losses in Turner
blackout); id. at 2947:1-13 (Holanda (RCN)) (“Q: And so today, you're not offering this
Court any empirical data or any real-world evidence of subscriber losses if RCN didn’t
have Turner, right? A: No, not our company.”). Compare id. at 242:14-15, 352:5-7
(Schlichting (DISH)) (“[I]f you don’t have March Madness” games. half of which are
76carried by Turner, “you're not in the pay-TV business.”), and id, at 245:14-15 (“Q: How
about CNN, why is CNN must have? A: Well, imagine coming around to midterm elections
without CNN, right.”), and id. at 242:16-243:1 (“ABC, NBC, CBS, Fox and Time Warner
are the five groups that you, you just, it’s very hard to have a pay-TV service without
them.”), with id. at 35:
-19 (conceding that DISH’s Sling does not carry CB
S, which
offers the other half of the March Madness games), and id. at 360:18-24, 388:10-389:5
(acknowledging that DISH went dark with CNN at time of 2014 midterm’ elections and
suffered only negligible subscriber loss), and id, at 351:11-21 (admitting that Sling Orange
package lacks all of the “broadcast stations [and] CBS”).24
Nor does those witnesses’ (or, for that matter, defendants’) use of the term “must
have" to describe Turner content change things, Indeed, the evidence indicated that the
term “must have” is a marketing phrase used by virtually every programmer to suggest that
its content is popular with viewers. See, e.g.. id. at $49:19-20 (Martin (Turner)) (“Must
have’ is another way of saying, we have popular programming.”); id, at 899:13-16 (Rigdon
(Comeast)) (agreeing that “must have is just a term of art that means something is
popular”); id, at 1092:18-24 (Breland (Turner)) (“[M]ust have means it’s popular. . . . I
The “must have” status of Turner content also varies based on whether the content is available
for viewing through other means, such as over the internet. Former Cable ONE negotiator Randy Sejen
testified, for example, that subscriber losses from a blackout of Turner's live baseball content were
mitigated by the fact that “consumers were able to wire around” the blackout by “accessing mlb.com if they
needed to see a particular playoff game.” Tr. 2117:21-2118:20 (Sejen (CABLE ONE)). Along those same
lines, Sejen testified that the online availability of March Madness basketball games could potentially
“address the sort of must-have nature” of that content. See id. at 2121:11-16, 2123:1-5. I received similar
evidence indicating that the availability of HBO's content through online, direct-to-consumer platforms has
lowered the value of HBO programming and thus its leverage — in the eyes of distributors. See. e.g,
DX709
71don’t in a literal sense mean that | must have this content or I can’t be successful.”); id. at
2130:23-2131:6 (Sejen (Cable ONE)) (agreeing that he would “expect to hear” all
programmers pitch their content as “must-have” and that he would “kind of take that with
a grain of salt”).
That said, 1 do nonetheless accept the Government's contention that Turner has
popular content ~ especially live sporting events and live news — and, as a result, enjoys
bargaining leverage with distributors. See Gov't PFOF $f 70-102 (summarizing evidence
regarding Turner's importance to distributors); id. §¥ 103-177 (summarizing evidence
supporting proposition that “Turner's valuable content gives it leverage in negotiations”
with distributors). Importantly, however, accepting that straightforward proposition ~ ie.,
that popular programmers such as Turner are able to demand more for their content than
less popular programmers — does not prove that the challenged merger would harm
competition pursuant to the Government's increased-leverage theory of harm. To prove
its increased-leverage theory, in other words, it is not sufficient for the Government to put
forward evidence that Turner has important content and thus bargaining leverage ~ that
fact is true today, pre-merger. Rather, the Government's increased-leverage theory posits
that Turner's pre-merger bargaining leverage would materially increase as a result of its
post-merger relationship with AT&T and that, as a result, distributors would cede greater
affiliate fees than they would absent the merger.
To support that contention at trial, the Government primarily relied on defendants”
own statements and documents as well as testimony of third-party competitor witnesses,
most (but not all) of whom expressed concern regarding the challenged merger’s potential
8effects on their businesses. Neither category of evidence, however, is persuasive in proving
that Tumer’s post-merger negotiating position would materially increase based on its
ownership by AT&T.
2. Defendants’ Own Statements and Documents Provide Little Support for
the Contention That Turner Will Gain Increased Leverage Due to the
Proposed Merger
According to the Government, defendants’ own prior statements and ordinary
course business documents “recognize that vertical integration poses a threat to
competition” and, thus, provide convincing support for the Government's bargaining
leverage claim, See Gov't PFOF §# 47-58. The Government points to statements made by
defendants in the context of prior regulatory proceedings, and statements contained in
internal documents such as slide decks and emails created by various individuals within
the defendant companies. Neither category, however, was of any particular probative
value, How so?
Asa general matter, the Government is undoubtedly correct that “ordinary course-
of-business documents, including those generated by the defendants
” can be probative of
whether a proposed merger is likely to result in competitive harm, Gov't PCOL § 49, But
as with any other piece of documentary evidence, assessing the probative value of
defendants’ own documents and statements requires an examination of the context,
circumstances, and foundation of the proffered evidence. As such, with few exceptions,
the Court denied the Government's requests to admit into evidence and cite in post-trial
briefing a number of company documents for which there was no accompanying
79background or foundation testimony. See supra pp. 46-47 & nn. 11-13, With the benefit
of foundational testimony, I have considered all of the documentary and testimonial
jence from defendants’ files and witnesses upon which the Government relied at trial
Having done so, I nonetheless conclude that the proffered statements and documents
admitted are of such marginal probative value that they cannot bear the weight the
Government seeks to place on them.”
First, the Government argues that defendants” statements “made in external filings
with governmental authorities” are evidence of defendants’ “understanding of the
anticompetitive effects that result from this transaction.” Gov't PCOL 452. The
statements in particular upon which the Government relies were made, either in comments
or supporting expert reports filed by AT&T or DirecTV, in the course of the following
F
proceedings: 1) the 2010 review of the Comcast-NBCU merger, see PX1 (DirecTV);
PX441 (DirecTV); 2) the 2012 proceeding to determine, inter alia, whether to allow one
Before proceeding further, the Court notes a bit of confusion in the Government's position about
the role of defendants’ alleged “anticompetitive intent” in assessing the likely harms associated with the
challenged merger. Gov't PCOL {| $1. In opening arguments, counsel for the Government stated, in
reference to the predictive exercised called for by Section 7, that “courts don’t focus on intent. What they
focus on is effects, effects in the market.” Tr, 10:15-16, But the Government's post-trial brief cites cases
for the proposition that “[e]vidence of anticompetitive intent can also form the basis of a court’s prediction
of harm,” while at the same time noting that “absence of evidence demonstrating anticompetitive intent
suggests nothing.” Gov't PCOL $1 & n.12.
‘The Court need not toil to reconcile those positions or parse the state of our Circuit's current case
law on the issue, Compare Whole Foods Mk, $48 F.3d at 1047 (Tatel, J., concurring in the judgment)
(°[T]he Supreme Court has clearly said that “evidence indicating the purpose of the merging parties, where
available, is an aid in predicting the probable future conduct of the parties and thus the probable effects of
the merger.” (emphasis and internal quotation marks omitted) (quoting Brown Shoe, 370 U.S. at 329 n.48)),
with id. at 1057 (Kavanaugh, J., dissenting) (“[I]ntent is not an element of a § 7 claim, ...” (citing 4.4.
Poultry Farms. Inc. v. Rose Acre Farms, Inc., 88| F.2d 1396, 1402 (7th Cir. 1989)) (“Firms need not like
their competitors; they need not cheer them on to success; a desire to extinguish one’s rivals is entirely
consistent with, often is the motive behind, competition.”)). That is because, as discussed below, here there
is nothing akin to the direct, anticompetitive intent evidence of the other cases cited by the Government in
its post-trial brief.
80of the FCC’s program access rules to sunset, see PX2 (AT&T); PX442 (AT&T); PX443
(DirecTV); 3) the 2014 annual video competition proceeding, see PX444 (AT&T); and 4)
the 2014 review of the AT&T-DirecTV merger, see PX467 (AT&T and DirecTV). Not
surprisingly, the Government contends that these prior statements show that defendants
have previously recognized the validity of applying its increased-leverage theory to
that said: so what?
affiliate fee negotiations. See, e.g., Gov't Post-Tr. Br. 2. But
Although I agree that a few of the proffered statements might be somewhat probative of
the Government’s increased-leverage theory. that limited probative value cannot, and does
not, overcome the numerous insufficiencies with the Government's case discussed below,
In particular, in examining defendants’ prior regulatory filing statements, | am
mindful of the considerations discussed in the context of the third-party competitor
testimony. See infra pp. 91-99. When AT&T and DirecTV made many of the proffered
regulatory filings, they acted as competitors to (or customers of) distributors whose
% Just prior to the close of evidence, when the Government moved the Court to take judicial notice
of certain enumerated regulatory filings, I noted that the materials filled a notebook that is about “4 inches
thick of paper.” Tr. 3942:4-5. Given the complex analyses and arguments contained within the voluminous
filings, | noted that the Government was “at an absolute minimum . .. going to have to isolate and identify
as to each document which statement or statements” it thought were relevant to the case for purposes of
clearing Federal Rule of Evidence (“FRE”) 403. {d. at 3943:23-3944:3. In response, counsel for the
Government stated that the “memorandum that | handed up isolates and lists the specific statements, and
I'm happy to limit to those that are identified on page 3 and 4.” Id. at 3945:11-13. In its post-trial papers,
the Government nonetheless appears to argue that the entire expert reports appended to the prior regulatory
filings are admissible under FRE 801(d)(2) as adoptions of defendants. See Gov't PCOL § $4 & n.13. That
is largely beside the point, however. That is because the Court declines to admit those portions of the
proffered expert reports and filings not “identified on page 3 and 4” of the Government's motion under
FRE 403, Jd. at 3945:11-13. In my judgment, evaluating the complicated, fact-specific arguments and
analyses contained with those filings and reports would essentially require a trial within a trial (recall that
not even the expert reports in this case were offered into evidence by the parties) the result of which would
produce evidence that is only marginally probative for all of the reasons discussed below.
81competiti
positions would be affected by FCC review, For that reason alone, | am
hesitant to assign any significant evidentiary value to those prior regulatory filings.
inally, with respect to this particular categories of statements, I particularly decline
to place much stock in the statements related to the sunsetting of the FCC’s ban on
exclusive contracting between certain programmers and distributors. See, e.g, PX2.
PX442, Many of those statements relate to the issue of withholding content ~ something
the Government’s own expert concedes would not occur as a result of the proposed merger
Compare PX2-4 (“[VJertically integrated programmers continue to have the incentive and
ability to use (and indeed have used whenever and wherever they can) that control as a
weapon to hinder competition to their down-stream cable affiliates by withholding popular
programming from competing MVPDs.”) (emphasis added), with Tr. 2218:13-17 (Shapiro)
(I’m not saying that after the merger, Turner will deny its content to the other distributors,
This is not a foreclosure-withholding story.”) (emphasis added). Generic statements about
“mushroomfing]” bargaining power of all programmers are similarly unhelpful to
evaluating the Government's particular claims in this case. PX444-3 to -4
That brings us to select statements made by DirecTV or AT&T that relate to
vertically integrated programmers’ ability to raise content prices and the use of the Nash
bargaining model to estimate increased affiliate fees. See, e.g., PX1-17, -83 ("[VJertical
integration of programming and distribution can, if left unchecked, give the integrated
entity the incentive and ability to gain an unfair advantage over its rivals.”); PX441-5
(noting “voluminous economic and other evidence that the proposed transaction would
enable Comeast to raise the prices paid by its MVPD rivals for NBCU programming”):
82PX443-79 (“[VJertically integrated MVPDs have an incentive to charge higher license fees
for programming that is particularly effective in gaining MVPD subscribers than do non-
vertically integrated MVPDs.”). According to the Government, those statements show that
defendants recognize the validity of applying this bargaining model to estimate the impact
of AT&T and Time Warner's vertical integration on affiliate fee negotiations. Please !
Generic statements that vertical integration “can” allow the integrated entity to gain
an “unfair advantage over its rivals,” PX1-17 (emphasis added), do not come close to
answering the question before the Court in relation to the Government's increased-leverage
theory: whether the Government has carried its Section 7 burden to show, through proof,
at trial, that Time Warner will gain increased bargaining leverage in affiliate negotiations
on account of the proposed merger and, if so, whether that increased bargaining leverage
would result in increased distributor or consumer costs that would constitute a substantial
lessening of competition under Section 7. Cf. In re Applications of Comcast Corp., 26
FCC Red. 4238 § 24 (2011) (noting differences in FCC’s “public interest” review and
DOI's burden for “block{ing] a transaction” under Section 7). Similarly, the arguments
that the Comcast-NBCU merger would harm distributors or consumers (as well the
projections of harm) were, of course, informed by the state of the market at the time of the
proceeding and the particular inputs to the models presented to the FCC. See, e.g.. id. app
B (Technical Appendix) (setting out various formulae and inputs used to model potential
economic harm). Given all that, defendants’ specific predictions regarding the ability of a
merged Comeast-NBCU to leverage price increases by threatening to withhold the
particular programming at issue is not particularly probative of whether a merged AT&T-
83Time Warner could do the same with its programming in today’s more competitive
marketplace. Compare id. § 41 (“We do not determine at this time whether online video
competes with MVPD services.”), with Gov't PFOF $f 14-18 (detailing role of virtual
MVPDs in “distributfing] linear channels and on demand content to subscribers over the
internet”). Moreover, as discussed in more detail below, defendants’ expert Professor
Carlton concluded in an econometric analysis of content pricing following the Comeast-
NBCU merger that, contrary to the predictions offered by competitors in the regulatory
filings, the merger did not cause content prices to increase. See infra pp. 100-105,
That said, the Court agrees with the Government that the fact that defendants
previously submitted expert reports or commentary sponsoring the use of the Nash
bargaining model in the context of affiliate fee negotiations counts as a mark (albeit a faint
one) against defendants’ attempts to disavow the applicability of the Nash bargaining
theory in this case. Unfortunately for the Government, however, my conclusion that the
Government has failed to provide sufficient evidentiary support to show the Nash
bargaining theory accurately reflects post-merger affiliate negotiations or the proffered
bargaining model in this case does not turn on defendants’ protestations that the theory is
“ridiculous,” or “absurd.” Gov't PFOF {47 (quoting Tr. 50:18 (Defs.”
“preposterous,”
Opening); id. at 3119:19-24 (Bewkes (Time Wamer)); id. at 3430:1-11 (Stephenson
(AT&T)). Itrests instead on my evaluation of the shortcomings in the proffered third-party
competitor testimony, see infra pp. 91-99: the testimony about the complex nature of these
negotiations and the low likelihood of a long-term Turner blackout, see infra pp. 14-18,
115-117 & nn.34-36; and the fact that real-world pricing data and the experiences of
84individuals who have negotiated on behalf of vertically integrated entities all fail to support
the Government's increased-leverage theory, see infra pp. 99-108. Therefore, even
assigning some probative weight to the statements made by defendants in prior regulatory
proceedings, those statements do not come close to providing a sufficient evidentiary basis
to prove the viability of the Government’s increased-leverage theory in this case.?”
Second, to prove its increased-leverage theory, the Government relies upon random
statements from defendants’ “ordinary course” bus
ess documents, including employees”
® The Government takes its regulatory filings argument one step further in its post-trial briefing,
asserting, for the first time, that defendants’ prior regulatory statements should result in them being
Judicially estopped from denying basic predicates of the increased-leverage theory of harm. Gov't PCOL
{9 74-75. To say the least, that argument is a stretch. As the Supreme Court has explained. the “equitable
doctrine” of judicial estoppel may be “invoked by a court at its discretion” to guard against a party's
“improper use of judicial machinery” to gain an'“unfair advantage.” New Hampshire v. Maine, 332 US.
742, 750-51 (2001) (internal quotation marks omitted). To appropriately apply judicial estoppel against a
party, the “party’s later position must be ‘clearly inconsistent” with its earlier position”; courts also consider
whether the party has “succeeded in persuading a court to accept that party’s earlier position” or would
“derive an unfair advantage or impose an unfair detriment on the opposing party if not estopped.” Id.
(internal quotation marks omitted),
Applying those factors, | easily conclude that estoppel is not appropriate here. To start, the cited
prior regulatory comments are not “clearly inconsistent” with defendants’ current positions: predicting that
a different vertical transaction, made at an earlier time period and in a less-competitive market, will shift
bargaining outcomes is ot inconsistent with arguing that the Government has failed to earry its burden of
proof to show at trial that a different transaction, proposed in the context of an even more competitive
market, is likely to similarly shift outcomes (much less substantially lessen competition). Maine, $32 US
at 750; Jankovic v. Int'l Crisis Grp., 822 F.3d 576, $86 (D.C. Cir. 2016) (declining to apply estoppel when
party’s position was not inconsistent). Although that consideration alone is fatal to the Government's
estoppel argument, the Court further notes that the equities also weigh against applying estoppel here. The
Government investigated the proposed merger for approximately one year before filing its suit. Disputes
regarding the applicability of an increased-leverage theory as applied to the transaction have been front and
center in the litigation, and were fully aired at trial. Given all that, Iam hard pressed to understand how the
Government would suffer an “unfair detriment” if defendants are not estopped; if anything, it would seem
manifestly unfair to defendants to accept the Government's post-trial estoppel argument that much of the
trial evidence can be ignored and indeed substituted with decades-old regulatory filings. Thus, even
assuming that estoppel can be applied based on statements contained within third-party regulatory
comments to prior administrative proceedings, but see Abjew v. U.S. Dep't of Homeland Sec., 808 F.3d
895, 899-900 (D.C. Cir. 2015) (“[T he rule of judicial estoppel ‘generally prevents a party from prevailing
in one phase of a case on an argument and then relying on a contradictory argument to prevail in another
phase.”” (emphasis added) (quoting Maine, 532 U.S. at 749)), the Court declines the Government's last-
minute invitation to estop defendants here,
85emails and internal slide decks. Indeed, the Government even featured many such
statements (or, more accurately, snippets of such statements) in its Complaint and pre-trial
filings. However, as became clear at trial, when live witnesses take the stand a trial by
slide deck leaves much to be desired !
Exemplary of this problem is a series of Government exhibits containing emails and
Grafts of slide decks generated prior to a merger integration meeting in 2017. See PX31;
PX184; PX189; PX363. The Government has emphasized statements excerpted from those
slide decks, contending before, during, and after trial that they highlight AT&T's “core
belief” that the merger would help it preserve the role of “[t]raditional Pay-TV™ as a “cash
cow business to AT&T for many years to come” by ensuring “stability through the slow.
structural decline of the industry.” PX363-12 to -13; see, eg. Compl. § 3 (“As
AT&T/DirecTV’s strategic merger documents state, after the merger, disruption need not
occur immediately — the merged firm ‘can operate [its] pay-T'V business as a ‘cash cow’
while slowly pivoting to new models.”); Gov't Pre-Tr. Br. 2-3 (same).
At trial, however, we learned that those statements were drafted by a lower-level
AT&T employee who had nothing to do with the substance of the decision to acquire Time
Warner, see Tr. 1777:16-1778:3 (Manty (AT&T), and in any event, were contained in a
preliminary draft and were subsequently removed or changed, see id. at 1732:25-1733:25.
To be sure, Government counsel endeavored to characterize that subsequent change as a
nefarious “sanitization” by lawyers; but testimony indicated that the “whole deck changed”
as a result of the parlor room process and its attendant legal review. See id. at 1738:7-13,
1744:8-13. Compare PX363 (Apr. 8, 2017), and PX31 (Apr. 9, 2017), with PX189 (Apr.
8618, 2017). In the final analysis, no upper-level AT&T witness testified to ever having
viewed or otherwise relied on the draft statements. To say the least, their probative value
was minimal.
As it turned out, much of the Government's proffered “ordinary course” evidence
went the way of those draft slide deck statements. Compare Tr. 1713:20-23, 1714:3-6
(Gibson (AT&T)) (confirming that internal AT&T documents stated that “NBCU could
become a more formidable negotiating power" and that “[cJontent costs could increase” as
a result of the expiration of the Comeast-NBCU consent decree) (internal quotation marks
omitted), with id, at 1712:14, 25, 1714:1-2, 9-10 (testifying that the document in question
represents a “draft understanding of some pretty complicated merger conditions” designed
to “brainstorm the what-ifs” of what Comeast-NBCU “may be able to do” that the team
and id. at 171$:20-21. 1717:17-18 (email chain, PX11, contains
“hadn't finishes
very rough understanding of” Comeast-NBCU merger conditions by “individual who
reported to me regarding merger conditions for the first time”). See also id. at 1770:25-
1771:12, 1772:16-25 (Manty (AT&T)) (showing that PX184, although sent to two AT&T
senior vice presidents in July 2016, was generated in 2014 by team of lower-level AT&T
employees and consulting firm members). I need not recount all of the examples here
Suffice it to say that | find that the Government frequently “overemphasized the importance
and relevance” of the excerpts from defendants’ documents, given that many of them, the
testimony revealed, contained “informal speculation” about “rationales for the merger” or
were generated by individuals “who had no decision-making role or authority in relation
to the merger.” H & R Block, 833 F. Supp. 2d at 77 n.30; cf Dep’t of Justice & Fed. Trade
87Comm'n, Horizontal Merger Guidelines § 2.2.1 (Aug. 19, 2010) (“Horizontal Merger
Guidelines”) (“The Agencies give careful consideration to the views of individuals whose
responsibilities, expertise, and experience relating to the issues in question provide
particular indicia of reliability.”).
In a few instances, however. the Government sought to draw evidentiary support
from some of AT&T CEO Randall Stephenson's own statements and notes. ‘The
Government pointed, for example, to an email that Stephenson sent upon being informed
by Time Warner CEO Jeff Bewkes that “Time Warner had ‘taken a 10% stake in Hulu”
and that Hulu was going to launch a virtual MVPD.” Gov't POF § 51 (alteration omitted)
(quoting PX47). In response to Bewkes’ statement that he did not think the announcement
would impact AT&T's relationship with Time Warmer, Stephenson stated that it was “hard
to imagine how it won't impact all of our relationships,” continuing that AT&T is “trying
to figure out how we navigate a very new world where you folks are going around us while
trying to preserve the old revenue streams and business models from us.” PX47. At trial,
Stephenson testified that his email indicated his concern that DirecTV Now. the new virtual
MVPD AT&T was
nding... up” at around that same time, would get the “same
access” as one of its virtual competitors, Hulu. Tr. 3475:21-22, 3477:6-7. In this Court's
view, expressing concern about how a rival virtual MVPD’ relationship with Time Warner
could affect AT&T’s nascent DirecTV Now platform does little to prove how AT&T would
likely behave in the event of a vertical integration.
The Government also relies on notes that Stephenson drafted to himself in
preparation for an AT&T Board of Directors Meeting to discuss the merger, See Gov't
8852. In those notes, Stephenson listed the following as a discussion point: “How
can you advantage your own distribution (TV, BB, Wireless) without harming TW position
as a wide distributor of content to other SVOD, cable networks, and broadcast networks.”
DX609-8. The Government argues that this bullet point reflects “exactly the theory of the
government’s case: use content to advantage distribution.” ‘Tr. 3980:4-5 (Gov't Closing):
see also Gov't PFOF * 52-53. Not so. Attrial, Stephenson testified credibly that the point
of that note was to frame a discussion with his Board “that if there is a thought process that,
says we're going to use this content to enhance the distribution business, that means you're
going to have to limit the distribution” and that “is counter is how you create value in one
of these businesses.” Tr. 3407:16-21. That testimony mirrors the contents of a letter sent
by Stephenson to all AT&T officers shortly after the announcement of the proposed
merger. In that letter, known among those in defendant companies as the “Magna Carta’
of the merger, Stephenson writes “[t]o Time Warmer employees: We will continue to
distribute Time Warner content broadly across the industry. In fact, we want to extend its
distribution deeper into mobile so all wireless companies become distribution points for
Time Warner content.” DX625-1; see also Tr. 3408:16-22 (Stephenson (AT&T).
To be sure, the Government impugns Stephenson’s explanation, calling it “curious”
and credulity “strain[ing]” in light of the testimony given about the other notes on the same
page. See Gov't PFOF # 53; Tr. 3980:21, 3981:9 (Gov't Closing). But even should I fail
to credit Stephenson’s explanation about that particular pre-Board-meeting bullet point, the
contents of that bullet point fail to meaningfully advance the Government’s case. To start,
as we learned at trial, there are a number of ways in which AT&T could “advantage {its}
89own distribution” through use of Time Warmer content without acting in accordance with
the Government's increased-leverage theory of anticompetitive harm. See, e.g., Tr
3220:21-3221:20 (re-stacking and re-editing personalized sets of CNN news clips for
access on mobile devices); id. at 3222:4-22 (shooting, producing, and broadcasting live
sporting events in 4K resolution); id, at 3223:13-3224:4 (integration of social media and
multi-sereen functionality with content).
In short, despite the Government's efforts to paint a contrary picture, this
not a
case containing direct, probative evidence of anticompetitive intent on the part of high-
level executives within the merging company. Cf, eg., Whole Foods Mit., $48 F.3d at
1044-45 (Tatel, J., concurring in the judgment) (discussing “Project Goldmine,” as well as
other merger-related documents, in which Whole Foods CEO stated, among other things,
that company to be acquired is the “only existing . . . springboard for another player to get
imto this space” and that “{e]liminating” the company “means eliminating this threat
forever, or almost forever"). Stephenson’s statements and the Government's other
proffered documentary evidence instead suggest, at the very most, that AT&T (or its third-
party consultants) recognized that one possibility of uniting content and distribution would
be to withhold or otherwise limit content from other distributors in an attempt to benefit
AT&T's distribution platforms, But evidence indicating defendants’ recognition that it
could be possible to act in accordance with the Government’s theories of harm is a far ery
from evidence that the merged company is likely to do so (much less succeed in generating
anticompetitive harms as a result). Cf Baker Hughes, 908 F.2d at 984 (“Section 7 involves
probabilities, not certainties or possibilities.”). That is especially true when the
90,Government’s documentary evidence is weighed against the considerable contrary
evidence ~ including other evidence related to the motivation for the challenged merger —
that came out at trial. See, e.g., Defs.’ PFOF ¥ 49-62 (collecting evidence regarding the
proposed merger’s ability to “enable the combined company to respond to the challenges
posed by the current transformation of the video marketplace and, in so doing, bring better
products and better value to consumers”); see also supra pp. 36-40. Thus, taking such
documentary evidence for all it’s worth, that evidence is only marginally probative of the
viability of the Government’s increased-leverage theory of harm.
3. Third-Party Competitor Witness Testimony Provides Little Support for
the Contention That Turner Will Gain Increased Leverage Due to the
Proposed Merger
In further support of its bargaining leverage claim, the Government called a number
of third-party witnesses from AT&I"s competitor video distribution companies to the
stand, Although such companies are “customers” that purchase Turner content, Tr. 18:15
(Gov't Opening), all of them are also competitors of AT&T's video distribution services
See, e.g., Tr. 82:7-8 (Fenwick (Cox); id. at 263:19-24 (Schlichting (DISH)). Not
surprisingly, most of the third-party competitor witnesses testified that they oppose the
challenged merger for a number of reasons. According to the Government, that “direct
industry evidence” supports its bargaining claim by describing “how the merger would
increase Time Warner’s leverage over distributors.” Gov't Post-Tr. Br. 8. I disagree. For
the reasons discussed below, the third-party competitor witness testimony fails to provide
meaningful, reliable support for the Government's increased-leverage theory.
1As has been observed in the context of other merger cases, I start by noting the
difficulty of determining just how much weight to give the proffered third-party
competitors’ concerns about the challenged merger. On the one hand, such testimony can
provide the Court with insight into the nature of the industry and a proposed transaction’
potential effects in the market. See Gov't PCOL 448-49. On the other hand — and
particularly in the context of a verti
| merger case where, as here, upstream customers are
downstream competitors ~ there is a threat that such testimony reflects self-interest rather
than genuine concerns about harm to competition. Cf Arch Coal, 329 F. Supp. 2d at 145
(
ing 2A Areeda & Hovenkamp, Antitrust Law § $38b, at 239 (““subjective’ testimony
by customers”
‘often unreliable"); Horizontal Merger Guidelines § 2.2.2 (noting
possibility that customers may voice opposition to merger “for reasons unrelated to the
antitrust issues raised by that merger”); Tr. 2462:14-23 (Carlton) (noting that a “rival
doesn’t want to see a transaction that makes it(s] competitor more efficient,” even though
such a result may be “good for consumer[s]”). As in any Section 7 case, however, the
central issue here is whether the Government has proffered sufficient support for the
anticompetitive effects it asserts; it is not about protecting AT&T's rivals from any and all
competitive pressures they would experience should the merger go through. Cf Aema, 240
F. Supp. 3d at 18 (“[T]he Clayton Act protects ‘competition,’ rather than any particular
competitor.”) (citing Baker Hughes, 908 F.2d at 988, 991 n.12). Caution is therefore
necessary in evaluating the probative value of the proffered third-party competitor
testimony. Cf Ken Heyer, Predicting the Competitive Effects of Mergers by Listening to
Customers, 74 Antitrust L.J. 87, 127 (2007) (“In evaluating the likely competitive
92consequences of proposed mergers, competition authorities and courts properly weigh the
totality of the evidence, refusing to take the views expressed by customers at face value and
insisting that customer testimony be combined with economic evidence providing
objective support for those views .
For starters. I would note that not all third-party witnesses provided testimony
supportive of the Government's predictions that Turner's post-merger bargaining leverage
would increase as a result of its relationship with AT&T. For example, when Comeast lead
negotiator Gregory Rigdon was asked whether he believed the merger would increase
Turer’s bargaining leverage, he answered in the negativ
noting that he didn’t “have any
reason to believe that it will impact my negotiations with Turner or HBO.” Tr. 884:5-6
(Rigdon (Comeast)). Thus, the evidence indicates that AT&T’s largest video distribution
competitor — and thus a significant source of harm in Professor Shapiro’s model, see, e.g.,
id. at 2665:3-7 (Katz) ~ does not anticipate changing its negotiating strategy with respect
to a post-merger Turner. Along those same lines, Randy Sejen, a recently-retired
negotiator from Cable ONE, testified that when negotiating with a programmer. “it doesn’t
matter to us who owns the network.” /d. at 2102:6-7 (Sejen (Cable ONE). In short, the
Government's third-party competitor witnesses were not consistently concerned regarding
Turmer’s ability to demand increased affiliate fees post-merger.
It is the case, however, that other third-party competitor witnesses expressed
“concern about the increased” bargaining leverage or other competitive gains on the part
of Turner “that will result from the proposed transaction.” Arch Coal, 329 F. Supp. 2d at
145. Their testimony, however, suffered from shortcomings that, when viewed in light of
a