Schlichting’s testimony took up just a fraction of Monday’s proceedings in the antitrust trial, as the Justice Department seeks to block the massive merger. He will again take the stand on Tuesday.
One of the DOJ’s central arguments is that AT&T-Time Warner will have the leverage to demand higher prices for cable networks like TNT, TBS, and CNN that will ultimately be passed on to the consumers.
The DOJ is calling executives from AT&T’s rivals to testify about what it will mean for their businesses if the merger is allowed. Schlichting said AT&T-Time Warner will have less of an incentive to come to an agreement in carriage disputes.
He said in his testimony that in previous negotiations for Turner content, both sides were in a “mutual headlock,” where they may be playing hardball in negotiations, but know that they will have to get to a deal. With the merger, he said that is not necessarily the case.
“I just don’t see them having any motivation to move” on their deal demands, he predicted.
He said if there was a blackout, in which Turner networks are pulled from Dish’s carriage, Dish’s satellite service would lose subscribers, and they would migrate to rival DirecTV.
He suggested that Sling TV would be even worse off, because it is easier for subscribers to sign up and cancel their online service that it is for the satellite platform. Some customers would likely migrate to DirecTV Now, an internet “over the top” service that was launched by DirecTV, he said.
Schlichting said the situation would be a “Hobson’s choice” — they could take the onerous terms demanded by AT&T-Time Warner, or face losing the Turner channels altogether.
“If we say no, I just don’t see where it goes from there,” he said. He suggested that if they lose the Turner channels, “you could see our subscriber base, which we’ve managed to build, dissipate quickly.”
He said an issue wasn’t just the price that AT&T-Time Warner would demand, but that it would also force Sling TV to carry more of its network. The Sling TV business model, he said, is based on keeping the channel selection as a “skinny bundle,” not as a replication of the menu of dozens of channels on a basic package of a traditional pay TV service.
Sling TV carries four Turner networks now, but he said he fears being forced to take all eight. Other media companies would then make similar demands. “Once that happens, we break our model,” he said.
Shortly after the Justice Department filed its lawsuit in November, the Turner networks made an offer to go into “baseball-style” arbitration with distributors if the merger was approved. The offer was designed to assuage concerns that the merger would put rival distributors at a disadvantage.
In his testimony, Schlichting said that such arbitration presented a big risk for Dish, as it puts the decision over a potential carriage deal in the hands of an arbitrator who may not grasp the complexities of the situation.
“It’s an all or nothing proposition, so the risk is really high in my mind,” he said.
Much of the morning was spent in a dispute, after the Justice Department revealed that Schlichting’s attorney from Steptoe & Johnson, representing Sling TV, had received a trial transcript of proceedings last week and shared them with his client.
Judge Richard Leon warned that almost all witnesses had to refrain from reading transcripts about the case until after they testified, and warned that he could strike witnesses from the case if they did so in the future. He did not do so in the case of Schlichting.