Time Warner Merger

TAKEAWAY: TIME WARNER MERGER

STEPHENSON:
We’re trying to acquire Time Warner. They are the parent company of Warner Brothers Studios and HBO and Turner Networks, so CNN, TBS, TNT, and so forth. And we really thought it’d be a good idea.  We’ve been working over the last few years to build the capability to distribute video—premium video—over wireless technology, and we’re investing a lot.  Warren, did you say $200 billion? I knew our guys were investing too much. But we’ve been investing a lot to make this happen.

As we think about building out these kind of capabilities, invariably we will build out these kind of capabilities, and somebody will make a lot of money taking advantage of these capabilities. Apple did quite well off the mobile Internet when we made the Internet mobile and the iPhone came along. And we really believed, as you begin to build the capability to distribute premium video, and people will consume premium video, there’s going to be a whole new distribution avenue for media companies. We were kind of the naysayers that media companies were in decline. We actually thought if you create this kind of distribution, media companies will probably become more valuable over time, and we thought we should own some premium video.

So we worked with Time Warner. Jeff Bewkes and I reached an agreement to acquire it. I won’t go into the legal dogma, but it was a vertical merger, and we looked at this, and no competitors would be taken out of the market. We did our analysis, and for 50 years there has not been one of these really challenged—successfully challenged—in the courts. So we entered into the deal. And after a year of review, the United States government decided that this had antitrust—they contend that it has antitrust implications, and so they have filed to sue AT&T and Time Warner to block the merger.

We are in the middle of that process, and we have a court date set for March 19th. A judge has been selected. We’re in the DC Circuit Court, and it will be going to trial on March 19th, and the government will have to put on their case. That’s the interesting part about a vertical merger. The burden of proof is on the government. They will have to demonstrate in a court of law that this does have antitrust implications and will substantially reduce competition and increase prices. So the burden of proof is on them, and so we’ll be defending that three-week trial, and hopefully we’ll get a verdict and an order early in the spring—late in the spring, excuse me.