By Diane Bartz
WASHINGTON (Reuters) - Time Warner Chief Executive Jeff Bewkes on Wednesday defended his company's planned merger with AT&T as necessary to compete effectively for advertising with internet giants like Google and Facebook.
Bewkes told Judge Richard Leon, who will decide if the $84.5 billion deal may go forward, that the Justice Department was wrong to say a merger would allow Time Warner to push for blackouts in negotiations with pay TV operators who wanted to show their content in order to allow AT&T subsidiary DirecTV to pick up more customers.
"I think it's ridiculous," said Bewkes, who has been CEO for more than 10 years. "If our channels are not in distribution we lose lots of money (from subscriptions and advertising)."
He said that "1 percent, less than 1 percent, maybe 2 percent" of subscribers would drop their pay TV subscription because of a blackout, far below the 12 percent estimated by an economist for the government who testified earlier in the trial.
He argued it was in Time Warner's best interest financially to license its television channels, which range from movies to CNN to sports, broadly online.
Bewkes explained how Time Warner has been hampered in innovating and advertising because it does not have the granular information about viewers that pay TV and internet companies have.
With digital advertising, Chevrolet, for example, can target car ads at people looking to actually buy a car, he said.
AT&T has said a key benefit of owning Time Warner, whose networks include CNN and TBS, is that it can take data about its 141 million U.S. wireless subscribers and 25 million video subscribers and marry it with Time Warner's programming to enable advertisers to target TV ads.
Targeted TV ads, also known as addressable TV, have yet to go mainstream because they involve renegotiating carriage deals with programmers and distributors, said Brian Wieser, an analyst at Pivotal Research.
Targeted TV represents more than $100 billion in revenue by 2030 for companies that offer it, according to an April Credit Suisse report, which called it "a largely overlooked benefit of the AT&T/Time Warner transaction." The ads can also be sold at triple the price of regular ads.
'HEALTHY COMPETITION'
"The Google/Facebook duopoly has such a strong hold on the market, I think it's important that there is healthy competition and that we aren't just forced to invest in two places," said Tim Villanueva, head of media strategy for Fetch, an ad agency focused on mobile, whose clients include eBay and Lululemon. He said he was interested in using the new platform.
U.S. advertisers are expected to spend $60.9 billion this year on Facebook and Google, an 86 percent increase from the $32.8 billion they spent three years ago, according to research firm eMarketer.
Meanwhile advertisers' spending on TV ads is expected to be $69.9 billion, a 1.45 percent increase from three years ago.
The trial has seen a parade of witnesses testifying about how the merger would affect them. Executives from smaller pay TV companies talked about how important it was to have access to Time Warner's movies and television shows.
Both the Justice Department and AT&T called on economists to defend their points of view.
Among them were Carl Shapiro of the University of California at Berkeley, who said the $84.5 billion deal would cost American consumers some $286 annually in higher prices, while Dennis Carlton, from the University of Chicago, said it would mean a benefit of 52 cents per month to every pay TV subscriber.
The trial, which began in mid-March in U.S. District Court in Washington, is expected to wrap up this month.
(Reporting by Diane Bartz; Additional reporting by Jessica Toonkel; Editing by Bernadette Baum)
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