(Adds Bewkes cross examination)
By Diane Bartz and Jessica Toonkel
WASHINGTON, April 17 (Reuters) - Time Warner Chief Executive Jeff Bewkes on Wednesday defended his company’s planned merger with telecoms firm 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 U.S. Justice Department was wrong to say that AT&T would be reluctant to license Time Warner’s TV and movie content to rivals, causing blackouts, in order to win over new customers to AT&T subsidiary DirecTV.
“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 lost subscriptions and advertising).”
He said that “one percent, less than one percent, maybe two 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.
Bewkes 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.
He said Time Warner had been hampered in innovating and advertising because it does not have the granular information about viewers held by pay TV and internet companies.
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 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 could represent 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 be sold at triple the price of regular ads.
“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.
Advertisers’ spending on TV ads in 2018 is expected to be around $70 billion, a 1.45 percent increase from three years ago, according to research firm eMarketer.
In cross examination, Justice Department lawyer Claude Scott pointed to efforts that Time Warner was already making to move into targeted advertising and online distribution, including contracting with tech companies, an apparent attempt to call into question the need for the megamerger.
Scott referred to Bewkes’ compensation package, noting that he would be leaving the company when the deal closed and that he owned more than 2 million Time Warner shares. AT&T’s deal for Time Warner is about a 35 percent premium over the market price.
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.
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 and Rosalba O’Brien)