Big tech has become the ubiquitous enemy. President Donald Trump blasts Amazon for hurting the United States Postal Service. Media companies resent Google for destroying their advertising model and aggregating news. Everyone hates Facebook . That menace was invoked frequently last week by chief executives Jeff Bewkes of Time Warner TWX -0.28% and Randall Stephenson of AT&T .
The two CEOs were testifying as AT&T’s final witnesses in the U.S. government’s lawsuit to block the merger of the two companies. They made the case that the deal needs to be approved for their companies to survive the onslaught of the tech firms. Yet, the imminent doom they conjured for their business doesn’t entirely hold up.
It is true, as Mr. Stephenson pointed out, that Netflix gained 2 million domestic subscribers just in the last quarter, while AT&T’s DirecTV lost 1.2 million in 2016. The trend is toward cutting the cord: Half of all millennials don’t have subscription pay TV service, relying on streaming platforms instead. Mr. Stephenson compared the technological shift to a previous one AT&T weathered—the phone industry’s turn to wireless.
The flaw in that argument is both wireless and landlines provide the same service. Netflix may keep adding subscribers, Amazon may surpass the 100 million Prime members it announced last week, and Google and Facebook may continue to control advertising. Yet they don’t provide the satellite and broadband connections that makes these services possible.
“Netflix, Amazon and Google have enormous potential to bring new content to consumers but for at least many years to come, they have to go through AT&T and Comcast to get to their customers,” says Gene Kimmelman, a former antitrust attorney for the DOJ. “That gives AT&T enormous market power.”
That gets to another point the CEOs tried to make: that companies like Netflix are vertically integrated, as AT&T-Time Warner aims to be. They create and deliver content, gobbling up valuable data on customer habits in the process. But as Messrs. Stephenson and Bewkes were forced to concede in their cross-examinations, those companies have to use others’ pipes.
At the same time, the tech firms they cite as threats all have very different business models. Mr. Stephenson is focused on building advertising so AT&T can win back ad dollars from Google and Facebook, mimicking their use of data to target users. But Netflix, the most obvious threat to legacy media, doesn’t have an advertising model. Nor does it have live sports or news, like Time Warner. Then there’s Amazon, whose investment in video is really about making Prime stickier. Here, Mr. Stephenson conceded that video is probably not the main reason many people sign up for Prime.
Their testimony “just threw everything against the wall—the specter of these tech companies coming to eat your lunch,” says Ketan Jhaveri, a former antitrust attorney for the DOJ’s Telecommunications Task Force.
The tech titans may be monsters in some respects. But AT&T is no timid mouse. During his testimony, Mr. Stephenson unveiled the company’s plans to launch a new “skinny bundle” of television channels, undercutting his claim that AT&T needs to acquire Time Warner to innovate. (Time Warner has already been doing a good deal of streaming, too.) A battle with big tech may loom down the road, but the question for Judge Richard Leon is whether an AT&T-Time Warner monster can do immediate harm now.
Write to Elizabeth Winkler at Elizabeth.Winkler@wsj.com