Reported question problem

here is a quetion

direct speech:

he said "we were watching TV when the telephone rang"

i would like to know what is the reported speech in this case..

I think

" he said that they WERE watching TV when the telephone rang " is correct./....

but how about this?

" he said that they HAD BEEN watching TV when the telephone HAD rang"

or

"he said that they HAD BEEN watching TV when the telephone rang"

by rule that past continuous tense should be changed to past perfect continous...

but I feel that using "HAD BEEN watching " is a little bit strange...

could anyone explain to me this??

THank you very much!!!!