AT&T’s Change Agent

WarnerMedia Group CEO John Stankey has a major task ahead: transform the telco’s content business for the digital age
Author:
Publish date:

In the 10 months since AT&T’s megadeal to buy Time Warner closed — and a little more than a month after clearing the final regulatory hurdle for the transaction — WarnerMedia Group CEO John Stankey has spent most of his time dealing with organizational issues. Now, with most of the Time Warner old guard gone and the addition of some seasoned new blood, Stankey and his team face what has always been the primary job at hand: transforming the content industry as we know it.

WarnerMedia Group CEO John Stankey

WarnerMedia Group CEO John Stankey

It’s no small task. WarnerMedia, one of the largest content companies in the world with revenue last year of $18.9 billion and more than 30,000 employees, includes such iconic brands as HBO and the Turner networks. The deal that created the unit — AT&T’s $108.7 billion purchase of Time Warner Inc. last year — was one of the largest attempts by a telco to break into the media business ever. There is a lot to lose.

And with all that at stake, there are those who are skeptical that Stankey, the self-described Bell-head (a somewhat derogatory term for telecom executives weaned during the days of the old Bell System), is up for the job.

A native Californian — he was born in Los Angeles, the youngest of three children to an insurance underwriter father and a stay-at-home mother — Stankey, 56, graduated from Loyola Marymount University in 1985 with a degree in finance. In his high school days, the Eagle Scout worked at a local sporting goods store stringing tennis rackets. It was there, he told an LMU alumni publication, that he learned early on “how decisions are made on what you can and can’t do in a business.”

Shortly after graduating from Loyola, Stankey joined Pacific Bell, one of the original seven regional Bell operating companies, and by 1991 he had added an MBA from UCLA to his resume.

RELATED: AT&T's New World Order

Stankey, who was unavailable despite numerous requests to WarnerMedia to be interviewed for this article, seemed a natural for the phone company. Colleagues have called him a straightforward, no-nonsense manager, fiercely loyal to the brand and despite his physical presence — at 6 feet, 5 inches tall he reminds most who come in contact with him of a college football linebacker — a nice guy. Others have described him as rigid, stubborn and “personality-free.”

Rose Up the Ranks

Whatever the case, Stankey moved steadily up the telco ranks and has been one of the chief architects of AT&T’s media strategy. He led AT&T Entertainment Group after the telco purchased DirecTV in 2015, spearheading the launch of its first streaming video product (DirecTV Now) in 2016 and heading up the integration team after the purchase of Time Warner last year.

As CEO of WarnerMedia, Stankey has overseen a major restructuring at the programming unit, and is readying the division for its third streaming video launch in the fourth quarter of this year.

But to some people familiar with the company, that was the easy part. The pay TV landscape has changed dramatically in the past five years, with traditional distribution losing ground steadily to streaming services. Even DirecTV Now, which was on the fast track to 2.5 million customers two years ago, has dropped back considerably (it had 1.5 million customers as of March 31), as the realities of programming costs forced price increases for the service. DirecTV Now lost 267,000 customers in Q4 because of those increases and shed another 83,000 subscribers in Q1.

AT&T’s latest streaming offering is slated to debut at about the same time as a pair of offerings from two big rivals, Disney+ and Apple TV+. Although few details of the AT&T streaming product have been released — it will offer original and library content from HBO and Turner — most analysts expect it to be priced at about $15 per month, the same as its HBO Now offering and more than twice the $6.99 monthly charge for Disney+.

“Even if we can justify HBO’s existing premium price point of $14.99, with Disney+ in the marketplace at just $6.99, it would appear to make the launch of a premium-to-HBO-priced WarnerMediaFlix service challenging,” BTIG media analyst Richard Greenfield wrote in a blog post.

In a conference call with analysts to discuss its first-quarter results on April 24, AT&T chairman and CEO Randall Stephenson called the new streaming option, which he hinted would be described in more detail at a planned WarnerMedia Day in September or October, as a “thin client” aimed at lower-end satellite TV customers.

“Think of that as our satellite replacement product,” Stephenson said on the call. “This thin client gives us an opportunity to meet that low end with a better price point. That should start to moderate the subscriber losses and particularly as we get into 2020. We think this product is going to have a really good appeal for people who are down market, in terms of their expectations of digital pricing.”

Chernin Is a Sounding Board

Stankey isn’t flying blind through the media landscape. He has a trusted mentor in former News Corp. chief operating officer and Fox Group chairman and CEO Peter Chernin, now CEO of The Chernin Group. AT&T and Chernin founded internet video venture Otter Media in 2014 and the executive sold his controlling interest in Otter to AT&T in August.

Chernin, who has been a sounding board for Stankey, was unavailable for comment for this story. But he told The Hollywood Reporter last year that he expected the WarnerMedia CEO to focus on advanced advertising opportunities, beefing up on-demand and selling content to the right customers.

“I don’t think you’re going to see John trying to greenlight movies and looking at rough cuts,” Chernin told THR. “You’ll see him trying to unlock the opportunity.”

But not everyone is quite so convinced.

While Stankey may be the prototype telco executive — tough, rigid and numbers-focused — those traits don’t translate as well to the content business, where relationships between management and creatives are critical to success, said one media executive who asked not to be named.

“Now that they’re [AT&T] in the driver’s seat, it’s just a very bureaucratic culture driving a very entrepreneurial, freewheeling, personality-driven culture,” the media executive said. “I can’t see him [Stankey] engendering great morale, esprit de corps and creative juices.”

Stankey and Stephenson have focused heavily on driving more engagement in the media business, expanding the hours per week consumers spend watching its programming to hours per day.

Along those lines, AT&T consolidated its advanced-ad TV business, its data and analytics business and ad-tech company AppNexus into a new ad unit called Xandr in October. Former GroupM ad maven Brian Lesser, who was hired in 2017 to head up AT&T’s fledgling ad business, leads the Xandr unit. Those moves point to a strategy that is becoming increasingly reliant on targeted ads to make up for pressured affiliate-fee growth.

Some Bumpy Days Already

But there have been some missteps along the way. At a town hall meeting with HBO personnel last June, Stankey told the audience that it was going to be a “tough” year, and his attempt to jokingly compare the business to childbirth fell flat with many employees.

There have been layoffs, and in March two of WarnerMedia’s most senior and prominent executives, HBO chairman and CEO Richard Plepler and Turner president David Levy, resigned. And last month, in a somewhat embarrassing turn of events, AT&T ousted Warner Bros. studios chief Kevin Tsujihara just a few days after adding to his responsibilities — he was given oversight of a new kids’ division, in addition to his other duties — and shortly after a sex scandal came to light.

Tsujihara admitted to having a sexual relationship several years ago with an actress he had tried to get roles in Warner Bros. productions, allegations AT&T had been previously aware of, investigated and found no impropriety with after the actress denied the charges. But when the accusations came to light again, AT&T changed its tune.

“Kevin acknowledges that his mistakes are inconsistent with the company’s leadership expectations and could impact the company’s ability to execute going forward,” Stankey said in a statement at the time.

Tsujihara was the last of the old Time Warner guard to leave the company since the AT&T acquisition. First to depart was Time Warner chairman and CEO Jeff Bewkes, followed by former Turner CEO John Martin, Plepler and Levy.

“If you’re Time Warner, your original power structure is gone,” said the media executive who asked not to be named. “I think it’s going to be a tough time, because they [AT&T] don’t understand that business. They do not understand what they have done.”

Under the new WarnerMedia structure, HBO and Turner will be subsumed, along with news and sports, into the larger unit, headed by Stankey and former NBCUniversal and Showtime executive Robert Greenblatt. Greenblatt, a Chernin protegé, has a strong track record in content development: he greenlighted shows like Dexter, Nurse Jackie and Weeds for Showtime and This Is Us for NBC.

The new WarnerMedia structure is said by some in the company to be a lot like NBCUniversal Entertainment — more strategic and designed around particular areas of business instead of having separate silos of distribution and revenue for each division — which should suit Greenblatt well.

But according to people familiar with both companies, the climate around HBO and the former Turner networks is understandably edgy. Employees worry their jobs may either be eliminated or transformed beyond recognition.

For some, the fear isn’t that there is going to be a huge round of layoffs. That already happened to some extent back in June 2018, when AT&T first closed the Time Warner deal. Rather, they are worried about what comes next. Turner on March 29 offered a buyout package to employees at least 55 years of age and with 10 years or more at the company. It will take some time to see how many workers accept and whether further layoffs are needed.

“I think everybody is anxious and looking toward what does the road ahead look like, what’s the direction,” one person familiar with the company said. “You have the top executives now in place, but what does it mean now for the next few layers and how will it all work and be integrated?”

That person added that most employees don’t seem to be worried about Stankey and his leadership style for now, although they believe the CEO will be more hands-on than former Time Warner chief Bewkes. For the present, they’re more concerned with how changes will affect them personally.

“‘The next question for every single employee is always the same: ‘What does it mean for me?’ ” said the person familiar with both Turner and HBO. “Sometimes people get too caught up in, ‘If this person is leaving, it’s going to mean a mass exodus.’ Plepler is a great guy. Levy is a great guy. But you’re not going to see a tremendous amount of people leaving just because the two of them left. If people elect to leave, that’s going to be one of many contributing factors.”

The Plepler and Levy departures may have more of an impact on talent at the networks, some people familiar with Turner and HBO say. With competitors like Netflix, Amazon, Apple and others offering established producers hundreds of millions of dollars to defect and develop original shows for their respective services, loyalty could be a deciding factor. And Plepler in particular cultivated an unprecedented devotion from artists.

An example: In a late February issue of Vanity Fair, The Wire creator David Simon remembered pitching two shows to HBO, one about federal housing policy and one about prostitution. Plepler picked the housing policy series — which became 2015’s Show Me a Hero.

“It kind of made me love him more,” Simon told Vanity Fair. Simon later also produced the prostitution series for HBO, The Deuce, which debuted in 2017 and has been picked up for two more seasons.

Needs Content Creators’ Support

That kind of relationship between artists and network brass becomes increasingly important in today’s TV landscape. While AT&T reportedly increased HBO’s original content budget by about 50% — it is now in the range of $2.5 billion a year — that is still dwarfed by the $13 billion Netflix and the $5 billion Amazon are expected to spend on programming.

Sources confirmed reports that Stankey had HBO president of programming Casey Bloys — who had been Plepler’s chief lieutenant since 2016 — call agents and producers to let them know he wasn’t going anywhere after the HBO CEO announced his resignation.

Bloys, who started at HBO in 2004, is quickly becoming the most irreplaceable executive in the WarnerMedia lineup. As president of programming he has greenlighted hits like Big Little Lies, The Night Of, Insecure and others. As one media executive said, if HBO hasn’t given Bloys a new deal to make sure he sticks around, it had better do it soon.

At the same time, AT&T has about $2.5 billion in synergies to extract from the former Time Warner in the next few years, must service about $180 billion in debt (having committed to paring down about $20 billion of that total this year) and still has to ensure that its $14 billion annual stock dividend remains intact.

MoffettNathanson principal and senior analyst Craig Moffett said in a research note that even though AT&T brass have acknowledged they don’t have the same media experience and promised not to interfere with Time Warner culture, there is a huge burden on the telco to meet the financial and strategic synergies it has said are inherent in the deal.

“They can’t just ‘not even try,’ ” Moffett wrote.

In the end, it will all come down to how the two disparate corporate cultures ultimately mesh.

Attempts to create telco-media companies in the past have “all ended badly” according to Moffett, who has first-hand experience as an adviser in attempts by Baby Bells NYNEX and Bell Atlantic to join hands back in the 1990s. Others are cautiously optimistic.

“Everyone’s hoping that they will find a way to get what they need in terms of more production without diluting HBO’s brand,” Simon told The Economist earlier this month. “It’s going to require a lot of finesse.”

Related