Ask any cable executive you happen to see about the threat of fixed wireless access to cable’s wireline broadband dominance, and you'll likely get some lame dismissal of how wireless network capacity isn't “sustainable” as FWA services scale. 

While speaking during AT&T’s Q3 earnings call Thursday, company CEO John Stankey engaged in the wireless industry’s cliched mirror response when asked how nascent mobile services launched over the last several years by cable companies factored into a 42.9% year-over-year slowing for AT&T postpaid wireless customer growth. 

“I've said before, I don’t think it's a sustainable strategy to be the low cost or price leader in a market when you're on a variable cost structure," Stankey said, referring to cable mobile’s reliance on “MVNO” arrangements to piggyback on wireless networks including Verizon's. (Seeking Alpha has AT&T's complete Q3 earnings transcript here.)

Stankey's narrative, however, bumps up against claims made by Christopher Winfrey earlier this week at SCTE Cable-Tec Expo in Denver. The Charter Communications CEO said that 87% of Spectrum Mobile traffic is now being transacted over Charter’s own converged wireless network. 

“There’s a misconception, even amongst the largest mobile network operators, that what we have is just a simple reseller agreement to compete on price,” Winfrey said. “We have a Wi-Fi mobile network, and we’ll have CBRS, so we’re the largest provider of mobile bits.”

As fate would have it, as Winfrey made his remarks during an Expo opening session, Ookla revealed that T-Mobile’s 5G FWA speeds accelerated to 227 megabits per second in Q3, even with the platform adding half a million new customers a quarter. 

With the $43 billion deal to spin WarnerMedia off from AT&T and merge it with Discovery closing Friday, AT&T CEO John Stankey issued some parting words for the media division his company actually owned for fewer than four full years. 

“I remain confident we have set the right path,” Stankey wrote. “Over time, the combination of WarnerMedia and Discovery will bring forth a stronger company and quicken the already strong pace of innovation and change you have established. I intend to enjoy the fruits of your labor as you create the future of WBD! But most of all, I will energetically stand on the sideline and cheer for your continued success establishing one of the most beloved media brands around the world.”

Following a torturous regulatory path, during which AT&T had to battle the whims of the Trump Administration, AT&T finally closed on an $85 billion deal to buy Time Warner Inc. in June 2018. 

It took less than three years for AT&T to discover the synergies it had imagined for the deal, most centered around advanced advertising, weren't going to come to fruition. In February 2021, AT&T announced it had reached a deal with Discovery to spin off its media division, rechristened as WarnerMedia. 

Also read: Can HBO Continue the Winning Times Amid Yet Another Brutal Transition?

Last week, most of the management team AT&T put in place to run the re-christened WarnerMedia, a group headed by former Hulu chief Jason Kilar, left the company. In their place step a new management team led by Discovery CEO David Zaslav. 

Here's Stankey's full note to WarnerMedia staff Friday:

To my WarnerMedia Colleagues,

As we work to finalize the combination of WarnerMedia and Discovery and launch Warner Bros. Discovery, I wanted to share a few thoughts with you. 

In July of 2018, I wrote to you:

We have a unique opportunity to truly lead in the transformation that’s taking place across media and entertainment, direct-to-consumer distribution, and technology. We are at a rare inflection point where the direction and structure of content and distribution – which are central to how almost everyone on the planet relates to society and those around them – gets shaped for future decades.

Today, we can clearly see that you have created a remarkable body of work rising to the moment I highlighted nearly four years ago. No doubt it remains a work in progress, but your accomplishments have been outstanding. The results and trajectory are clear. Three storied and proud entities have made difficult choices and decisions to collaborate and work together in ways that were not the norm four short years ago. While doing all the important work of managing businesses in transition, you brought the best that each entity had to offer to form something new — something that creatives want to be a part of and consumers have embraced the world over. You established the foundation that can take a proud legacy and storied brands forward for another decade with even broader and more engaging cultural impact than ever before.

You are to be congratulated and commended. The road wasn’t easy or clear. I would especially like to thank Jason, and the entire WarnerMedia leadership, for leading this remarkable evolution through some of the most unprecedented times we have ever seen in the company, industry and world. Those at the table truly understand the adversity and challenges that had to be overcome to get to this moment. I am delighted to observe the progress and success you have enjoyed, and I am confident you will transition to this next chapter with even more opportunity. I offer my heartfelt thanks.

I have always worked hard to live my life without regrets. I wish I could say I had none, but there are some. Shari was right that we should have had that fourth child! I close this chapter with you with two — my disappointment of not being along for the ride as you successfully complete this remarkable transition and the loss of some regular interactions in professional relationships that I have so very much enjoyed. My respect and appreciation for those I have worked closely with is enduring, and I will miss continuing to learn and problem solve with you. I especially will miss marveling at the work behind the scenes to develop remarkable stories and executions that come from your daily passion. Your friendship and support when it wasn’t required will always be remembered.

Getting to this moment was one of the more difficult decisions of my life. I am sure you aren’t surprised that it came with a fair amount of anxiety, disappointment, and concern relative to the changes it would trigger. All considered, I remain confident we have set the right path. Over time, the combination of WarnerMedia and Discovery will bring forth a stronger company and quicken the already strong pace of innovation and change you have established. I intend to enjoy the fruits of your labor as you create the future of WBD! But most of all, I will energetically stand on the sideline and cheer for your continued success establishing one of the most beloved media brands around the world.

Warm regards, thank you again, and best of luck to all of you.
John

AT&T CEO John Stankey enjoyed total compensation of just over $24.8 million in 2021, an 18% increase over his 2020 cumulative paycheck, according to an AT&T proxy statement filing made to the SEC Tuesday. 

Stankey had a base salary of $2.4 million and earned an additional $6.88 million through non-equity incentive plan compensation. Stock compensation tallied $13.42 million, while benefits described only as "other" totaled $643,669.

AT&T stock is down more than 20% from when Stankey took over from Randall Stephens 19 months ago. And both media company acquisitions overseen by Stankey in the run-up to his ascendency to CEO, the $49 billion purchase of DirecTV and the $85 billion Time Warner Inc. buy, have been spun off under valuations far below their acquisition price. 

As salaries go for top technology, media and telecom executives, Stankey's is hardly conspicuous. David Zaslav, who will lead spin-off Warner Bros. Discovery, took home $246.6 million in 2021, for example. 

But still ... 18% for this guy?

How does the AT&T board committee responsible for determining executive salaries arrive to the conclusion that Stankey should actually make more money ... and not pound the hot, dry Southwestern sand?

"The Committee designs the executive compensation program to include at-risk pay. It uses a mix of incentive awards and stock-based compensation to tie the interests of our executives to those of our stockholders," the proxy statement reads. 

"The Committee believes that compensation decisions are multi-dimensional and require consideration of additional factors, including market competition for the position and the executive’s:

> experience, performance, and contributions;
> long-term potential; and
> leadership." ■

Forty-eight hours after one of the media business' more stunning executive exits in recent memory, speculation continues to swirl as to who, if anyone, put the knife in the back of former CNN chief Jeff Zucker, and what will happen now to the cable news network and its soon-to-launch digital offshoot, CNN Plus. 

On Friday, in separate CNBC appearances, Discovery CEO David Zaslav and AT&T chief executive John Stankey each, somewhat indirectly, addressed those concerns. 

Also: Now What For CNN Plus Amid Jeff Zucker’s Hasty Departure?

Zaslav, who will oversee the combined Warner Bros. Discovery once the $43 billion deal to spin off CNN parent WarnerMedia from AT&T and combine it with Discovery closes in the next several months, dismissed an emerging rumor suggesting that Zucker was pushed out by the powerful John Malone. 

The mogul sits on the Discovery board and has expressed frustration with CNN's perceived leftward repositioning on the political spectrum under Zucker. (This is actually a debatable narrative, given the extreme rightward reorientation of Fox News and other conservative cable channels in recent years.)

Notably, the approval of WarnerMedia's acquisition by AT&T faced rugged regulatory seas back in 2018, with the Trump White House far more unhappy with CNN's coverage than Malone ever was. Discovery and AT&T are obviously hoping the regulatory process goes smoother this time around. 

“None of us had anything to do with it,” Zaslav said when asked about those Malone rumors. 

Zucker abruptly resigned Wednesday morning, citing his failure to disclose a romantic relationship with a top-level CNN marketing executive under his command, Allison Gollust. 

Zaslav said he learned about Zucker's departure only hours before it was announced. 

“Jeff is a good friend of mine, but I can’t speak to this issue,” he told CNBC.

Zaslav, however, did tip his hand as to how he views CNN's political orientation, a view that seems to align with comments made last year by Malone, who has been openly critical about Zucker's programming strategy. 

“We have this great entertainment menu, which should keep people in the home, from the kids to the grandparents. Why would they go anywhere else? And then we’re the leader in news to the left,” Zaslav said. 

Meanwhile, away from the Discovery board room, speculation has swirled that Zucker's relationship with Gollust -- long a not very well-kept secret -- became an issue only recently amid the acrimonious firing of top-rated CNN anchor Chris Cuomo.

Did Cuomo exact revenge on his former boss, who refused to pay him a severance? Did the relationship merely provide an excuse for WarnerMedia CEO Jason Kilar, who was widely reported to have a chilly relationship with the popular newsroom leader, a reason to fire Zucker?

“I am not going to speculate on your theory,” Stankey said during his CNBC appearance. “I have always had a practice of not commenting on personnel decisions, and I’m not going to do that here.”

If the unreported romantic relationship between a supervisor and subordinate was a fireable offense, why is marketing chief Gollust still employed by CNN, Stankey was also asked?

“Allison, her circumstances are different, and I don’t want to get involved in discussing her situation," Stankey added. ■

The price hike announced by Netflix earlier this month should help HBO Max grow, AT&T CEO John Stankey said.

When HBO Max was launched, much was said about its $15 per month monthly fee, which was high for a streaming offering. AT&T, which acquired HBO and its parent company Time Warner, had to match the price cable subscribers were paying for HBO.

Speaking on an AT&T earnings conference call Wednesday, Stankey indicated that the HBO Max pricing strategy is being vindicated.

“We said the market was going to come to us on pricing, and lo and beyond, we are no longer the high-price offer in the market,” said Stankey, who was CEO of WarnerMedia when HBO Max was launched. AT&T is in the process of spinning off WarnerMedia and merging it with Discovery.

With Netflix boosting its top price to $20 a month, “it will allow us to have domestic growth as we move forward.”

Meanwhile, Netflix’s subscriber growth has slowed and its stock price has plunged.

HBO Max also won’t have to worry about antagonizing subscribers by continually raising fees.

“We don’t have the troubles that maybe some other products that came in at very low prices are going to have,” he said.

Stankey also said that with its higher price point, HBO Max has been able to start out with a high level of average revenue per subscriber (ARPU), For the fourth quarter, HBO Max’s ARPU was $11.5.

Last year, AT&T launched a lower-priced, ad-supported tier of HBO Max. In addition to having no commercials, the premium tier of HBO Max gave subscribers free streaming access to Warner Bros. movies at the same time they were released in theaters during 2021. 

That decision was criticized by theater owners and some directors and actors, but was credited in helping HBO Max grow its subscriber count.

As of the start of the year, HBO Max no longer offers the movies on a day-and-date basis and Stankey said that might lead some customers to choose to go for the ad-supported product who might have gone the the subscription route before.

But that won’t hurt HBO Max financially, Stankey noted.

“The subscription line [on HBO Max’s profit and loss statement] will possibly dilute a bit, but the advertising line will increase,” he said. ”So when you look at the profit, customers overall are no less profitable. [The revenue] just books to two different places on the P&L. We are indifferent as to what the customer chooses, frankly. Maybe in some cases it’s a bit more accretive if they go the ad-supported route.“

Stankey also defended the decision not to sell HBO Max through Amazon Channels, which caused a dip in HBO Max domestic subscribers in the third quarter.

“At the end of the day, you want full control of your customers,” he said. “And I’m confident that with the strength of the [combined HBO Max-Discovery Plus] offer that will be in the market, those customers are all going to come back.”

Stankey said the point of having a direct-to-consumer product was the be able to see how the consumer is using the product and to adjust the product and the marketing.

Working through Amazon put the consumer in a black box, and AT&T had no idea what the customer was doing or how Amazon was aggregating HBO Max’s content.

“There are a lot of entities out there growing quote-unquote, direct-to-consumer customers that are behind the screen of the Amazon Marketplace that really are Amazon’s direct-to-consumer customers,” he said. “They are not the media company‘s direct-to-consumer customers.” ■ 

So, it looks like that stand-alone CNN streaming service is actually happening, and really darn soon. Now we just need to figure out one simple question: why? 

“There’s been some rumors in the media about us launching a direct-to-consumer, CNN Plus news product, that will in fact occur,” AT&T CEO John Stankey said at an appearance Thursday at the Economic Club in Washington, D.C. “We’ll keep pushing ahead with those things. So my view is we won’t be waiting, we’ll be executing.”

That sounds very big-shouldered, git-‘er-done of Stankey, with that bracing declarative language corporate executives like when they talk about, you know, big corporate decision-making stuff. 

But don’t forget that this is the same self-professed “Bellhead” who was WarnerMedia’s first chief after AT&T spent $85 billion to buy what was then called Time Warner. 

Then Stankey took over as AT&T CEO and promptly decided to undo that acquisition just three years after the original deal, spinning off WarnerMedia into a $43 billion merger with Discovery. That set of second thoughts came just a few months after he also unwound AT&T’s other big media acquisition, DirecTV. 

Of course, cobbling together the newly named Warner Bros. Discovery will take a little while, attended no doubt by more job losses and disruptions. But at least Stankey has already been able to give the merged company yet another new name, complete with lame retro-looking logo that includes The Maltese Falcon’s misquote of Shakespeare. Maybe they’ll have second thoughts about that logo soon enough too. 

But, moving forward and executing and all, we don’t know a lot of detail yet about Stankey’s latest great idea.

Two weeks ago, the Wall Street Journal reported plans were coming together for the standalone service, and that CNN Plus was hiring “hundreds” of new employees to generate a swathe of new programming, especially from the company’s biggest names, such as Anderson Cooper and Don Lemon. 

Both those evening anchors already have revamped their deals, “to encompass their work for CNN Plus.” That extra work will involve decidedly different programming from what’s on the mothership, so CNN won’t get in trouble under its still-lucrative contracts with existing cable and satellite distributors. 

But plenty of other unknowns still exist: Will CNN Plus be subscription only? Or will it take a  hybrid approach, with ad-supported tiers much like HBO Max and Discovery Plus? Will it be bundled with those future corporate siblings?  

And then there’s one really good question, tied to that initial, overarching, “Why?” Who’s buying this thing? How many actual, paying subscribers are actually going to pony up their money for access to a niche news channel offering more of not quite the same things you can get on CNN?

HBO Max at $15 a month ($10 with ads), and Discovery Plus at $6.99 ($4.99 with ads) already put the future company’s streaming fees at one of the highest levels in the sector. Add in $3 or $4 a month for CNN Plus, and it starts to feel like a late-stage cable industry fever dream.  

The reports so far suggest CNN Plus might be rather similar to arch-competitor Fox News’ Fox Nation, its standalone streaming service that features Tucker Carlson, Sean Hannity, Tomi Lahren, Judge Jeanine, and Dan Bongino. Those “news” personalities appear in talk shows, true-crime docs, quiz shows, home tours, cooking programs and other lifestyle-focused material. There’s also a conservative Christian vein of programming not always evident on the cable parent. 

For someone wanting to more or less copy that model, however, there are some reasons for caution. Subscription rates for Fox Nation have been, ahem, modest, 

Apptopia estimates the service’s average daily users jumped up 95% in March, which is great, but still only hit 210,000, roughly one-fifth as many as are watching the parent cable channel. And that big jump came after consecutive double-digit declines in the months immediately after the election. That’s … not promising. 

But also not promising is the prospect of relying on cable distribution for your future. Cord-cutting is sending Fox News households plummeting, to a projected 63.1 million by the end of next year, down nearly 20% in two years, according to Kagan Associates. 

Fox’s approach makes sense given its limited streaming options. It doesn’t have a big omnibus SVOD service in which to tuck its hugely profitable cable ratings king. And a local news push on AVOD service Tubi is nice, but no game changer.

Warner Bros. Discover … or whatever, like the parent companies of CBS and of NBC/MSNBC/CNBC, has much better options. Both Peacock and Paramount Plus feature significant news programming from their cable and broadcast operations. 

CNN is choosing to go it alone in streaming. That means not only hiring all those programming people, but also building out its own infrastructure of streaming, billing, customer service and marketing in the brutally competitive streaming universe.  

If, however, this is all being done because CNN might get spun off into not just a standalone SVOD service, but a standalone company, then launching a branded streamer with all its infrastructure is exactly what will be needed. 

Conversations about spinning off CNN cropped up while AT&T was trying to buy Time Warner, mostly because the former president hated CNN’s coverage of him. His Department of Justice then contested the acquisition in court, using a novel and not well prosecuted antitrust claim. But AT&T won the case, and Stankey began working his magic. 

And that’s, ultimately, the point. 

We don’t know a lot yet about CNN Plus, but given AT&T’s, and Stankey’s, histories with media properties, maybe moving forward with all this executing isn’t the best idea. Perhaps it’s time Stankey started thinking more like a doctor than a Bellhead as he surgically removes huge chunks of his company. And what’s the most important rule in medicine: 

First, do no harm.

After paying $85.4 billion to acquire Time Warner, and hundreds of millions of more to fight the U.S. Department of Justice for regulatory approval to do it — not to mention all the lost money and jobs required to integrate the corporate beast into the fold — AT&T has realized that a global media company didn’t strategically fit the core endeavor of building U.S.-situated 5G networks after all. 

Maybe one of those high-priced consultants could have said something.

AT&T’s connectivity business is “kind of captive to the United States for the most past,” AT&T CEO John Stankey told investors Monday during the JP Morgan Global Technology, Media and Communications Conference.

Meanwhile, WarnerMedia’s core business, video streaming, requires “a little bit of a different shareholder base and management base than what we’d typically have,” Stankey added. 

Last week, AT&T announced a $43 billion deal to spin off WarnerMedia (the rebranded Time Warner) and combine it with Discovery. Stankey said the new business alignment will “unleash” WarnerMedia’s potential. 

“What’s become clear is that the opportunity for direct relationships with customers is truly going to be a global opportunity,” Stankey said. “As a result of that, when you look at the opportunity to grow a fantastic subscriber base we kind of looked at this and said, It’s time to unleash the media assets to go and seize a multi-hundred-billion-dollar opportunity.’”

Stankey said he doesn’t necessarily see AT&T’s extraordinarily expensive tour of the media business as all wasted shareholder time and money. Crown jewel HBO wouldn’t have grown to 44.2 million subscribers without AT&T, he claimed. 

“I think, realistically, HBO Max would not be where it is today if not for the strength of the two combined companies,” Stankey said. 

The chief executive, meanwhile, defensively responded to an inference suggesting that AT&T “reversed nearly six years of strategic change” in just three months, with the company also spinning off the satellite TV operation it paid $49 billion for back in 2015. 

Stankey said he would “contest the characterization that we did it in three months,” adding: “We don’t wake up one day and say, ‘Hey, today’s the day I think we ought to go find a transaction.’ ”

After a tough direct-to-consumer launch for HBO Max, which was slowed by studio production delays and distribution impasses, a brutal corporate restructuring, and a nasty battle with the Hollywood creative community in which he was proven right, soon to be former WarnerMedia CEO Jason Kilar has his division humming.

Wednesday’s WarnerMedia upfront sizzle reel, which featured a clever interstitial showcasing how HBO Max and TNT successfully share sci-fi drama Snowpiercer, with each platform driving audience to the other, made a compelling case for a media company that is figuring out how to best build new-platform growth, while stabilizing aging linear channels. 

We already knew going in that the metrics were headed in the right direction—domestic HBO subscribers were up around 2.7 million in the first quarter, while overall WarnerMedia Q1 revenue had grown 9.8 percent to $8.5 billion. 

If you’ve tuned into HBO Max recently, you don’t need an earnings report to tell you the SVOD service has found its creative footing. New series like gritty crime drama Mare of Easttown and multi-generational comedy Hacks have, just within the last few weeks, created buzz for a platform that had its hands tied for its first 12 months with production shutdowns. There are other new shows coming down the pike for HBO Max, and early successes like Kelly Cuoco comedy drama Flight Attendant are set to return.

With a cheaper ad-supported iteration of the HBO Max service on the way, there’s reason to believe the subscriber growth will only accelerate, and folks will stop complaining about the $14.99-a-month Max price tag. 

On Monday, as reports surfaced that Kilar was negotiating with AT&T on a severance package, Variety ran a snark-headlined article, astutely noting the irony of Kilar, who oversaw the layoffs of thousands of employees across WarnerMedia film and TV divisions last fall, getting it in the back, in a Machiavellian style reminiscent of HBO mega hit Game of Thrones. 

But this makes it sound like Kilar had it comin’—a hatchet man, with blood on his hands, who died by the same hatchet. Kilar actually did much more for AT&T and WarnerMedia than just fire people, and there’s probably a lot less cosmic justice to this story than that ... at least, until someone finds a way to pink slip John Stankey.

The concurrent narrative to AT&T’s shocking spinoff and merger of its WarnerMedia assets with Discovery Inc. is that Kilar’s fate was decided when a scuttled AT&T-sponsored golf event put AT&T CEO Stankey and Discovery President and CEO David Zaslav on what would become a hyperactive email thread, from which a $43 billion deal was eventually borne.  

It’s been amply reported that Zaslav, an executive paid $137 million in 2018 to stick around after Discovery purchased Scripps Networks Interactive, and who was just given a four-year contract extension, is the big winner in this game, inheriting the throne of the combined WarnerMedia/Discovery global empire. 

With Discovery reporting modest early success for its global direct-to-consumer push—it says it’s up to 15 million subscription streaming customers globally as of Q1—it could be argued that Zaslav hasn’t accomplished anything more than Kilar has in terms of the current “streaming wars” crucible. And both executives couldn’t get to where they needed to go—that is, scale needed to compete with Disney and Netflix—without a majorly disruptive merger of some kind. 

For those of us who like synergy, symmetry and coherence, it’s harder to stomach that Stankey, a man who has helped engineer nearly 55,000 job cuts over the past four years following massive Trump-era corporate tax breaks for AT&T, once again got to pull a trigger on something like this. 

As CEO of the erstwhile AT&T Entertainment Group, Stankey was put in charge of AT&T’s disastrous integration of DirecTV, the satellite TV company the telecom paid $49 billion for in 2015 and which was recently valued at around $15.5 billion at the time AT&T spun it off to private equity interest. 

AT&T’s failed DirecTV-led video strategy under Stankey, which included the shooting-star-like flameout of virtual pay TV service DirecTV Now, dovetailed into the telecom’s even more calamitous $85 billion purchase of the erstwhile Time Warner Inc. in 2018.

Pivoting almost entirely away from the smoldering DirecTV brand like it never even happened, AT&T under former CEO Randall Stephenson doubled down on Stankey, anointing him CEO of the rebranded Time Warner Inc. empire. 

By the time Kilar arrived in the spring of last year, Stankey and his crew were about to launch a direct-to-consumer streaming service, without any of its planned original shows, or app support on the two biggest connected TV device ecosystems, Roku and Amazon Fire TV. 

Here you go!

Stankey, who took home $21 million in compensation in 2020, had just gotten promoted to the top AT&T job, with Stephenson put out to pasture, placed on the AT&T board with a $64 million golden parachute, much to the chagrin of AT&T's growingly agitated activist shareholder community.

Back in Dallas, with Stankey's boots on Stephenson's old desk, invoices started to appear for expensive network infrastructure projects related to these things called 5G and fiber-to-the-home. And stories began to circulate the halls about something else wealth-destroying Time Warner Inc. had been involved with decades ago ... something about AOL, and the fools gold of the fully vertically integrated media company. 

For AT&T, and to a lesser extent Verizon, breaking the shackles of sunk costs, biting the bullet, and getting back to what they're good at, voice and data connectivity, probably makes sense. But maybe with the folks in charge of the expensive media adventures not calling the shots this time? Shouldn't someone be held accountable for so many derailed careers, so much lost shareholder wealth, so much ... corporate failure?

Guess not. Elliott Management, one of the most activist AT&T shareholders of them all, issued a note Wednesday, backing Stankey.

As Stankey was quietly planning an about face to the cataclysmic media business gambits he helped lead AT&T into, Kilar went to work. He stabilized the HBO Max launch, right-sizing linear networks that had lost 20% of their distribution in recent years, retrofitting marketing efforts to conform to the social media era, making deals with Roku and Amazon, and figuring out the tense back-and-forth of creative compensation in a new windowless era. For a career tech exec operating in the more Byzantine culture of Hollywood, it wasn't always smooth for Kilar. But things seemed to be working out, and his efforts seemed to have culminated in Wednesday's almost surreal tour de force WarnerMedia Upfront presentation, taped before Monday's bombshell. 

Stankey? Turns out he was making plans to join Zaslav at Pebble Beach ... 

Three years after it said it would spend more than $100 billion (including assumed debt) for Time Warner Inc., AT&T is a pure-play phone company again, agreeing to spin off its WarnerMedia business into a separate entity with Discovery Inc., effectively ending its years-long experiment in the TV distribution and content business. 

This is the second spin-off the phone giant has made in about three months. In February, it said it would spin off DirecTV in a separate, publicly traded unit that would include private equity giant TPG, for about $16 billion, or less than half the $49 billion ($66 billion including debt) it paid for the asset in 2015.  

With the Discovery-WarnerMedia deal, AT&T has effectively given up on its media strategy, which a mere three years ago was supposed to be the foundation of the new AT&T. Now, AT&T gets $43 billion for an asset it paid $85 billion ($108.7 billion including assumed debt) for in 2018, and becomes a pure-play phone company again. 

In a research note, Bernstein media analyst Peter Supino said that AT&T management came to the realization that Time Warner executives did when they decided to look for a buyer three years ago: the new content model is tough.

“We think this merger discussion evidences AT&T's concern about the cost to make HBO Max a long-term winner in global streaming,” Supino wrote. “We believe that the capable [Time Warner Inc.] management team was elected to sell the company because it could not solve [Time Warner’s] market share problem as a public company prioritizing profits. In that context, we have thought it almost inconceivable that the phone company would solve that same problem. That the phone company is anxious about its adjusted leverage approaching 3.8x makes it even less likely to lead Warner Media to glory.”

Supino’s Bernstein colleague, media analyst Todd Juenger, wrote in a note to clients that the WarnerMedia-Discovery deal is proof that neither company believed it had the scale to make streaming a success alone. But he had doubts that this transaction will make the combined company big enough. 

“Taking two businesses where the vast majority of the cash flow is derived from linear TV, which is in our opinion a structurally impaired business (with cyclicality as well), does not create a better business,” Juenger wrote. 

Also Read: AT&T: Taking a Mulligan on Media 

In a conference call with analysts about the deal on May 17, AT&T CEO John Stankey talked a lot about 5G and fiber, two things that probably haven’t been top of mind for many investors as the company struggled with DirecTV subscriber losses and concerns over HBO Max’s sluggish customer growth. Now, with the distraction of the media business gone, maybe they can focus on what they appear to be good at -- the phone business. 

AT&T is coming a bit late to that decision. Its chief wireless rival, Verizon Communications, came to that realization a few years ago, after dipping its toes in the content creation and distribution businesses. Earlier this month it cleared the media deck with the sale of its remaining media assets to Apollo Global for about $5 billion. Verizon still has its Fios TV pay TV distribution business, but it's clear the real emphasis there is on broadband.

Now AT&T gets to focus on broadband too. During a conference call with media, Stankey  said the goals for the new AT&T would be “simple and straight-forward”: growing its wireless network to reach 200 million POPs by the end of 2023, and to more than double its fiber footprint to 30 million homes by the end of 2025. That sounds like a phone company talking to me. 

For WarnerMedia, which has been on a bit of a roller coaster ride in the past few years, it gets an owner that actually knows the TV business. In a conference call with analysts, Discovery CEO David Zaslav, who will head the new entity, noted that he’s known a lot of the media unit's employees for 30 years. Zaslav had a long career running NBC Cable before joining Discovery about 15 years ago, and he has managed to grow that company through acquisitions and organically. Now he’s leading it into the next stage.

That’s really important. Whatever your thoughts about WarnerMedia under the watchful eye of AT&T management, it’s pretty obvious that the old structure wasn’t working. Since taking over Time Warner in 2018, WarnerMedia has had three CEOs -- Stankey, who became CEO of AT&T last year; Bob Greenblatt, who was fired after about a year on the job; and Jason Kilar, the Hulu founder who suddenly made himself extremely available in the past few weeks, keynoting the MoffettNathanson Media & Communications Summit conference on May 13  and becoming the subject of a sprawling Wall Street Journal profile on May 14.

According to at least one outlet, in hindsight it appears Kilar was beginning to see the handwriting on the wall, and was trying to put himself and his accomplishments out there just in case he had to make a sudden move. The New York Times reported Monday that Kilar was assembling a legal team to negotiate his exit.  

Kilar was thrust into the role after Greenblatt, who had past successes with Showtime and NBC, was shown the door. About seven months after taking the job, Kilar caused some uproar in the talent ranks when he unveiled a plan to shatter theatrical windows, opening up Warner Bros. Studios’ entire 2021 slate to streaming and theaters simultaneously.  WarnerMedia is going back to the old windows for its 2022 movie lineup. 

On the conference call with media, Zaslav called Kilar “a fantastic talent,” but passed to Stankey on the call when asked about the Hulu founder’s future in the new company.     

Stankey said that Kilar remains the CEO of WarnerMedia, but that Zaslav “has got a lot of decisions to make on personnel and how things are structured moving forward during this transition period, as he works his way through it, I’m sure he’ll be talking with folks about where that’s going.” 

Not exactly a ringing endorsement.

Zaslav said that the new company will have a new name, coming in the next week or so, and that the idea is to fully integrate Discovery and WarnerMedia. Whether that means that the two companies’ respective streaming services will be combined as one, isn’t quite clear. Pricing also is going to be key. Currently, HBO Max is the most expensive DTC streaming service at about $15 per month and Discovery Plus is at about $4.99 ($6.99 for an ad-free version) per month. HBO Max is planning to launch an ad-supported version in June, which some reports say will be priced at about $9.99 monthly. How Zaslav melds and prices those two offerings is still a question, but most analysts believe that a $25 HBO Max/discovery plus service is hopefully not in the cards.

Juenger wrote that if the plan is to not offer the Discovery Plus and HBO Max products separately, then the price of one or both has to come down significantly, with no change in content. That, he said, would most likely lower the value of the companies’ current streaming plans. 

“For this new suite of streaming offerings to be more valuable than the current plans, one would have to believe that by sacrificing ARPU of one or both, there would be enough incremental additional subscribers to more than make up for that,” Juenger wrote. 

That could be hard because while some analysts (including Juenger) have noted how this deal will have a big impact on the linear channels, the real reason behind this is the failure for HBO Max to live up to expectations. While HBO Max has about 44.7 million subscribers, more than half of those are estimated to be linear HBO customers. Discovery, which launched its Discovery Plus streaming service in December, has about 15 million customers. While many of those are getting service for free through a promotion with wireless company Verizon, that is still strong growth with a lineup of reality shows that admittedly don’t have the same cachet as Game of Thrones or Mare of Easttown. Zaslav has said that Discovery makes more money per subscriber from streaming than from linear TV,  and that the average viewer watches Discovery Plus about three hours per day. Kilar said at the MoffettNathanson conference that HBO Max engagement is about two hours per day per active account. 

It’s not like AT&T didn’t have high hopes for content when it bought Time Warner in 2018, saying that it would combine the programmer's iconic HBO premium network and linear channels like TNT, CNN, TBS, Cartoon Network, TCM and others with its state-of-the-art telecom services. Chairman and CEO at the time Randall Stephenson was quick to talk about the 100 million-plus subscribers that AT&T had through its wireless services that would be able to access WarnerMedia content. Three years later, Stephenson retired and  Stankey, who had run WarnerMedia shortly after its purchase by the telephone giant, isn’t talking as much about engagement anymore. 

Also Read: AT&T and TPG: There Is No Why

One lesson phone companies seemingly have to learn year after year after year  is that the TV business is not the phone business. And a climate where Disney Plus, The Walt Disney Co. 's streaming content juggernaut, has more than 100 million subscribers but still took it on the chin for not growing fast enough, just shows that streaming, as it is currently modeled, requires an unprecedented level of scale and engagement. No one has been able to figure it out yet. Now, it’s going to be David Zaslav’s problem to solve.  

This story was updated to correct the pricing of the Discovery Plus streaming service.

WarnerMedia CEO Jason Kilar received total compensation of $52.2 million in 2020, mostly in the form of stock awards that will vest over a four-year period, according to parent AT&T’s annual proxy statement filed with the Securities and Exchange Commission Thursday.  

Kilar, a founder of online video pioneer Hulu, was hired to take the helm of WarnerMedia in May, about a  month before the launch of its HBO Max streaming service. Kilar overhauled the content unit, shaking up the management ranks and upending traditional theatrical movie windows by releasing all of Warner Bros. Studios' 2021 film slate on streaming and in theaters on the same day.

According to the proxy statement, AT&T offered Kilar a generous compensation package “with a heavier mix of stock-based awards'' to attract him to the job and to provide an incentive to create shareholder value. AT&T’s compensation committee, with the advice of a compensation consultant, arrived at a package including $2.5 million in annual base salary (he received $1.7 million in 2020), $2.5 million in annual short-term incentives and $48 million in restricted stock awards. While those stock awards were included in his 2020 compensation, they vest over a four-year period, putting their actual annual value at about $12 million. Overall, AT&T said it expects Kilar’s total annual compensation to work out to about $17 million annually.

Other AT&T executives saw their pay decline in 2020, mainly through voluntary reductions tied to the pandemic. 

AT&T CEO John Stankey gave up 50% of his base salary between July 1 and Dec. 31 to help ease the pain of the COVID-19 lockdowns, but still managed to take in more than $21 million in total compensation in 2020, according to the proxy statement. 

Stankey’s base salary fell to $2.05 million in 2020 (down 29.3% from $2.9 million in 2019), but a 42% rise in stock awards to $13.5 million helped lessen the overall compensation blow. All in, Stankey received $21.02 million in total compensation in 2020, down 6% from the $22.5 million he received in the prior year.

Former AT&T executive chairman Randall Stephenson, who also pledged to give up 50% of his base salary in July, finished the year with $29.2 million in total compensation, down 8.8% from $32.03 million in the prior year.  Stephenson’s base salary was halved to $900,000 from $1.8 million in the prior year, and his stock awards ticked up slightly (6%) to $21 million in the period. Stephenson retired on Jan. 21 and former Federal Communications Commission chairman William Kennard took his place.  

AT&T took a $15.5 billion write-down on its declining premium video business in the fourth quarter, as the telecom company closes in on selling a chunk of its declining DirecTV satellite unit to private equity firm TPG.

The move pushed AT&T into the red in Q4, with the company reporting a $13.89 billion loss for the period, despite impressive customer metrics in its core business, wireless, as well as new businesses, such as the HBO Max streaming service. 

AT&T lost another 617,000 customers across its bundled “premium” video services. That was an improvement on the 948,000 lost in the fourth quarter of 2019, but AT&T seems intent on shifting away from bundled linear pay TV, nonetheless. 

Beyond moving to sell DirecTV, AT&T also recently rolled in its virtual MVPD service, AT&T Now, into its IP-delivered pay TV service, AT&T TV. 

Also read: AT&T Close to Selling DirecTV Minority Stake to TPG: Report

“We have been debating how we want to set up operations for video for some time,” AT&T CEO John Stankey said during his company’s fourth-quarter earnings call with investment analysts Wednesday. “We figure we’re at a lifecycle change for these products … We all know about the declines in the pay TV market, and we’re also seeing it disconnected a little bit from broadband. It’s a fairly mature offering.”

AT&T paid around $66 billion for DirecTV, factoring in acquired debt, just five years ago. But the telecom said that the leased equipment, truck rolls, hidden charges and contractual obligations of traditional linear pay TV no longer support its primary agenda of delivering broadband connectivity to its customers through light "virtual add-on" services. 

Churn on postpaid wireless phone subscriptions just reached their lowest point in a decade, AT&T said, with wireless revenue spiking 7% in Q4 to $20.1 billion. The company also added 270,000 wireline fiber internet customers in the fourth quarter and has now surpassed 5 million fiber customers. 

Notably, Stankey said AT&T is committed to building out fiber to 2 million more homes in 2021. 

In video, the company’s nine-month-old HBO Max SVOD service just had its best quarter yet, adding 7 million customers. AT&T’s WarnerMedia division now has over 17 million of its 41.5 million HBO customers converted to the new app-based HBO Max service. And it’s about to expand HBO Max to Europe and Latin America. 

HBO Max fits the bill of the kind of “virtual add-on product” AT&T is looking for as it seeks to proliferate its wireless 5G and fiber wireline sales. The same could be said about AT&T TV, a new pay TV service delivered over the internet launched by the telecom last year. 

DirecTV? Not so much. 

AT&T CEO John Stankey said the company’s anticipated ad-supported, price-reduced iteration of HBO Max will debut in the second quarter.

“Building large subscription bases of customers who pay us every month for something has been one of the hallmarks of our business,” he told investment analysts during Wednesday morning AT&T quarterly earnings call, indicating a need to expand HBO Max's reach. “We need to evolve that, and this is the next step in making this happen.”

HBO Max is priced at $15 a month. AT&T has not disclosed how much a price-reduced version partly supported by ads would cost consumers. 

The revelation came after the nine-month-old HBO Max streaming service enjoyed its best quarter yet, adding 7 million customers to reach 17.2 million subscriber activations overall. The total domestic HBO subscriber base finished 2020 at 41.5 million.

In addition to trying to grow that base and convert the bulk of its customers to the new HBO Max app-based service, AT&T’s WarnerMedia division is also poised to launch HBO Max to Europe and Latin America. HBO has around 61 million subscribers worldwide. 

For HBO Max in the U.S., growth was fueled in the fourth quarter by the top OTT device platforms, Roku and Amazon Fire TV, finally offering app support for the service. 

Notably, the streaming service also began a term as the focal point of WarnerMedia’s theatrical release strategy in the pandemic, with Wonder Woman 1984—a film originally scheduled for wide global theatrical exhibition in the summer of 2020—debuting on Dec. 25 on HBO Max, the same day it premiered in a small handful of still-open theaters. 

Stankey used Wednesday’s call to defend the day-and-date release decision for Wonder Woman 1984, as well as the 17 Warner Bros. films on the company’s 2021 slate. 

“We’ve seen other studios continue to snowplow releases,” he said. “It’s going to see a very crowded theatrical field in late 2021 and early 2022. We just don’t believe that just because there’s more content showing up in theaters, that’s going to dramatically improve the size of audiences in theaters.”

By choosing to bolster the new streaming service with its slate, AT&T and WarnerMedia have made “lemonade out of lemons,” and have maximized profits on what is a “spoiling asset,” Stankey explained. 

He added that there are “things on the margins” WarnerMedia might have done differently to sooth the company’s angry creative partners. But that WarnerMedia is well on its way to compensating producers, talent and guilds and soothing any sore feelings. 

Moving further along in 2021, Stanley said there will be “spikeyness” in regard to HBO Max’s subscriber growth, with major tentpole releases driving signups more than mid-range movies. 

“But we feel pretty good about where we are in the early innings of this,” he added. 

Five years after its grand content experiment began, continued restructuring at AT&T’s WarnerMedia business has two top analysts that follow the stock speculating the telco is asking for a do-over.

A report in The Wall Street Journal earlier this month citing people familiar with the company said that “thousands” of layoffs at WarnerMedia could be coming in the next several weeks, part of ongoing efforts to reduce costs at the programming unit by at least 20%. It was the second part of a restructuring that began in August that saw top executives like WarnerMedia Entertainment chairman Bob Greenblatt and chief content officer Kevin Reilly leave, as new WarnerMedia CEO Jason Kilar continued to put his imprint on the unit. In an Oct. 4 interview with the Journal, AT&T CEO John Stankey, who ran WarnerMedia just six months ago, hinted that even assets housed within its flagship HBO and Turner brands, gleaned through its 2018 $108.7 billion merger with Time Warner, could feel the executioner’s axe.

Sale Speculation

Stankey used Turner’s Cartoon Network as an example, telling the Journal that the network becomes less valuable for every hour consumers watch its programming on HBO Max instead of the linear channel. But he said he wasn’t ready to jettison Cartoon yet.

Nevertheless, in a research report, MoffettNathanson principal and senior analyst Craig Moffett said that Stankey’s characterization sounded a lot like a “trial balloon of perhaps selling Cartoon Network.”

Other streaming reorganizations have occurred throughout the industry, and The Walt Disney Co., which restructured its operations around Disney Plus earlier this month, is a prime example. But at AT&T, which has struggled with its media strategy nearly from the get-go, pressures to maintain its dividend, pare down debt and bolster its wireless business are forcing it to look for ways to raise quick cash.    

Possible asset sales are mounting up. AT&T is reportedly entertaining offers for its satellite-TV business, DirecTV, whose purchase in 2015 for $48.5 billion ($67 billion including assumed debt) kicked off the telco’s bold entrance into the media business. According to the New York Post, offers for DirecTV are coming in the $15 billion to $20 billion range, about one-quarter what AT&T paid for it. Also on the block: AT&T’s Xandr interactive advertising unit, which was earlier expected to take advantage of the 170 million customer relationships throughout AT&T’s product portfolio; and Vrio, formerly DirecTV Latin America, which withdrew its IPO in 2018.

Stankey told the Journal that the moves were part of a “wash-repeat cycle” that the company has used to fuel growth for decades, adding that AT&T’s balance sheet “has always been used as a strategic tool.”

Moffett stressed that he has no direct knowledge of AT&T’s reasoning for the layoffs and divestitures. “But the pattern is clear: 1) AT&T is trying to sell almost anything that isn’t nailed down; 2) they are, by and large, getting a disappointing response to the assets being offered for sale; 3) they are therefore left to dramatically cut costs, even in businesses that are ‘core’ to their latest version of AT&T.”

Concerns Over Scale

Moffett isn’t alone in his thoughts. In a telecom black-book report issued Oct. 13, Bernstein media analyst Peter Supino said that HBO and Turner are “suddenly sub-scale and their audiences are under assault. With management instability and difficult industry trends, we think Warner Media is the next shoe to drop for AT&T.” 

Supino applauded AT&T management for running a solid telecom business, “but in today’s rapidly evolving, increasingly competitive video market, we think they are way outside its circle of competence.” 

About two years after it paid north of $100 billion (including assumed debt) for Time Warner Inc., AT&T is now floating scenarios including asset sales (DirecTV and possibly Cartoon Network), massive layoffs (in the “thousands”) according to published reports, and seems hell bent on getting back to its core wireless business (the seemingly only bright spot in its most recent financials). Essentially, five years after embarking on the bold new strategy that included doling out more than $150 billion to get into the media business, AT&T appears to want to take a mulligan. 

Also read: DirecTV Merger with Dish Shut Down Again by DOJ

Investors seemed to take it in stride. AT&T stock closed Oct. 13 at $27.75 each, down just 38 cents (1.35%) per share. So far this year the stock is down about 30%.   

News that AT&T has been thinking about selling DirecTV is nothing new. Heck, it’s been floated in one way or another practically since the day it bought the satellite TV giant in 2015 for $48.5 billion ($67 billion including assumed debt). That DirecTV has been bleeding subscribers for the past two years -- it has lost 6 million customers since Q2 2018 according to MoffettNathanson -- isn’t much of a surprise when you consider that the telco seems to have only purchased the company for its programming relationships in the first place. That was evident in the launch of DirecTV Now virtual MVPD service in 2016, a direct competitor to the satellite service and the subsequent abandonment of that platform for the direct-to-consumer offering of HBO Max this year. DirecTV Now, renamed AT&T Now in 2019, once touted as the future of the TV distribution business peaked at about 3 million customers and lost 68,000 subscribers in Q2. It now has about 1 million customers and is expected to lose more.

AT&T has reportedly restarted talks to sell DirecTV again, only this time, offers are coming in for about one-quarter of what the company paid for it, or between $15 billion and $20 billion. At the same time, AT&T has slapped a “For Sale” sign on its Xandr advertising unit -- remember when interactive ads were supposed to take advantage of the 170 million eyeballs AT&T controlled? -- and so far that too has been met with a tepid response. Other assets on the block include Vrio, formerly DirecTV Latin America, which pulled its initial public offering in 2018 and Warner Bros. Interactive, its video game unit. 

Related: AT&T and DirecTV: Divorce Won’t Be Easy 

According to MoffettNathanson principal and senior analyst Craig Moffett,  the only untouchable business in the portfolio seems to be HBO Max, the streaming service it launched on May 27. WarnerMedia, which houses most of the assets acquired in the $108.7 billion purchase of Time Warner, has gone through one massive restructuring earlier this year, which resulted in senior management like WarnerMedia Entertainment chairman Bob Greenblatt and chief content officer Kevin Reilly being shown the exit, and is going through another shift in focus under new chief Jason Kilar that could mean “thousands” of layoffs in the coming weeks.  And though HBO Max seems to be what AT&T is banking its media future on, even some of those assets are not entirely safe from the hatchet.   

In his interview with the Wall Street Journal on Oct. 4, AT&T CEO John Stankey said, for example, that Cartoon Network becomes less valuable for every hour consumers watch its programming on HBO Max instead of the linear channel. But he said he wasn’t ready to jettison Cartoon yet.

Nevertheless, it still sounds a lot like Stankey was casting a line into the water to see if anyone would bite on the channel. And Moffett thought so too, calling his mention of the network in the WSJ piece “a trial balloon” for “potentially shopping” the channel.

Related: It’s Not TV, It’s HB(Uh)O 

There also seems to have been a semantic shift on the part of the AT&T CEO. 

According to Moffett, when Stankey speaks of AT&T’s strategy now, he talks of fiber rollouts and wireless networks. As far as the media business, gone are the mentions of AT&T as a  “modern media company,” replaced instead by words and phrases like  “de-emphasize,” and  “prune” and “strip out,” the analyst wrote. 

Doesn’t sound like the argot of a guy who wants to stay in the media business, does it?

While AT&T seemingly looks to unravel the business it spent a half-decade building, the wireless unit, while a brighter spot than the rest, also is feeling the pain of the pandemic, with plans to shutter 320 AT&T Mobility stores by the end of the year, on top of the 250 stores already closed earlier in 2020. 

Still, it was AT&T’s Mobility unit (which includes wireless) that fared best in Q2 -- revenue was down nearly 1% to $17.1 billion but adjusted EBITDA was up about 1% to $7.8 billion. It’s other units did far worse. Revenue at the Entertainment Group, which includes DirecTV, was down 11.4% to $10.1 billion and adjusted EBITDA fell 18% to $2.3 billion. At WarnerMedia, revenue fell 23% to $6.8 billion and adjusted EBITDA was down 13% to $2.1 billion

Moffett speculated that there could be three possible reasons for the recent urgency around its media assets: AT&T needs capital to participate in the upcoming federal C-band wireless spectrum auctions; it needs cash to make sure it can pay shareholders their dividend; or, it could all be a part of a routine annual review of its portfolio that found many of these businesses to be “strategically superfluous.”

Moffett stressed that he has no direct knowledge of AT&T’s reasoning for the layoffs and divestitures.

“But the pattern is clear: 1) AT&T is trying to sell almost anything that isn’t nailed down; 2) they are, by and large, getting a disappointing response to the assets being offered for sale; 3) they are therefore left to dramatically cut costs, even in businesses that are ‘core’ to their latest version of AT&T.” Moffett wrote.

Moffett isn’t alone in his thoughts. In a telecom black book report issued Oct. 13, Bernstein media analyst Peter Supino said that AT&T’s HBO and Turner are “suddenly sub-scale and their audiences are under assault. With management instability and difficult industry trends, we think Warner Media is the next shoe to drop for AT&T.” 

But Supino added things will have to get worse at WarnerMedia before they get better. 

Supino applauded AT&T management for its stewardship of the telecom business, adding that in “today’s rapidly evolving, increasingly competitive video market, we think they are way outside its circle of competence.”

The Bernstein analyst also points out that the company’s public subscriber target for HBO Max -- 50 million customers by 2025 -- looks easy given AT&T’s 170 million overall customer relationships, it’s not a slam dunk. HBO has about 34 million paying customers, all who will get HBO Max. But he projects that the company will get another 11 million customers over that period, mainly from high-level wireless customers who will get the service for free, leaving it with 45 million HBO Max customers by 2025. That does not include any subscriber lift from an ad-supported version of HBO Max, which should come next year, making the 50 million-subscriber target “plausible, but not easy.”

Supino estimates that the company also is counting on about $2 billion in annual advertising revenue for HBO Max, but he’s not sure how they will get there.

“HBO Max incremental expenses seem to require advertising revenue, or more subscribers than planned, to make money,” Supino wrote. “As relates to more modest strategies, today’s streaming landscape seems unfit for conservative plans. Pick your poison, we think.”

For what it is worth, while the wireless business is performing better than its other parts, it’s no great shakes either. Wireless makes up about 60% of AT&T’s valuation, but is far from a growth business. And it is going to need significantly more investment for 5G services. 

Part of that investment will have to go toward amassing spectrum, and the federal C-band auction set for December fits the bill. Moffett estimated that AT&T’s chief wireless competitor Verizon will have to spend about $20 billion in the C-band auction just to keep up with T-Mobile, the No. 3 wireless carrier that has a significant spectrum advantage. AT&T will likely have to spend even more, but where that money will come from is in doubt. Even if AT&T did sell DirecTV, Xandr and Warner Bros. Interactive, it could still be far short of the mark.

Moffett added that some reports have valued the video game unit at about $4 billion, but that it is probably worth about half that  amount. Xandr, on a good day, could go for around $2 billion. Add $15 billion to that for DirecTV and it would still be short of the $20 billion-plus it needs to spend on spectrum.

And that's assuming it even gets that much for DirecTV. Moffett noted that DirecTV’s subscriber base is shrinking at 18% per year, cash flow is declining at a high-teens percentage pace and it isn’t launching any satellites to beef up its aging infrastructure. That, Moffett wrote, would lead any potential buyer to assume that the business is being run for cash, and the only way for that to be attractive is for the buyer to get in at a very low multiple.

That too, is a problem for AT&T because of its industry leading leverage. According to Moffett, any deal for DirecTV that comes in below 3.5 times cash flow -- its current leverage ratio -- would make AT&T’s leverage worse, not better. And reports so far see 3.5 times cash flow as the high-end range of bids. Moffett estimates that DirecTV is worth about 3.7 times estimated 2021 EBITDA, or about $13.7 billion, which would put it in the same range as reported bids. 

Moffett has never been a fan of AT&T’s forays into media -- he called the DirecTV merger in 2015 a mistake at the time -- and he currently has a “sell” rating on the shares. Back in January, he told CNBC that media companies that have diversified -- like Comcast with NBCUniversal and AT&T with everything else -- haven’t fared too well.

Comcast is currently under pressure to unload or spin-off its content assets because of secular headwinds to that business, too.  

Buying into the media business was supposed to protect AT&T from the volatility of the wireless business and the company even today says that bundling content offerings with various wireless and wireline broadband packages make them more compelling and stickier to fickle consumers. In the Journal piece, Stankey said AT&T’s deal strategy is just the first step in a “wash-repeat cycle” that has fueled growth at the company for decades, adding that its balance sheet has always been a “strategic tool” that can be used to take advantage of opportunities. 

“Sometimes you walk away from an opportunity, but you did it knowing that the best bullet you could put in the chamber was the transaction you did,” he told the Journal.

And sometimes, you just take a mulligan. 

WarnerMedia is preparing a restructuring that according to reports will cut costs by more than 20% and result in the loss of "thousands" of jobs to help offset the continued negative impact of the pandemic on its businesses. 

WarnerMedia, the content arm of telco AT&T that includes such iconic brands as HBO, HBO Max, TBS, TNT and Warner Bros., is preparing a  massive restructuring to reduce costs in the wake of the pandemic, which has decimated its operations, especially those reliant on advertising, subscriptions and box office receipts.

According to a report in the Wall Street Journal, the restructuring is expected to begin in the coming weeks and will affect "thousands" of WarnerMedia employees at its studios and cable TV channels like HBO, TBS and TNT.

The moves come just a few months after a management shakeup that saw the departure of WarnerMedia Entertainment chairman Bob Greenblatt and several executives in August. Those changes also involved layoffs and came just months after former Hulu CEO Jason Kilar came on board as WarnerMedia CEO. Kilar was named to the position in April, replacing John Stankey, who became CEO of parent AT&T.  

The pandemic and the shift toward streaming media has poked holes in advertising sales across the industry. WarnerMedia has also been a part of that shift, launching the HBO Max streaming service on May 27 and placing much of its future growth hopes in that side of the business. 

WarnerMedia confirmed the restructuring, but would not offer details as to how many employees would be let go or what divisions would be affected. In a statement the company acknowledged the pandemic has wreaked havoc on the industry. 

“Like the rest of the entertainment industry, we have not been immune to the significant impact of the pandemic,” WarnerMedia said in a statement. “That includes an acceleration in shifting consumer behavior, especially in the way content is being viewed. We shared with our employees recently that the organization will be restructured to respond to those changes and prioritize growth opportunities, with an emphasis on direct-to-consumer. We are in the midst of that process and it will involve increased investments in priority areas and, unfortunately, reductions in others.”

In the face of climate change and natural disasters, AT&T said Thursday (Sept. 17) that it was committing to being carbon neutral across its entire worldwide operations by 2035.

It also said it was expanding the Climate Change Analysis Tool (CCAT) it uses to calculate climate change impacts on its network up to 30 years out.

AT&T appears to have no corporate doubts that climate change is real and is behind some recent natural disasters.

“Our network is tested by climate change and natural disasters every year,” said AT&T CEO John Stankey. “We recognize the long-term impact these commitments can have, and we owe it to the millions of customers who rely on our services to create the most resilient and sustainable business we can.”

AT&T said it has spent approximately $1 billion "recovering from climate-related severe weather events" since 2016.

The company said it would get to net zero carbon emissions via various initiatives including virtualizing network functions; lowering its fleet emissions via route optimization, use of hybrids (and eventually decarbonization) and cutting the fleet size; reducing electricity use; expanding WarnerMedia sustainable TV and movie production--clean tech, re-use and waste reduction, etc.; power purchase through renewable energy developers; and carbon offset investments.

Saying that he “couldn’t be more pleased” with the launch of HBO Max, AT&T CEO John Stankey told investors today that the success of Netflix, a global juggernaut of more than 190 million streaming subscribers built over the last decade, has created too high a bar for his company’s new streaming service. 

“I know it sometimes gets lost within the context of, there’s a company called Netflix that’s done a remarkable job of building a franchise over many years,” Stankey said, speaking Tuesday at the virtualized Goldman Sachs Communacopia conference. “You sometimes get laid up against what they’ve done over the course of a decade. … I understand that standard is a high standard and it’s one that we aspire to get to. But we’re not going to get there overnight. Nor are we trying to build the exact same product that Netflix has.”

HBO Max launched on May 27, amid plenty of brand confusion—consumers had trouble understanding the difference between the new service and legacy monikers like “HBO Now, “HBO Go” and plain ol’ “HBO.”

There have also been key distribution issues, notably the lack of app support on Roku and Amazon Fire TV connected TV device platforms. 

During AT&T’s second quarter earnings report, the company conceded that only 4.1 million users had signed up for the $14.99-a-month HBO Max service, even though it’s priced identically to the legacy HBO Now platform and delivers more content. 

Stankey, however, described HBO Max’s challenges as being far different from not only Netflix, but Disney Plus, which amassed more than 60 million paid subscribers.

Notably, HBO Max had to solve the problem of stagnant growth for the legacy HBO brand, which was stuck at around 43 million domestic subscribers, the number it finished 2019 with. 

“HBO had been stagnated at a customer count,” Stankey said. “The only time it went up a little bit was when a new season of Game of Thrones would come out and then it would kind of work back down the back side."

He added, “We’re not doing this for a year. We’re doing this to build a platform that can sustain for the next decade.”

WarnerMedia’s big-budget summer blockbuster movies Tenet and Wonder Woman 1984 will not be bypassing their theatrical and home-video release windows and premiering directly on HBO Max, John Stankey, CEO of parent company AT&T, told investors Thursday.

But as the COVID-19 pandemic stretches on, and theaters remain closed across the U.S., other lower-budget theatrical films just might go the straight-to-SVOD route. 

“There’s no question the longer this goes on there’s going to be some content on the margin that we look at and say that it may be better served to be distributed in a different construct,” Stankey said during AT&T’s second quarter earnings call. 

Also read: Will HBO Max use Christopher Nolan’s ‘Tenet’ as a ‘Battering Ram’ Against Amazon and Roku?

Earlier this week, the equity analysts at LightShed Partners stirred debate with an interesting proposition: with filmmaker Christopher Nolan’s highly anticipated espionage thriller Tenet, produced at a reported cost of $200 million, pushed off the summer release calendar due to COVID-19 theater closures, AT&T and WarnerMedia might consider writing down some sizable short-term losses and debuting the film—along with another pushed back summer blockbuster, Wonder Woman 2018— directly on HBO Max. 

Doing so would greatly bolster HBO Max signups, while pushing top connected TV platform operators Roku and Amazon to come to terms to support the HBO Max app. 

The challenge would have been daunting: Not only would theater chain owners go nuts to see huge tentpole releases slip from their grasp, but the film’s talent deals, structured risk-aversely to box office performance, would be have to be re-tied to SVOD guarantees. Nolan, an acclaimed filmmaker with a fondness for the big screen, would have also had to be convinced. 

For now, Tenet remains pushed off the theatrical release calendar; Wonder Woman 1984 is tentatively schedule for October 2. 

For his part, Stankey said that there are some films that do fit the direct-to-SVOD bill. 

“Some content is going to be more enjoyable and better to see in theaters than in the living room,” Stankey said. “We want to work with our theatrical partners and exhibitors and try to get through this very difficult period.”

He added that WarnerMedia has already “retooled” some of its production deals to fit SVOD release. 

“There are going to be some shifts as we move forward here,” Stankey said

So what might those films be?

Scrolling further down the release calendar to the parts that haven’t yet been so disrupted, Warner Bros. is still scheduled to open low-budget horror sequel The Conjuring 3 on September 11. 

Notably, WarnerMedia's film unit also has filmmaker Denis Villeneuve’s Dune, the latest cinematic adaptation of Frank Herbert’s 1965 sci-fi novel, set to bow theatrically December 18. 

Also boasting a reported production price tag of over $200 million, Dune is more in line with Tenet than the kind of “on-the-margin” films WarnerMedia is looking for to go straight to HBO Max. 

But the French-Canadian Villeneuve, coming off 2017’s commercially disappointing Blade Runner 2049, doesn’t have Nolan’s Hollywood clout. 

And if the pandemic is still enough of a U.S. public health problem to shutter movie box offices during the active holiday release season six months from now, theater owners might see their influence wane further, as well. 

AT&T CEO John Stankey called the launch of the company’s key direct-to-consumer stream service HBO Max “flawless,” and blamed Amazon for the lack of distribution on that key streaming platform.

AT&T announced that HBO Max finished the quarter with 36.3 million U.S. subscribers to HBO Max and HBO, up from 34.6 million at the end of 2019.

“We effectively established a new distribution framework for WarnerMedia,” Stankey said, speaking Thursday on AT&T’s second-quarter earnings call. “The platform performed superbly. Activations were strong. The content is world-class, And the team developed and launched the service and the short timeframe and managed to get it all over the finish line in the middle of a pandemic.”

One problem with the launch came with Amazon.

“We worked hard to make HBO Max available to consumers through nearly every content distributor in the United States.We tried repeatedly to make HBO Max available to all customers using Amazon Fire devices including those customers that have purchased HBO via Amazon,” Stankey said. “Unfortunately Amazon has taken an approach of treating HBO Max and its customers differently than how they've chosen to treat other services and their customers.”

HBO Max also failed to secure a deal with Roku, but Stankey did not mention that important streaming distributor.

Despite that, Stankey said HBO Max was “right on track” with its targets for subscribers, activations and revenues. He added that customer engagement has exceeded expectations in the early days, with the average number of weekly hours spent on HBO Max is 70% higher than HBO.

He said the engagement “clearly demonstrates the strength of our library and our success broadening the appeal of the product to more family members” and noted that the broader appeal is expanding the product beyond the traditional HBO subscriber base.

Stankey said that WarnerMedia content was among the most popular on HBO Max, driving the majority of total hours consumed on the platform.  

“In the streaming business, your content library is the key to keeping custoermers, but its the new originals that drive subscriber acquisition,” he noted. 

Because of the pandemic, HBO launched with six new original shows, all of which were in the top 25 most viewed series on the platform.  

“By August  we'll have 21 new original series on Max which we expect to sustain our near-term acquisition efforts,” he said. “We view getting our production back online as critical to making our 2021 subscriber plan.”

One month after launch HBO Max had about 3 million retail subscribers  and 4.1 million subscribers had activated their Max account. Of those more than 1 million were wholesale  subscribers through AT&T. "As you might expect we're seeing more rapid  activation with subscribers who are active users of the HBO digital offers, but we still have work to do to educate and  motivate exclusively linear subscriber base and will continue to work with our wholesale partners to drive these activation rates," Stankey said.

The HBO Max launch has also driven AT&T customers to upgrade to higher tiers of broadband service, he added.

AT&T chief operating officer John Stankey told a virtual industry audience Wednesday that its upcoming subscription streaming service, HBO Max -- set to debut on May 27 -- could eventually be paired with its new IP-based pay TV service, AT&T TV, as the TV business continues to move toward a more compact streaming environment.

“What Max and AT&T TV have in common is they are both software based, independent of any proprietary hardware, allowing customers to get access content over any device, over any hardware platform," Stankey said. 

"They’re low friction, they can be deployed literally by a flick of a computer switch somewhere in a back office," Stankey added. "That’s an important aspect. And that’s what consumers will see as the customer-based Max grows. It becomes a more scaled distribution element within AT&T, certainly something that surpasses 25-28% of households like our pay TV offering. That becomes a lead basis of entertainment and how we get into households.”

Stankey, who will take over for the retiring Randall Stephenson as CEO in July, talked up the HBO Max service at the JP Morgan Technology, Media and Communications conference Wednesday, adding that it is a key part of AT&T’s entertainment strategy.

Stankey said the ultimate vision is to eventually package the software-based AT&T TV and HBO Max together.

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

Stankey added that as the TV business continues to transition from the old 500-channel universe to more consolidated, streaming offerings of live sports, scripted and unscripted content and news, bundling the products together seems natural.

“You want a platform that can distribute both. So AT&T being software driven, HBO Max being software driven, user interface capabilities, bundling, price start to move together,” Stankey said. “I think we’re at a very natural place to see that begin to occur and our TV business and our SVOD business start to become one as we get out over the next couple of years.”

Stankey made the declaration after disclosing another bombshell--that HBO Max will probably launch on May 27 without app support for the world's biggest OTT device ecosystem, Amazon Fire TV. 

Also read: AT&T's Stankey: HBO Max Probably Won't Launch with Amazon Fire TV Support

As for AT&T TV, it's supported by all the major OTT hardware. But so far, the new pay TV service--which combines IP delivery with traditional pay TV fee structure--has not reversed AT&T's pay TV subscriber fortunes. 

AT&T chief operating officer John Stankey told a virtual industry audience Wednesday that its latest streaming video offering HBO Max -- set to debut on May 27 -- could eventually be paired with its AT&T TV software based product as the TV business continues to move toward a more compact streaming environment.

Stankey, who will take over for the retiring Randall Stephenson as CEO in July, talked up the HBO Max service at the JP Morgan Technology, Media and Communications conference Wednesday, adding that it is a key part of AT&T’s entertainment strategy.

Stankey said the ultimate vision is to eventually package the software-based AT&T TV and HBO Max together.

“What Max and AT&T TV have in common is they are both software based, independent of any proprietary hardware, allowing customers to get access content over any device, over any hardware platform," Stankey said. "They’re low friction, they can be deployed literally by a flick of a computer switch somewhere in a back office. That’s an important aspect. And that’s what consumers will see as the customer-based Max grows. It becomes a more scaled distribution element within AT&T, certainly something that surpasses 25-28% of households like our pay TV offering. That becomes a lead basis of entertainment and how we get into households.”

Stankey added that as the TV business continues to transition from the old 500-channel universe to more consolidated, streaming offerings of live sports, scripted and unscripted content and news, bundling the products together seems natural.

“You want a platform that can distribute both. So AT&T being software driven, HBO Max being software driven, user interface capabilities, bundling, price start to move together,” Stankey said. “I think we’re at a very natural place to see that begin to occur and our TV business and our SVOD business start to become one as we get out over the next couple of years.”

HBO Max has been aggressively lining up distributors prior to the launch, including Charter Communications, streaming services Hulu, YouTube TV, Apple TV and Android and Google Play platforms.

But Stankey said one key online distributor -- Amazon FireTV -- could be missing from the mix.

“We’re going to be in virtually all app stores, with one exception -- we may not be in the Amazon Fire[TV] app store when all is said and done,” Stankey said at the virtual conference. “We feel really good about the distribution dynamic, the availability of the product. Those that are HBO subscribers immediately move into Max. It ‘s going to be a really strong first day one. I think it’s going to generate a lot of word of mouth socially. It’s going to generate a lot of activity and what we’re doing for promotions attached to AT&T products is going to be beneficial.”

HBO could have some pretty big shoes to fill. The Walt Disney Co. set the streaming app bar high when it launched Disney + in November, attracting more than 10 million downloads on its first day. Disney + currently has about 30 million customers, and projections are for the service to have more than 50 million subscribers by the end of the year.

[embed]https://twitter.com/RichLightShed/status/1260550715967246337[/embed]

On the other end of the spectrum, short-form streaming service Quibi has attracted less than expected interest, with about 2.5 million downloads in its first week. Quibi currently has about 3.5 million customers, and the company has blamed the tepid response to the COVID-19 pandemic.

AT&T has said it expects HBO Max to have about 50 million subscribers by 2025.

HBO Max is set to launch on May 27 and is aggressively lining up distribution partners, AT&T chief operating officer John Stankey said Wednesday. But one of them likely won’t be the biggest OTT device ecosystem on the planet, Amazon FireTV.

AT&T has been pulling out all the stops for the launch of the streaming service, priced at $14.99 per month and featuring content from its HBO premium service, cable channels TBS, TNT, and Cartoon Network as well as original fare. So far HBO Max has signed on Charter Communications,  as well as streaming services Hulu and  YouTube TV, as distribution partners.

In terms of app support in device ecosystems, HBO counts Apple TV and Google platforms, including Android TV. But AT&T hasn't announced an app deal for the two biggest OTT device ecosystems, Roku and Amazon Fire TV. And it's looking bleak as far as the latter is concerned. 

Also Read: AT&T Pivots HBO Max Pandemic Premiere Plan

At the virtual JP Morgan Global Technology, Media and Entertainment conference Wednesday, Stankey said that HBO Max plans to sign up all the major distributors, adding that existing HBO premium service subscribers will automatically transition to the service when it goes live on May 27. But he added that Amazon FireTV apparently won't be one of them.

“We’re going to be in virtually all app stores, with one exception--we may not be in the Amazon Fire app store when all is said and done,” Stankey said at the virtual conference, adding that expectations are high for a successful launch. 

Also Read: HBO Max: Everything You Need to Know

“We feel really good about the distribution dynamic, the availability of the product," Stankey continued. "Those that are HBO subscribers immediately move into Max. It's going to be a really strong first day one. I think it’s going to generate a lot of word of mouth socially. It’s going to generate a lot of activity and what we’re doing for promotions attached to AT&T products is going to be beneficial.”

HBO could have some pretty big shoes to fill. The Walt Disney Co. set the streaming app bar high when it launched Disney Plus in November, attracting more than 10 million downloads on its first day. Disney Plus currently has about 28.6 million customers in the U.S. and more than 50 million worldwide.

On the other end of the spectrum, short-form streaming service Quibi has attracted less than expected interest, with about 2.5 million downloads in its first week. Quibi currently has about 3.5 million customers, and the company has blamed the tepid response on the COVID-19 pandemic.

AT&T has said it expects HBO Max to have about 50 million subscribers by 2025 -- including the around 30 million current HBO subscribers. 

Stankey, who will take over for the retiring Randall Stephenson as CEO in July, talked up the HBO Max service, adding that it is a key part of AT&T’s entertainment strategy.

Stankey said the ultimate vision is to eventually package the software-based AT&T TV  and HBO Max together. 

“What Max and AT&T TV have in common is they are both software based, independent of any proprietary hardware, allowing customers to get access content over any device, over any hardware platform. They’re low friction, they can be deployed literally by a flick of a computer switch somewhere in a back office. That’s an important aspect. And that’s what consumers will see as the customer-based Max grows. It becomes a more scaled distribution element within AT&T, certainly something that surpasses 25-28% of households like our pay TV offering. That becomes a lead basis of entertainment and how we get into households.” 

Stankey added that as the TV business continues to transition from the old 500-channel universe to more consolidated, streaming offerings of live sports, scripted and unscripted content  and news, bundling the products together seems natural. 

“You want a platform that can distribute both. So AT&T being software driven, HBO Max being software driven, user interface capabilities, bundling, price start to move together,” Stankey said. “I think we’re at a very natural place to see that begin to occur and our TV business and our SVOD business start to become one as we get out over the next couple of years.” 

AT&T CEO Randall Stephenson is stepping down from his long-held position as CEO, the telecom has confirmed

Chief operating officer John Stankey, who up until recently rant the company’s entertainment division, will assume Stephenson’s chief executive role.

Notably, amid a recent conflict with shareholder Elliot Management, Stephenson had pledged to stay with AT&T through 2020. He will remain executive chairman of the board until January 2021. The departure of Stephenson, 60, is being billed by AT&T as a retirement. 

Also read: AT&T Told to Sell DirecTV by Hedge Fund Investor

Amid a flurry of expensive acquisitions and tough calls in the competitive U.S. wireless industry, AT&T's stock is down around 15% since 2015. Stephenson had served as CEO since 2007. 

During AT&T's first-quarter earnings call earlier this week, the telecom struck a tone of a company in recession. Having loudly touted the benefits of the Trump Administration's corporate tax cut program in 2017, AT&T is now pledging $6 billion worth of spending cuts by 2023. 

It was Stankey who introduced that reduction program in Wednesday earnings call. 

"We're not backing off our cost and efficiency transformation initiatives that remain largely under our control," he said.

Stankey recently relinquished his title as CEO of AT&T's WarnerMedia division to newly hired former Hulu chief executive Jason Kilar. His appointed as AT&T's top executive officially begins June 1.

“I congratulate John, and I look forward to partnering with him as the leadership team moves forward on our strategic initiatives while navigating the difficult economic and health challenges currently facing our country and the world," Stephenson said in a statement. "John has the right experiences and skills, and the unflinching determination every CEO needs to act on his convictions. He has a terrific leadership team onboard to ensure AT&T remains strong and continues to deliver for customers and shareholders for years to come.”

AT&T said Stankey's selection "completes the final phase of a succession planning process that AT&T's board began in 2017, which included a thorough evaluation of internal and external candidates." 

AT&T's human resources committee in charge of the search was led by Director Beth Mooney, and was comprised entirely of independent directors and supported by outside consultants, the company said. The group conducted "an extensive five-month search process to ensure that the company's next CEO possessed the vision, experience, talent and leadership qualities necessary to deliver on AT&T's strategic plans," AT&T added. 

During his tenure as AT&T's top media executive, the telecom lost more than 30% of its pay TV scale to cord-cutting. The company seemingly has little to show for its $50 billion purchase of DirecTV in 2015. And its ambitious effort to create an SVOD service to compete with Netflix has a long way to go before it's proven successful. 

Still, Elliot Management--which has pushed for changes at AT&T--has apparently signed off on Stankey.

“We have been engaged with the company throughout the search process, which was a robust one, including a range of highly qualified outside candidates and overseen by independent directors,” Elliot Management said in a statement. 

Added Stankey: “I’m honored to be elected the next CEO of AT&T, a company with a rich history and a bright future. My thanks go to Randall for his vision and outstanding leadership during a period of tremendous change and investment in the core capabilities needed to position AT&T well for the years ahead. And I appreciate the Board’s confidence in me leading the company during our next chapter of growth and innovation in keeping people connected, informed and entertained. We have a strong company, leading brands and a great employee team, which I’m privileged to lead. I couldn’t be more excited about the new opportunities we have to serve our customers and communities and create value for our shareholders.”

WarnerMedia said it has named former Hulu CEO and founder Jason Kilar as its new chief executive, replacing John Stankey who remains chief operating officer of parent AT&T.

AT&T had been searching for a WarnerMedia CEO ever since promoting Stankey to the COO position in September. Kilar was among several executives--including former Hulu CEO Randy Freer and former Walt Disney Co. COO Tom Staggs--being considered for the job, according to reports. 

Kilar will assume his new role on May 1.

As CEO of Hulu from its formation in 2007 to 2013, Kilar had a reputation for shaking up the TV business. This created friction with Hulu’s joint-venture owners, which at the time included Fox, NBCUniversal and the Walt Disney Co. (Disney now controls 100% of Hulu.)

WarnerMedia was formed when AT&T acquired Time Warner in 2018. Most of the top executives at Time Warner have left, including CEO Jeff Bewkes and David Levy, the head of Time Warner’s Turner unit, and Richard Plepler, CEO of HBO.

WarnerMedia aimed to break down the silos between HBO, Turner and Warner Bros. as it looked to scale up to enter the streaming market. The company plans to launch its streaming product, HBO Max, later this year.

“Jason is a dynamic executive with the right skill set to lead WarnerMedia into the future. His experience in media and entertainment, direct-to-consumer video streaming and advertising is the perfect fit for WarnerMedia, and I am excited to have him lead the next chapter of WarnerMedia’s storied success,” Stankey said in a press release. 

“Our team led by Bob Greenblatt, Ann Sarnoff, Gerhard Zeiler and Jeff Zucker has done an amazing job establishing our brands as leaders in the hearts and minds of consumers," Stankey added. "Adding Jason to the talented WarnerMedia family as we launch HBO Max in May gives us the right management team to strategically position our leading portfolio of brands, world-class talent and rich library of intellectual property for future growth.”

Prior to Hulu, Kilar served in several positions at Amazon from 1997 to 2006, including senior VP of worldwide application software. Kilar also was co-founder & CEO of video streaming service Vessel from 2013 to 2017.

“In partnership with this world-class team, I'm so excited for the opportunity to lean into the future at WarnerMedia,” said Kilar in a press release. “Stories well told have always mattered, and they matter even more in this challenging time for the world. It will be a privilege to invent, create, and serve with so many talented people. May 1st can't get here soon enough.”

As for Stankey, he oversaw the previous--and now abandoned--iteration of AT&T's video strategy, which centered around the 2017 launch of virtual pay TV service DirecTV Now (now called AT&T TV Now). 

WarnerMedia said it has named former Hulu CEO and founder Jason Kilar as its new chief executive, replacing John Stankey who remains chief operating officer of parent AT&T.

AT&T had been searching for a WarnerMedia CEO ever since promoting Stankey to the COO position in September.  Kilar was among several executives -- including former Hulu CEO Randy Freer and former Walt Disney Co. COO Tom Staggs -- being considered for the job, according to reports. 

Kilar will assume his new role on May 1.

“Jason is a dynamic executive with the right skill set to lead WarnerMedia into the future. His experience in media and entertainment, direct-to-consumer video streaming and advertising is the perfect fit for WarnerMedia, and I am excited to have him lead the next chapter of WarnerMedia’s storied success,” Stankey said in a press release. “Our team led by Bob Greenblatt, Ann Sarnoff, Gerhard Zeiler and Jeff Zucker has done an amazing job establishing our brands as leaders in the hearts and minds of consumers. Adding Jason to the talented WarnerMedia family as we launch HBO Max in May gives us the right management team to strategically position our leading portfolio of brands, world-class talent and rich library of intellectual property for future growth.”

Kilar was CEO of Hulu from its start in 2007 until 2013. Prior to Hulu, he served in several positions at Amazon from 1997 to 2006, including SVP of Worldwide Application Software. Kilar also was co-founder & CEO of video streaming service Vessel from 2013 to 2017.

“In partnership with this world-class team, I'm so excited for the opportunity to lean into the future at WarnerMedia,” said Kilar in a press release. “Stories well told have always mattered, and they matter even more in this challenging time for the world. It will be a privilege to invent, create, and serve with so many talented people. May 1st can't get here soon enough.”

In the wake of the sudden departure of Brian Lesser as CEO of AT&T’s Xandr ad unit, AT&T COO John Stankey said Xandr and WarnerMedia must work more closely together.

In a memo to Xandr staffers Tuesday, Stankey re-emphasized that advertising is important to AT&T as it launches its direct-to-consumer streaming service HBO Max.

“Advertising is critically important to the future of media, and I believe platforms that evolve to accommodate both subscription and ad-supported formats will be a natural content aggregation point for the industry — not to mention a preferred experience for the customer,” he said.

But he added that AT&T must approach the market in a unified manner.

"There is still much more that needs to be done to integrate and coordinate more closely our go-to-market functions between Xandr and WarnerMedia,” he said. “I will be working with the respective leadership in the coming weeks to achieve this objective — acknowledging that our inability to work from the office will likely create some challenges.”

WarnerMedia and Xandr had planned to have a joint upfront presentation in May. That event has been canceled, like almost all other upfront events, because of the coronavirus crisis.

Lesser, who joined AT&T three years ago from media buyer GroupM to run AT&T’s advanced advertising unit, resigned last week. Sources indicated that he sought the job of CEO of WarnerMedia, a post Stankey, who was named to the additional post of COO of AT&T last year, plans to eventually relinquish.

Related: Xandr Targeting Linear Ads for Disney, AMC Nets

Stankey called Lesser’s departure “unexpected,” saying “while I am disappointed Brian will not be with us for the next chapter, I want you to know that our commitment to making advertising matter has not changed.”

Stankey also said AT&T was committed to Xandr’s Monetize and Invest platforms. Just as Lesser was resigning last week, Xandr made big news as The Walt Disney Co. and AMC Networks agreed to let advertisers use Xandr Invest to plan and buy campaigns using ad inventory from their linear TV networks.

For the interim, it appears that Kirk McDonald, Xandr’s chief business officer, is in charge of Xandr. Stankey's memo did not mention when a new unit CEO might be named.

The memo also addressed how the company was dealing with the coronavirus situation.

“The widespread impact of the coronavirus continues to challenge all of us like nothing we have seen before. Priority number one is taking care of yourself and your loved ones,” Stankey said. “We will do everything we can as an organization to keep you informed as we work together to serve our customers during this stressful and uncertain time for everyone.”

We meant to do that.

That was one of the essential takeaways AT&T president and chief operating officer John Stankey had for investors as to why the telco was displacing DirecTV with a streaming pay TV service just five years after paying $50 billion for the satellite-TV company.

“I think, back in July of 2015, after we closed the DirecTV transaction, we were pretty clear that at that point in time we didn’t see satellite delivery as necessarily a growth vehicle for entertainment moving forward,” Stankey said March 3 at a Morgan Stanley investor event. “We like the DirecTV customer base — we thought it was attractive. But we felt like the march needed to be to delivering entertainment over software.”

Launching nationwide after tests in 13 markets, AT&T TV is a kind of hybrid, matching over-the-top and traditional pay TV services. It’s delivered over the open internet to a proprietary Android TV set-top box, which means AT&T doesn’t have to launch satellites to support the service. It’s self-installed, so the operational costs of truck rolls are also factored out of the equation.

The Android TV-based system includes access to Netflix, YouTube and virtually every other OTT app through the Google Play digital store, so AT&T doesn’t have to worry about developing native platform integrations of SVOD services. Voice integration is also handled natively, through Google Assistant.

Conversely, AT&T TV is as much “traditional pay TV” as it is OTT. There’s a two-year contract involved, with a full bundle of around 70 channels in the base tier — including the Big Four broadcast networks and ESPN — priced at $50 a month in the first year before shooting up to $93 for the second 12 months. There are hidden fees, notably an $8.49-per-month regional sports network charge, and additional costs for adding more Android TV set-tops. And there are charges for early cancellation.

Stankey didn’t disclose how many customers AT&T TV has at this point, but said “we’re really pleased with what we saw” on the service’s March 2 nationwide launch day. With AT&T losing 4.1 million subscribers in 2019 across its incumbent pay TV services — DirecTV satellite, U-verse TV managed IPTV and the erstwhile DirecTV Now virtual MVPD service (now confusingly called AT&T TV Now) — AT&T expects its new video platform will reverse its currently high customer-churn trajectory in 2020.

AT&T TV is also seen as the cornerstone of the telco’s fiber-to-the-home broadband sales effort, now in 4 million homes. AT&T is hoping to have around 3 million more of them by 2022, and being able to bundle in a premium pay TV service is part of that business equation.

“We’re getting higher attach rates than what we would traditionally get in selling broadband with satellite,” Stankey said. “We saw higher growth rates than what we would typically see, and I think that’s driven by the fact that the product is an updated, more feature-rich product. And of course, the fact that we can now bundle it more attractively in certain areas, such as our fiber footprint and offer very, very attractive bundles on it, customers are aware of that and are interested to try and kick the tires on it.”

DirecTV Finds ‘Rightful Place’

With the introduction of AT&T TV, the telco’s existing pay TV services are either being marginalized or put out to pasture.

Stankey didn’t comment on U-verse TV, the 14-year-old IPTV service that ended the fourth quarter with only around 3.4 million remaining subscribers. News site Cord Cutters reported that AT&T is no longer promoting U-verse TV on the internet.

Likewise, Stankey only passingly addressed AT&T TV Now, the skinny-bundled vMVPD that had a promotion-fueled rocket ride to nearly 2 million subscribers in its first 20 months in the market, before AT&T turned off the loss-leader taps. But priced at $65 a month for 45-plus channels, AT&T TV Now would seem to be undercut and antiquated by AT&T TV, even though it is free of contracts and early-termination charges. Stankey described the vMVPD as merely an “iteration,” a technological step on the way to AT&T TV.

”We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not as prevalent.” — John Stankey, president and COO, AT&T

That leaves DirecTV, which has seen a base of more than 21 million subscribers whittle away to just more than 16 million as of the end of the fourth quarter. DirecTV also recently saw the departure of senior VP and chief content officer Dan York, culminating a series of top-level executive departures for the satellite-TV service that began when former DirecTV CEO Mike White left its El Segundo, California, headquarters when AT&T closed its $50 billion acquisition in summer 2015. Now, AT&T isn’t even branding its flagship pay TV service with the DirecTV name anymore.

“We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not as prevalent,” Stankey said.

Despite investor pleas for AT&T to divest the satellite TV asset, Stankey reiterated the telco’s position that it’s not likely to do that soon.

“I would tell you we don’t see it really running in the regulatory environment,” he said. “And I would also say, you have to be a little circumspect as an executive right now. If you're doing anything that requires approval, my read of the environment is, it’s a little unpredictable.”

AT&T just started on Monday rolling out nationally its new pay TV service, AT&T TV, which combines streaming over the open internet with the contractual, hidden-fee elements of a traditional bundled video package.

Speaking to investors Wednesday at a Morgan Stanley investor conference, AT&T President and COO John Stankey laid out AT&T’s new pay TV strategy, in which incumbent services DirecTV satellite, U-verse managed IPTV and AT&T TV Now virtual MVPD services are all marginalized.

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

Stankey said that even though AT&T paid $50 billion as recently as 2015 to buy DirecTV, it always knew the asset would be obsolete in five years.

Visit Next TV to read more stories like this one. 

“I think, back in July of 2015, after we closed the DirecTV transaction, we were pretty clear and said that at that point in time that we didn't see satellite delivery as necessarily a growth vehicle for entertainment moving forward,” Stankey told investors. “We like the DirecTV customer base, thought it was attractive. But we felt like the march needed to be to delivering entertainment over software.”

A Rightful Place in the Market

Stankey said that going forward, DirecTV will only be marketed to customers on a situational basis.

“We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes, more rural or less dense suburban areas,” Stankey said. “We'll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have. But in terms of our marketing muscle and our momentum in the market, it will be about software-driven pay TV packages either over bring your own hardware, which is AT&T TV.”

Stankey didn’t discuss U-verse, AT&T’s managed IPTV service. However, news site Cord Cutters reported the telco confirmed that U-verse is no longer being marketed online.

As for the erstwhile DirecTV Now, the skinny-bundled virtual pay TV service launched back in 2016 and now confusingly monikered as “AT&T TV Now,” Stankey said it was merely an “iteration” on the path to AT&T TV.

AT&T TV is a full-bundled traditional pay TV service being sold on a two-year contract basis, its base package discounted to $40 a month in the first year. The base price balloons to $93 for the second year, and there are hidden fees, including regional sports network and extra set-top dings.

The service streams to a proprietary Android TV-powered set-top, giving customers access to the full flora and fauna of the Google Play store, as well as the voice capabilities of Google Assistant. The service is self-install, meaning not only is AT&T off the hook for satellite launches, it also doesn’t have to worry about truck rolls anymore.

AT&T TV had already been deployed in 13 states under trial run. Stankey didn’t disclose how many customers the service had, only that the telco “was really pleased with what we saw yesterday.”

AT&T lost more than 4 million users in 2019 across DirecTV, U-verse and AT&T TV Now. It expects AT&T TV to reverse those customer growth fortunes, as well as offer it something sticky to bundle fiber broadband with.

“We're getting higher attach rates than what we would traditionally get in selling broadband with satellite,” Stankey said. “We saw higher growth rates than what we would typically see, and I think that's driven by the fact that the product is an updated, more feature-rich product. And of course, the fact that we can now bundle it more attractively in certain areas, such as our fiber footprint and offer very, very attractive bundles on it—customers are aware of that and are interested to try and kick the tires on it. So feel good about what the team was able to do over this period of time and bring it forward.”

AT&T just started on Monday rolling out nationally its new pay TV service, AT&T TV, which combines streaming over the open internet with the contractual, hidden-fee elements of a traditional bundled video package.

Speaking to investors Wednesday at a Morgan Stanley investor conference, AT&T President and COO John Stankey laid out AT&T’s new pay TV strategy, in which incumbent services DirecTV satellite, U-verse managed IPTV and AT&T TV Now virtual MVPD services are all marginalized. 

Also read: AT&T TV: Everything You Need to Know About the Streaming Version of AT&T’s Premium Pay TV Service

Stankey said that even though AT&T paid $50 billion as recently as 2015 to buy DirecTV, it always knew the asset would be obsolete in five years. 

“I think, back in July of 2015, after we closed the DirecTV transaction, we were pretty clear and said that at that point in time that we didn't see satellite delivery as necessarily a growth vehicle for entertainment moving forward,” Stankey told investors. “We like the DirecTV customer base, thought it was attractive. But we felt like the march needed to be to delivering entertainment over software.”

A Rightful Place in the Market

Stankey said that going forward, DirecTV will only be marketed to customers on a situational basis. 

“We will continue to offer satellite and DirecTV where it has a rightful place in the market, places where cable broadband is not prevalent, oftentimes, more rural or less dense suburban areas,” Stankey said. “We'll continue to offer it for customers on a stand-alone basis, who find its superior content offering to be something that they wish to have. But in terms of our marketing muscle and our momentum in the market, it will be about software-driven pay TV packages either over bring your own hardware, which is AT&T TV.”

Stankey didn’t discuss U-verse, AT&T’s managed IPTV service. However, news site Cord Cutters reported the telco confirmed that U-verse is no longer being marketed online. 

As for the erstwhile DirecTV Now, the skinny-bundled virtual pay TV service launched back in 2016 and now confusingly monikered as “AT&T TV Now,” Stankey said it was merely an “iteration” on the path to AT&T TV. 

AT&T TV is a full-bundled traditional pay TV service being sold on a two-year contract basis, its base package discounted to $40 a month in the first year. The base price balloons to $93 for the second year, and there are hidden fees, including regional sports network and extra set-top dings. 

The service streams to a proprietary Android TV-powered set-top, giving customers access to the full flora and fauna of the Google Play store, as well as the voice capabilities of Google Assistant. The service is self-install, meaning not only is AT&T off the hook for satellite launches, it also doesn’t have to worry about truck rolls anymore. 

AT&T TV had already been deployed in 13 states under trial run. Stankey didn’t disclose how many customers the service had, only that the telco “was really pleased with what we saw yesterday.”

AT&T lost more than 4 million users  in 2019 across DirecTV, U-verse and AT&T TV Now. It expects AT&T TV to reverse those customer growth fortunes, as well as offer it something sticky to bundle fiber broadband with. 

“We're getting higher attach rates than what we would traditionally get in selling broadband with satellite,” Stankey said. “We saw higher growth rates than what we would typically see, and I think that's driven by the fact that the product is an updated, more feature-rich product. And of course, the fact that we can now bundle it more attractively in certain areas, such as our fiber footprint and offer very, very attractive bundles on it—customers are aware of that and are interested to try and kick the tires on it. So feel good about what the team was able to do over this period of time and bring it forward.”

As it spends billions to launch its new streaming service HBO Max, AT&T plans to continue to invest in its key cable networks, including TNT and TBS.

Speaking on AT&T’s earnings call with analysts Wednesday, AT&T chief operating officer John Stankey said the programming mix on TBS and TNT is likely to shift as consumers look to watch general entertainment content on streaming subscription video-on-demand services.

Stankey said that TNT and TBS were hybrid networks, with sports programming on them as well as general entertainment. That’s helped keep them popular with distributors and pay-TV subscribers who want to see the NBA and the NCAA Men's Basketball Tournament, both carried by Turner Sports.

RELATED:AT&T Loses 1.4 Million Pay TV Subs in Q4

Analysts have been concerned that by focusing on HBO Max, cable network revenues and profits could suffer.

“To keep the networks relevant we will continue to invest in them,” Stankey said. “We’ll continue to make sure that they’re viable for our distributors, but you’ll see a content shift start to occur.”

In addition to news on CNN and sports on TNT and TBS, subscribers “also like content that’s more socially relevant, and so probably you see a little more unscripted content come in, things that cause people to go into the office and talk about it around the water cooler,” Stankey said. “That will probably start to supplant hours that might have been more general-entertainment oriented content that you are going to be showing up on SVOD platforms like HBO Max moving forward.”

With scripted content on HBO Max and more nonscripted on TNT and TBS, AT&T’s studios will have the ability to monetize the content they produce with through distributors in the traditional fashion or through direct-to-consumer businesses, he said.

But while the Turner cable networks still generate a lot of revenue and profit, that business is declining. That fact led to AT&T’s decision to jump into streaming with HBO Max.

“Everybody knows [pay TV] is in transition and it’s a mature product. It’s kind of working its way through the back end of its life cycle,” Stankey said. Within the pay-TV business, Turner is in good shape because most of its profits are generated by just three networks and aren’t overly expensive, which is good at a time when consumers and distributors are trying to shrink their bundles.

In recent negotiations, Stankey said, cable operators share that view. “Distributors see that and understand that those are important networks and we’re continuing to see the people place value on those things even in a more skinnied down or smaller pay TV universe going forward.

“Now let’s be clear: the reason we’re doing Max is we know that new distribution platforms need to be other there,” he said. “And that pivot between what we’re doing with linear networks and what we’re doing with Max is a key part of the WarnerMedia strategy. It’s an important dance and choreography we have to do to get that right, and we feel we’re positioned very well to make that happen.”

AT&T’s strategy built around its $49 billion acquisition of satellite TV service DirecTV in 2015 clearly hit the rocks in the fourth quarter, with No. 2 U.S. pay TV company losing nearly 1.2 million subscribers across DirecTV, U-verse and virtual MVPD AT&T Now. 

For its part, AT&T hopes that’s rock bottom. 

The company said in its fourth-quarter earnings report today that it hopes the introduction of “software-based” video services, AT&T TV and HBO Max, will be natural complements to a sales push of fiber-to-the-home (FTTH) services and reverse the company’s failing video fortunes. 

Launching nationally in February, AT&T TV is a premium, self-installed, full-bundle pay TV service delivered over the open internet to proprietary Android-TV set-top boxes. 

“As we move through this year and we start shifting to AT&T TV, our gross add performance starts to get much stronger,” AT&T COO John Stankey told investment analyst today. “And naturally, when you're able to put AT&T TV, a software-based product with fiber, it's a much more natural combination than a satellite dish and fiber. And so, as we start to roll out AT&T TV now in markets and we move in, we're going to see much stronger performance on the fiber side.

“When I look at what's happening from an operational performance perspective and what the team is doing on gross add improvements, what we're seeing in churn improvements, the rollout of AT&T TV that really hits its stride in the second quarter in terms of its availability across the customer base,” Stankey added. "We’ll start to see those subscriber trends incrementally improve as those capabilities start to roll into the base. And we'll get to what I just indicated by the time we exit the year."

AT&T said it currently has around 4 million FTTH customers, but it expects to add around 3 million more by 2022. 

“This will be a significant lift in market share compared to our traditional performance in our legacy hybrid fiber copper-based footprint,” said AT&T CEO Randall Stephenson, also speaking today during the Q4 earnings call. 

HBO Max, a subscription video on demand (SVOD) service being launched in April, is another software-based service that synergies well with the fiber push, AT&T executives said.

With AT&T and its WarnerMedia unit opting to hold back content assets like hit comedy series The Big Bang Theory for HBO Max, instead of licensing them out for immediate licensing cash, current revenue generation has been constrained, AT&T executives admitted today. WarnerMedia posted a 9.5% drop in fourth-quarter operating income to $2.4 billion, largely as a result of investments in HBO Max and the foregone licensing opportunities.

Still, AT&T execs expressed bullishness on HBO Max’s prospects … and a willingness to invest even more into the enterprise. 

“It's a product that's going to continue to grow over the coming years,” Stankey said. “And we're going to be looking in the market for opportunities for other content acquisition and the like. And it's entirely possible, we may be opportunistic, or look at something, and we want the management team to have that flexibility to be able to balance those things out. We have subscriber growth coming and things are working well with our strategies. We make it a little heavier on trying to build up subscribers and what we expected.”

WarnerMedia CEO John Stankey told an industry audience Tuesday that he believes consumers will find the $14.99 monthly price point of its HBO Max streaming video product compelling because it offers more content than its cheaper competitors like Disney + and Apple TV Plus.

Speaking at the UBS Global TMT Conference in New York, Stankey said criticism around HBO Max pricing is unwarranted. HBO Max, which is scheduled to be available in May, is more than double the $6.99 price point for Disney + and triple the $4.99 Apple charges for its Apple TV Plus service.

Stankey, who also is president and COO of AT&T, was filling in for his boss, AT&T chairman and CEO Randall Stephenson, who was originally scheduled to speak at the conference.

Stankey said HBO Max has twice the content of the Disney + service, and that the HBO product is targeted at the entire household while the Disney + service appeals to a younger audience.

“It’s not that deep,” Stankey said of the Disney + service. "There's some stuff that is interesting to adults in the offer and some stuff that's probably interesting to your 20-something and 30-something year-old members of your family, but it's not all that deep in that regard. Max is."

He added that HBO Max appeals to the entire family and the family wireless plan, especially to older family members who pay the bills.

"We know from our experience with HBO that attaching content to a connectivity service has churn benefits," Stankey said. "I don't think we have to debate that, we've got every other wireless providers trying to do something like that."

Stankey pointed to Verizon Wireless' promotional relationship with Disney + and T-Mobile's partnerships with Netflix.

"We see the same thing with HBO," Stankey said, adding that the one of the limits for HBO is that its subscriber demographics tend to skew older and a little more affluent.

"Most of your young kids in your house aren't thinking about what next HBO show they want to watch," Stankey said. "We tend to skew a little bit higher on socioeconomic and age demographics. We'd like to bring that down a bit. That's what Max allows us to do."

Related: It's Not TV, It's HB(Uh)O

He added that there is room for multiple direct-to-consumer services in the home, comparing the launches of the new offerings to Netflix’s streaming debut several years ago.

“You would be hard pressed to suggest that Disney+ is a replacement service for Netflix,” Stankey said. “You would be hard pressed to say Disney+ is a replacement for [HBO] MAX. They are two different services and they are addressing different market segments."

Stankey also addressed concerns that HBO Max will face resistance from distributors, who will likely receive a smaller revenue share with the new service. He said that talks with distributors are ongoing and was optimistic deals will be reached.

"We're in the heart of them now," Stankey said of the talks, adding that as is the case with most carriage negotiations, there is a period of "posturing" followed by intense work to get a deal done as the deadline comes near.

"I don't expect that these discussions are going to be a whole lot different," Stankey said. "Each side has been stating their position. I'm not surprised by any of the positions that are being taken. That dialog has begun. ...I think what is important to understand is at the end of the day, is this is something a distributor would want to participate in? I think the answer is yes."

AT&T COO John Stankey defended the $15 price tag the company plans to charge for its upcoming streaming service HBO Max.

At the UBS media investors conference on Thursday, analyst John Hodulik asked Stankey if he thought the price, which is higher than other streaming services, might limit its growth.

“No I don’t,” said Stankey, a last minute fill-in for AT&T CEO Randall Stephenson, who is apparently ill. He compared HBO Max to the Walt Disney Co.’s Disney+, which gained 10 million subscribers the first day it was available at a price of $6.99.

“Disney was kind of like about half the content of what we have at half the price and we’re twice the content of what we currently have [on HBO] at the same price,” he said. 

Stankey said reaction to HBO Max’s pricing was all over, with some saying it was too high, some saying too low and some saying just right. 

“That tells me we probably found a good place to start,” he said. “Our approach to this is to give a compelling value to the 33 million customers that are currently HBO subscribers and it’s a compelling value proposition. 33 million people are already paying $15 a month or thereabouts. They’re going to get twice the content for the same price and it should be something that they look at and say ‘Wow. This is great. It doesn’t happen very often in my life where somebody gives me quite a bit more without having to pay more.’”

Stankey also said that HBO Max would have more of an appeal to all members of a household, where as Disney+ appears to be aimed mainly at the younger members of the family.

“Disney+, it's a good product. They've done a nice job. It has a particular appeal,” he said. “The strongest appeal of Disney+ is to the youth of the family. It's strength as a product to satisfy the other members of the family, it's not that deep. There's some stuff that's interesting to adults in the offer and there's some stuff that's probably interesting to your 20-something and thirty-something year-old members of your family. But it's not all that deep in that regard,”

Max is a product that appeals to the entire family and the family wireless plan, he said. “It's something that everybody looks at and says that has something in it for me. The parent, who is the decision maker on the macro end of the family plan says that has something for me. I see myself in that offering." 

Stankey noted that AT&T will have largely completed the national rollout of its 5G network by the middle of next year, when HBO Max launches and that the combination of the network with HBO Max content will create a powerful product that will support customer loyalty and reduce churn. 

And unlike Verizon, which is offering some subscribers Disney+ free, and T-Mobile, which is giving subscriber Netflix, AT&T owns HBO Max, which means it makes money on both sides,

“It opens up an opportunity for us to explain to them why getting entertainment with their wireless service makes sense for them,” Stankey said. and with entertainment driving them into those higher unlimited plans that drive ARPU accretion and value back to the customer by getting their entertainment bundle associated with that connectivity service, which ultimately helps our churn over time.”

Stankey said that AT&T is in the middle of discussions about having traditional distributors of HBO carry HBO Max.

Those conversations are “going like they always go,” he said. “You could probably write a book about the unique character of any carriage agreement negotiations right?. They follow a particular construct in a pattern and it's a repeatable pattern and it's one of those things where there's an inordinate amount of time spent by the sides of the front end posturing and then as a deadline approaches, there's a lot of  work it's done in a very short period of time right before the deadline,  I don't expect that these discussions are going to be a whole lot different given that pattern that occurs.”

Stankey said he’s not been surprised by the positions being taken by distributors. Nor does he think the distributors have been surprised by AT&T position.

I think what's important to understand is at the end of the day, is this something that a distributor would want to participate in? And I think the answer to that is yes,” Stankey said.

He said he thinks that distributors would want to continue receiving monthly revenue from a product they and their subscribers are familiar with.

And in some ways, HBO Max might be better for distributors. “We're providing an opportunity to not only get access to the content, but to take the data and the information that we glean and bring that back to them through Xandr so that they can use that information and insight the customers that we know to help their advertising businesses,” he said.

He added that providing HBO Max would help distributors keep customers in the pay-TV ecosystem more than providing Netflix does. 

“I think at the end of the day gets down to money and economics and if there will be a meaningful reason why they want to participate with us,” he said.

AT&T has set a May 2020 launch date for its upcoming streaming service, HBO Max and will price the service at $14.99 a month, on par with the HBO premium cable channel.

The wireless company also said that it will offer the service free for one year to those who already subscribe to an AT&T TV service. This includes AT&T TV, the upcoming streaming version of AT&T’s premium pay TV service.

“General entertainment streaming is the next great opportunity to aggregate and grow audience,” John Stankey, AT&T’s COO and WarnerMedia’s CEO, said at the company’s media event Tuesday on the Warner Bros.’ lot in Burbank, California. (The event was covered by Variety, Deadline Hollywood and The Hollywood Reporter, among other publications.)

Related: AT&T Says HBO Max Will Reach 50M Subscribers by 2024

AT&T revealed that an ad-supported version of HBO Max will debut in 2021 and also be bundled with AT&T TV. That same year, AT&T will debut live-streamed news and sports on the platform.

AT&T officials said they expect to have around 75 million to 90 million HBO Max subscribers by 2025, and around 50 million in the U.S. alone at that time.

At launch, AT&T—which has been steadily announcing content deals in recent months for HBO Max—said the platform will launch with around 10,000 hours of programming.

At its event Tuesday afternoon, HBO Max announced several more programming deals. These include:

• Exclusive streaming rights to South Park.
• Streaming rights to the first three seasons of Rick & Morty, with additional seasons coming after they air on Adult Swim.
• Two DC-related projects from producer Greg Berlanti.
• A sci-fi series called Raised by Wolves from Ridley Scott.
• Stand-up comedy specials from Conan O’Brien. 

AT&T COO John Stankey told The Wall Street Journal that the telecom probably isn’t interested in renewing its contract to carry the “NFL Sunday Ticket” games package if the price tag exceeds the current eight-year, $12-billion level negotiated back in 2014.

“There’s less profitability to support the decision” to offer Sunday Ticket, Stankey told the paper. “It becomes less critical to the business over time.”

AT&T’s DirecTV satellite TV platform has exclusive rights to carry “Sunday Ticket,” a premium programming service that delivers every out-of-market NFL game on Sundays to subscribers.

The current agreement costs AT&T around $1.5 billion a season and runs through the 2022 season.

Related: Stankey Named AT&T Chief Operating Officer

The NFL is known to covet a video partner that will expand the realm of “Sunday Ticket” into streaming. And for his part, Stankey told WSJ that AT&T would be open to an arrangement that would let in other broadcast partners, so long as the loss of exclusivity would drive down the cost of the package.

“We’d always look at it,” Stankey said. “It all gets down to what the price of something is.”

With the full launch of its standalone streaming service HBO Max set for next year and an activist shareholder breathing down his neck, AT&T chairman and CEO Randall Stephenson tried to calm an industry audience Tuesday, adding that HBO Max would stand out among the growing list of streaming video competitors while recent criticism from investor Elliott Management is being addressed.

"This is going to be different,” Stephenson said of HBO Max at the Goldman Sachs Communacopia conference in New York Tuesday. “This is not Netflix. This is not Disney [Plus]. This is not Hulu. This is different, standing up a digital platform and driving fast penetration through customer relationships that you own in this distribution business.” Stephenson has said in the past that the service -- along with its sister streaming offering AT&T TV, which is scheduled to debut around the same time -- will leverage the 170 million customer relationships AT&T has through its various wireless and pay TV businesses.

Related: HBO Christens New SVOD Service HBO Max 

HBO Max, which will be unveiled at an investor meeting on Oct. 29 but will be launched in 2020, has come under fire because of what many analysts believe will be its pricing. Although AT&T hasn’t officially announced what the service will cost, most observers believe it will be between $15.99 and $17.99 per month, in the same ballpark as its standalone HBO Now streaming service. At that price point, HBO Max could be at a disadvantage coming out of the box, especially since its rivals Netflix ($12.99/month), Hulu ($8.99/month), Disney + ($6.99/month) and Apple TV Plus ($4.99/month) will be priced so much lower.

AT&T is not unaware of the controversy. Last week, AT&T chief financial officer John Stephens said that the HBO service itself is the main differentiator between HBO Max and its competition.

“Well, I think the first thing I want you to remember is that we also start with something called HBO,” Stephens said at the Bank of America Merrill Lynch Media, Communications & Entertainment conference in Los Angeles. “And so we only have a 40-year head start with a quality product that is a premium.”

WarnerMedia has been beefing up the content on HBO Max, adding seasons of popular broadcast shows like “Friends,” British TV series “Doctor Who” and “The Big Bang Theory” for the service. 

Stephenson also addressed the criticism of Elliott Management, which wrote a letter to AT&T’s board of directors Sept. 9,  calling for the sale of DirecTV and criticizing the purchase of Time Warner and Stephenson’s voracious appetite for acquisitions.

Stephenson said the Elliott management letter was a “mixed bag,” with some suggestions that are being addressed and others that don’t appear to make much sense for the telco. But he was open to starting a dialog with Elliott, calling the firm “smart guys” who have good ideas that AT&T needs to “sit down and engage with them on.”

Stephenson admitted that the diversity path he has taken the telco down -- beginning with the purchase of DirecTV in 2015 and the Time Warner deal last year -- couldn’t have been imagined five years ago, what he called the “old world.”

“In the new world, it makes all the sense in the world,” he said. “Content is king, I’m an evangelical on that. “But distribution matters.”

The AT&T chief also addressed pay TV subscriber losses --Stephens said last week that AT&T could lose between 300,000 and 350,000 pay TV customers in Q3 as a result of carriage disputes with CBS and Nexstar Media Group earlier this year. There are still retransmission consent and carriage deals yet to be finalized -- 17 smaller TV stations that went dark on May 30 are still unavailable to AT&T pay TV customers, as is regional sports network Altitude Sports and Entertainment, which went dark on Aug. 31.

Disney began warning DirecTV customers that they could lose access to ESPN, ABC stations, Freeform and The Disney Channel in the absence of a deal last week, but apparently has given AT&T an extension to its deal as talks continue. 

Stephenson said AT&T has had to make some hard, but necessary choices regarding programming renewals.

“Those were a painful few weeks,” Stephenson said of the CBS and Nexstar blackouts. “... but it was the right thing to do."

AT&T’s recent promotion of WarnerMedia CEO John Stankey to chief operating officer of the parent company has set in motion speculation that he will assume the top spot at the telco once Stephenson retires. 

At the Goldman conference, Stephenson said he hasn’t been informed by the board of his retirement yet, but added that Stankey has done a good job, adding that he would be in a "good position" if he “executes this play.”

AT&T said it has named John Stankey chief operating officer of the parent company, while retaining his role as CEO of WarnerMedia.

The newly created role comes on the heels of the retirement of AT&T Communications CEO John Donovan. Donovan is set to retire on Oct. 1, upon which time former AT&T Communications’ Technology and Operations group president Jeff McElfresh will replace him as CEO of the unit. McElfresh will report to Stankey, as will Xandr CEO Brian Lesser.

As head of AT&T Communications, McElfresh will be in charge of a telecom, wireless, broadband and pay-TV unit (which includes it DirecTV, U-verse, AT&T TV Now and AT&T TV divisions), with about 100 million customers.

In his new role Stankey will report to AT&T chairman and CEO Randall Stephenson, putting him a step closer to the top spot in the company. 

“Now is the time to more tightly align our collection of world-class content, scaled consumer relationships, technical know-how and innovative advertising technology,” Stephenson said in a press release. “It’s the natural next step in bringing together the distinct and complimentary capabilities of AT&T Communications, WarnerMedia and Xandr to deliver for consumers the benefits of a modern media company. AT&T is alone in the industry in being able to bring together these three great businesses for the launch of innovative consumer offers, relevant advertising and new entertainment services like HBO Max.”

Stankey takes on the new role just as AT&T is readying the full launch of its streaming video service AT&T TV, scheduled for the fall. The service began a test launch in a few markets in August. 

“John is an outstanding executive who has led nearly every area of our business, helped shape our strategy and excelled at operations throughout his career. The Board and I look forward to John hitting the ground running in his new role as president and COO,” Stephenson said.

Like Stankey -- who joined AT&T in 1985 -- McElfresh is a phone company lifer, with nearly 25 years at AT&T in a variety of roles. In addition to AT&T Communications’ Technology and Operations group, he has served as CEO of AT&T’s Vrio and its DirecTV Latin America and SKY Brasil businesses; and President of AT&T Mexico.

WarnerMedia’s upcoming SVOD service will actually be introduced as a single-tier platform and will be positioned, in terms of price and library breadth and depth, somewhere between Disney + and Netflix.

That’s the essential takeaway from MoffettNathanson, which said it recently met with John Stankey, CEO of AT&T-owned WarnerMedia. Stankey, the company said, “raised the curtain” on the company’s direct-to-consumer plans. 

After the market was “bored” with Apple’s presentation of its upcoming SVOD service, MoffettNathanson said, and Disney “impressed” with its showing off of Disney +, it will soon be “WarnerMedia’s turn in the spotlight,” the research firm explained, setting the table.

Related: Apple's Big Original TV Model Follows Not-So-Original Playbook

“While details remain close to the vest, the initial SVOD service appears to be a single tier product that will not be named HBO (but will likely include the HBO brand) and could be bundled to HBO customers via traditional MVPD relationships,” MoffettNathanson said. “The product is designed to fit between the ‘all you can eat’ focus of Netflix and the thinner, more quality-oriented offering from Disney. In short, think Disney with a deeper library of A-titles or Netflix with fewer B and C products.”

Following Disney’s acquisition of the Fox entertainment assets, WarnerMedia no longer has the biggest content library. Still, MoffettNathanson noted, it boasts 21% of the 200 most popular films and 18% of the highest rated TV series.

“The service plans to use the existing HBO OTT offering including its library combined with selective Warner Bros. TV and film library content that targets specific demographics,” the research firm said. “Mr. Stankey believes the HBO library and the Warner Bros. theatrical library are really important components to differentiate the service as all of the new SVOD services are trying to replicate this content without a similar library asset in their back pocket.”

MoffettNathanson also expects an AVOD component to eventually sprout out of the WarnerMedia DTC product, similar to how Hulu markets a baseline $5.99 service that includes commercials.

“It is clear that the WarnerMedia SVOD service could flex [its] muscles on a global scale, if they want to,” the firm noted.

Will they?

Like Disney, WarnerMedia will have to impact the bottom line by foregoing high margin licensing revenue from outside platforms.

“And to the extent that any new DTC SVOD service will only accelerate the decline of traditional distribution, AT&T will suffer faster defections not only from DirecTV but also from the Turner Networks.” 

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.

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.”

Two weeks after being tapped for an expanded role in the new WarnerMedia corporate structure, and amid claims he had conducted a sexual relationship with an actress who wanted roles in studio movies and TV shows, Warner Bros. Entertainment said its chairman and chief executive Kevin Tsujihara will step down. 

WarnerMedia announced a sweeping new structure on March 4, naming former NBC Entertainment chief Bob Greenblatt chairman of WarnerMedia Entertainment and Direct to Consumer. As part of that new structure, Tsujihara was to receive the added responsibility of a new global kids and young adults business.

But the added role came just as a story broke in The Hollywood Reporter that claimed Tsujihara conducted a three-year relationship with an actress that had wanted roles in the company’s movies and TV shows. WarnerMedia, which had earlier investigated similar claims and found no impropriety, immediately began an investigation into the new allegations.  

Related: WarnerMedia Plots OTT Plan Amid Departures 

“It is in the best interest of WarnerMedia, Warner Bros., our employees and our partners for Kevin to step down as chairman and CEO of Warner Bros.,” said WarnerMedia CEO John Stankey in a press release. “Kevin has contributed greatly to the studio’s success over the past 25 years and for that we thank him. Kevin acknowledges that his mistakes are inconsistent with the company’s leadership expectations and could impact the company’s ability to execute going forward.”

WarnerMedia said it continues to work with a third-party law firm to complete its investigation with Tsujihara’s cooperation.

WarnerMedia has yet to name a successor for Tsujihara.

Seeking to calm the nerves of investors leery of debt and rising subscriber churn at satellite-TV service DirecTV (see Platforms, page 28), AT&T is laying out a plan to make its $84.5 billion purchase of Time Warner a necessary catalyst to compete with Netflix around the globe.

AT&T’s recently acquired WarnerMedia division will launch a broad-reaching streaming service, leveraging content from Warner Bros., Turner and HBO, in the fourth quarter of next year. At an investor day event, AT&T’s top executives didn’t announce a name for the new service, or any pricing. But they did describe three basic tiers.

The entry-level package will be focused on theatrical movies. There will be a more premium bundle including original shows along with blockbuster films. A third ultra-primo tier will add an extensive library of WarnerMedia content, plus licensed third-party content, to the other offerings.

“We understand that this product has to be good enough” to get viewers to spend money on it, WarnerMedia CEO John Stankey said.

The subscription over-the-top market is crowded, he acknowledged, but incumbents like Netflix will become vulnerable when WarnerMedia and The Walt Disney Co. — plotting a similarly ambitious direct-to-consumer launch — start withholding licensed movies and shows for their own platforms.

“Some of the incumbents should expect that their libraries are going to become a lot thinner,” Stankey said, adding that as much as 80% of viewing for the top SVOD services comes from licensed shows and movies.

AT&T also said it will earmark $12 billion of its increased cash flow next year for debt repayment.

The ranks of streaming video direct-to-consumer offerings by big media players is getting more crowded, with WarnerMedia parent AT&T readying for launch a new over-the-top content service in 2019.

AT&T didn’t offer many details about the proposed service, to include content from AT&T’s HBO and Turner networks, as well as select third-party content. It will likely be priced more dearly than its other direct-to-consumer streaming service, HBO Now, currently at about $15 per month.

For AT&T, this will be its fourth time down the streaming video road in four years. HBO launched HBO Now in October 2014, when it was still part of Time Warner. Since then, AT&T has launched virtual MVPD DirecTV Now (November 2016) and wireless add-on AT&T WatchTV (2018), offering select shows from Turner, Discovery, Viacom and others free to AT&T Wireless customers with unlimited data plans and $15 per month for everyone else.

Many Players in the Stream

The addition of yet another OTT service adds to what is becoming an increasingly crowded field. To date, there are at least seven virtual multichannel video programming distributors currently, and The Walt Disney Co. is slated to launch its entertainment-focused direct-to-consumer product next year. T-Mobile, now in the throes of a merger with Sprint will likely join the fray at some point.

Barclays media analyst Kannan Venkateshwar expressed concern about the sheer number of AT&T over-the-top offerings.

“These approaches risk crowding out their own services by providing so many alternatives for consumers,” he said in a research note. Instead, he suggested, AT&T should offer library content and originals at different price points on its HBO Now service, establishing an “origination funnel” that could be used to upsell the product.

While some see the growing number of services as a way for distributors to answer Wall Street’s most burning question — How can traditional distributors compete with Netflix? — WarnerMedia CEO John Stankey said the SVOD pioneer had no influence over AT&T’s latest OTT move.

Introducing the latest offering at the Vanity Fair New Establishment Summit, AT&T Entertainment Group chief John Stankey said the telco had no influence on AT&T’s latest OTT move.

“Our job isn’t to build another Netflix,” Stankey said at the Vanity Fair New Establishment Summit. “Our job is to build a compelling offer of content.”

That’s good, because it’s way too late to build another Netflix — and Netflix seems to have done a pretty good job on its own. For AT&T, the move appears to be another stab at driving engagement, something the company has called the cornerstone to its overall content strategy.

The main criticism of AT&T’s OTT endeavors — and frankly those of other big companies — has been that they offer content at below cost. And analysts have scratched their heads wondering how long AT&T can continue to lose money on video. Adding another low-cost streaming service to the mix doesn’t seem to answer that question.

AT&T has stressed in the past that the vast amounts of data it accumulates through its services could be handsomely monetized through targeted advertising, but that could still be a ways off in the future. MoffettNathanson principal and senior analyst Craig Moffett noted that advertising currently makes up just 3.3% of AT&T’s overall revenue, and even if targeted ads take off, “the uplift in advertising will have to be rather extraordinary if it is to change the trajectory of the whole company.”

New Pay-for-Play Model

Another AT&T initiative is even more ambitious: changing the way content is paid for.

AT&T chairman and CEO Randall Stephenson envisions a model in the not-too-distant future in which content providers will be compensated based on how many consumers actually engage with the content, instead of the old model where they charge a fee based on a distributor’s overall subscribers. That approach has been on every distributor’s wish list for a long time.

AT&T obviously has some clout with content companies — it is the largest pay TV distributor in the U.S., with about 24 million subscribers — but maybe not enough. Moffett said in a research report that AT&T appears to be steering its own Turner networks in the direction of paying based on engagement but there is “almost zero chance” other providers will follow.

“To state the obvious, forcing Turner into a bad deal to help DirecTV might help solve one problem, but it merely creates another,” Moffett said.

AT&T told analysts late Tuesday just what is up its sleeve regarding its just-completed $108.7 billion Time Warner merger, and it’s fairly simple: grow revenue and the profits will follow.

The trick though, is how to go about doing that.

According to chairman and CEO Randall Stephenson, the path toward profits winds through the millions of customers, viewers and users of AT&T properties, ranging from DirecTV, DirecTV Now, wireless and broadband services, which he numbers at about 170 million relationships, and the literally hundreds of millions of unique viewers of its digital properties. On a conference call to discuss second quarter results, Stephenson noted that cnn.com alone has 200 million unique viewers per month. Tack on other similarly-viewed digital properties from Otter Media and Bleacher Report and the opportunities abound.

Related: AT&T Nearing Deal to Buy All of Otter Media: Report

On the call, Stephenson talked of the new advertising opportunities through the Turner and Time Warner relationship. He noted that when AT&T delivers ads on DirecTV, its yields improve three-to-five times.

“Turner has an ad inventory that's three times the size of our DirecTV inventory, and as we apply the same data to that inventory, we expect a significant lift,” Stephenson said. “You take these three elements -- premium content, 170 million direct-to-consumer relationships and great ad technology -- and then you combine those with our high-speed networks, and we think all of this is a game changer.”

On the content side, WarnerMedia CEO John Stankey said he isn’t concerned with scale and content, but he does want content that scales. I guess that means the goal is to get its shows in front of more people.

Stankey took some heat from a New York Times article earlier this month that cast a Town Hall meeting he had with Turner and HBO employees in a somewhat unfavorable light. Some of his comments – particularly those that likened the media business to childbirth and his assertion that while HBO makes money, it doesn’t make enough – turned out not to be as bad as originally thought (he was apparently laughing when he made the HBO profit comment). On the conference call, Stankey said the reports didn’t “effectively characterize what we are about.”

What WarnerMedia is about, he said, is driving engagement.

“We have a tremendous amount of great projects already in the funnel that as the HBO team and Richard [Plepler, HBO chairman] would describe it, they have not been in a position to say yes to because of constraints on certain resources,” Stankey said.

He added that the goal is to remove constraints from top-quality projects to balance out the schedule to drive engagement on HBO throughout the year.

“That will improve the fact that we can see, especially on the digital platforms, you have customers jumping in and out based on scheduling,” he said. “And if we can smooth that schedule, we can drive churn down or improve retention and power additional subscriber growth.”

Part of that includes ramping up HBO’s programming spend, currently at around $2 billion, or about one-fourth the $8 billion Netflix spends. Stankey wouldn’t be specific as to just how much HBO’s programming budget will rise, but said AT&T could reinvest some of the efficiencies it gets from the merger and by running the business differently.

Related: Netflix Investing 85% of New Spending on Originals 

Stankey said while HBO and Turner properties have created a number of initiatives that are good in their own right, they have relatively small audiences compared to a company the size of AT&T, which he said needs to generate tens of millions of viewers, not millions.

The way to do that, he added, is through togetherness.

Stankey said WarnerMedia’s brands are plenty strong on their own, but not as powerful as they could be if they banded together.

“You can assemble the genre of content and bring them together on one platform and one experience that aggregates and gets scale,” Stankey said, adding that over time the company will unify brands into a more consistent and more focused experience, which will in turn increase scale.

But some analysts see a real problem with the belief that you can ramp up spending, and drive engagement but still offer your product below cost.

In a research note, MoffettNathanson principal and senior analyst Craig Moffett wrote that while it’s nice to say you want to drive engagement, offer content across platforms and create more stuff, it’s not so easy to do that when you’re losing money on the distribution platform.

AT&T’s DirecTV satellite service has been bleeding customers for months – it lost about 286,000 customers in Q2. While its OTT service DirecTV Now gained about 342,000 subscribers (it has a total of 1.8 million customers, compared to DirecTV’s 19 million), that service is priced substantially lower than what it charges for the satellite service. DirecTV Now has also been bundling HBO for free in some of its packages and it offers a free Apple TV device to new subscribers. Moffett called the DirecTV Now subscriber gains a “pyrrhic victory.”

Although Turner had a good Q2 – ad revenue rose 3% and total revenue increased 6.3% -- Moffett isn’t sure it will last long. There is a risk that Turner’s growth rate cold fall sharply in the next round of affiliate renewals --- it’s last deals were heavily front loaded because of sports. And while AT&T said it was encouraged by increased advertising opportunities, Moffett’s colleague Michael Nathanson has written that TV ads are shrinking for the first time in a non-recession.

And when it comes to togetherness, the analyst hopes that is not code for heavy discounting under the guise of bundling.

“With DirecTV, AT&T’s bundling strategy has amounted to little more than giving customers more for less,” Moffett wrote, adding that may have helped with churn in the wireless division, it decimated the satellite company’s profitability. Moffett estimated that DirecTV’s cash flow declined 16.8% in Q2.

“They started giving away HBO even before they owned it,” Moffett continued. “That inflated HBO’s growth rate when [Time Warner] was a standalone company, but it won’t help now that it’s inside AT&T.”  

AT&T chair and CEO Randall Stephenson, a day after the U.S. Dept. of Justice said it would appeal a federal court decision that helped clear the path to its merger with Time Warner Inc., told CNBC Friday morning that the DOJ’s action could affect another potential mega-media merger: Comcast’s pursuit of 21 Century Fox assets.

Related: DOJ to Appeal AT&T-Time Warner Merger 

Comcast was expected to raise the ante again for certain Fox programming and studio assets pledged to The Walt Disney Co. Comcast had outbid Disney’s original $52.4 billion equity offer for the assets in June with a $65 billion all-cash proposal, only to be bested by another cash and stock offer from Disney worth $71.3 billion. The DOJ approved the Disney deal on June 27. 

Speaking to CNBC’s Squawk Box on Friday from the Allen & Co. conference in Sun Valley, Idaho, Stephenson said the DOJ’s plans to appeal the Time Warner purchase came as little surprise, adding that it probably isn’t great news for Comcast’s pursuit of Fox.

“[It] probably can’t help it,” Stephenson told CNBC, according to a transcript. Stephenson said he didn’t want to speculate on the government’s motives for appealing his merger, but said it could affect the Comcast-Fox “process.”

Related: AT&T, Time Warner Cleared to Merge 

“You’re in a situation where two entities are bidding for an asset, and this kind of action can obviously influence the outcome of those actions,” Stephenson said. “But who knows whether that’s behind us.”

The AT&T chief stressed that the appeal process – which he speculated could take five-to-six months to complete -- will have no effect on the way AT&T and Warner Media run their businesses.

“This changes nothing,” Stephenson said. “This changes nothing we’ll be doing over the next 30 days or the next 12 months. We’re about executing our plan. We think the likelihood of this thing being reversed and overturned is really remote. It’s a very narrow path that would have to be traveled to get this thing reversed in any way. So we’re about executing our plan. The merger is closed. We own Time Warner.”

Related: AT&T Completes Time Warner Purchase 

Stephenson said as part of the original agreement, AT&T would run Warner Media separately and independently, and the company has no intention of changing that.

“I mean, when you have content players who are both suppliers and customers, you just have an obligation to treat them that way anyway,” Stephenson said. “So this changes nothing about how we operate the business. It changes nothing about products we will launch. It changes nothing about other M&A we need to do like Appnexus.”

Related: AT&T to Acquire AppNexus as Start of TV Ad Marketplace

And while the AT&T chief said the appeal could pose some problems for Comcast-Fox, he doesn’t see the same chilling effect on other potential mergers.

“If [I] were a CEO looking at media acquisitions and deals, I don’t think I would be looking at them today any differently than I did yesterday,” Stephenson said. “I think this is a process that will play itself out. But I think there is such a slim chance of this thing being altered in some way that it wouldn’t affect my thinking much at all.

But he added that most other companies shouldn’t have been looking to the AT&T-Time Warner ruling as a regulatory template in the first place, because Judge Leon’s ruling was so specific to that transaction.

AT&T has come under fire lately over how it would run Warner Media, specifically a Town Hall meeting with HBO employees where Warner Media chief John Stankey appeared to want the premium network to be more like Netflix. Stephenson said that Stankey’s message of increasing engagement is a strong one. 

“At the end of the day that’s what this is all about, engaging the consumer,” Stephenson said. “Because the more engagement you have, the more opportunity you have to create value.”

More engagement could mean “pumping more content into HBO,” but it also means spreading it across AT&T’s other digital properties like DirecTV Now, WatchTV and online sites like CNN.com.

Still, the AT&T chief said the company is aware of the potential for culture clashes between Warner and other AT&T units, but added he wasn’t concerned about it.

“I’m conscious of it and we’re being very, very careful and mindful of that.” Stephenson said. “The way we’ve organized the business, it will be run separately, very independently. It’s important that we preserve the culture.” 

Growing Time Warner’s direct-to-consumer business will be a key priority after it is acquired by AT&T.

Speaking at the Bank of America Merrill Lynch Media, Communications and Entertainment Conference Thursday (Sept. 7), AT&T senior executive vice president John Stankey, who will run AT&T's media business, said getting the importance of getting direct-to-consumer rights should not be underestimated.

RELATED: AT&T, Time Warner Reach Deal 

AT&T brings to the combined company expertise with scaled consumer relationships, Stankey said.

AT&T has “the experience, the history and the advantage of having a lot of those through our distribution business,” he said. “The Time Warner Company clearly has the ability to make great content, great intellectual property that can be extended and used to differentiate brand and experiences. And our belief is, bringing those two together is extremely important in the future.”

Related: AT&T Entertainment Chief Touts Content

Stankey noted that the media business is approaching an inflection point. The pay TV business “is at peak and it’s going to decline. I think the question is, what is the rate and pace?”

At the same time customers are experimenting with over-the-top streaming products, including AT&T’s DirecTV Now.

“A lot of folks are round-tripping and coming back into the core bundles afterwards,” Stankey said. “I think they’re still searching for what the solution is. The solution is more on-demand capabilities, better user interface and higher value for the current amount people are paying. And I do believe the industry will react to that, albeit a little bit slow because of some of the licensing constructs that are out there.”

Stankey wants Time Warner’s units — Turner, HBO and Warner Bros. — to continue to make great content.

“My goal is not to go in and try to explain to creatives how they can do their job better," he said. "That is not what I’m good at nor is it my training or my expertise.

“What I do understand are things like industry structure, I understand the application of technology and distribution," Stankey added. "I understand data and customer relationships, I understand integration and getting people to build business models effectively around the marriage of content and technology. And so my goal and my focus will be on facilitating that."

Stankey said that on its own, Time Warner recognized the changes in the industry and was looking at ways to be more collaborative. It was also getting into direct-to-consumer businesses, including Filmstruck with classic films, a Boomerang kids business and an upcoming sports service built around European soccer.

Related: Turner Building Sports Streaming Service With UEFA Soccer Rights

But in the first year after the AT&T-Time Warner merger is completed, Stankey expects the company to be able reach a number of goals.

With AT&T's platform, “you should expect to see experimentation and piloting content that's available today in traditional means that we can start to innovate on top,” he said. "And we have got a great customer base to experiment with.

“We want more engagement, especially in an ad-supported business,” he added. “So there are other variants you should see on what I would call embedded content models that will be in the first year.”

AT&T will be using data to build up its ad business, he said.

“And even before we have full infrastructure on data and what I would call programmatic-driven placement of advertising in the premium space, there's data that can help us sell existing ad inventory differently and more effectively, and we will be doing that as we get through that first year,” Stankey said.

Without adding subscribers, using data to build new ad models should increase ad rates and open up new inventory.

But Stankey said AT&T wants to have a business with two healthy revenue streams.

“If customers really like a broad plethora of content, broad choice, you need both subscription and advertising to have the maximum amount of content being built," he said. “And we think that's the right thing for the industry and it's the right thing for the consumer.”

Time Warner, understandably preoccupied with its pending $108.7 billion acquisition by AT&T, still managed to lap its media company peers on the affiliate-revenue front last year and is on pace for more of the same in 2017, according to UBS media analyst Doug Mitchelson.

That growth, especially during a period when programmers are pressured by falling ratings, skinny bundles that lock them out of millennial-focused packages and over-the-top distribution, could be a key reason why the programmer was so attractive to AT&T in the first place.

AT&T has said repeatedly that content will drive the future — and Entertainment Group chief John Stankey reiterated that point at the Mobile World Congress conference in Barcelona, Spain, last week, telling the audience that programming is what will make AT&T relevant.

“Content that is compelling matters,” Stankey said at the conference.

Content that is compelling also makes money.

‘TIMING WAS GOOD’
In a recent deep dive into the programming industry, Mitchelson pointed out that Time Warner’s affiliate fee growth in Q4 of 2016 was 15%, more than double that of its closest peer, 21st Century Fox, at 7.4%.

Affiliate-fee growth actually declined for other programmers last year, according to Mitchelson, as 2016 was marked by declining subscriber rolls as customers cut back on various distribution cords in favor of OTT services and skinnier bundles.

Time Warner’s Turner division in fact has seen similar declines — the company averaged about a 2% loss in subscribers last year, about the same as its peers — yet has managed to keep affiliate-fee growth humming.

Part of that is because Time Warner struck carriage deals in 2015 and 2016 with major distributors like AT&T and Dish Network that usually have higher increases in the early years.

“The timing was good,” Telsey Advisory Group media analyst Tom Eagan said. Turner had earlier issued guidance for mid-teen percentage growth for 2016, which it delivered handily, Eagan noted. He said domestic affiliate-fee growth is expected to rise another 13% to 14% at Turner in 2017, leveling off a bit to 13% growth in 2018.

Mitchelson doesn’t expect the affiliate train to slow down this year, either. He’s predicting a 12.9% increase in fees for Time Warner in 2017, while Fox is expected to grow by about 8.2% in the same period.

Credit Suisse media analyst Omar Sheikh also was encouraged by the affiliate fee increases. He expects 15% growth in 2017 followed by a 10% rise in each of the years between 2018 and 2020. At premium channel HBO, which had a 5% affiliate fee increase in 2016, Sheikh predicts fees will rise 6% in 2017-2018 and 5% in 2019-2020.

Helping out HBO’s bottom line has been its standalone OTT product, HBO Now. Launched in April 2015, HBO Now has about 2 million subscribers and growing.

“We expect growth to be driven by affiliate renewals and strength at HBO Now,” Sheikh wrote, helping to offset rising programming costs — up 7% in 2016 and estimated to rise 9% in 2017 — “and demonstrates that the company is executing well on its opportunity to grow domestic subscribers, which management has noted is HBO’s ‘most important long-term growth driver.’ ”

Just as in 2016, key to Turner’s future growth will be its ability to secure healthy increases with existing distributors as well as with new digital distributors. Turner seems to be out of the mix at least initially in Google’s new YouTube TV offering — the 30-channel, $35 monthly video service currently doesn’t have any Turner or Viacom networks in its lineup. That’s likely to change, Eagan said, but in order to keep the $35 price point, more expensive networks like Turner will likely be available on separate tiers or packages for an additional charge.

MILESTONE MOMENTS AHEAD
On the traditional carriage front, Turner’s Comcast affiliate agreement comes due in the next few months, and the programmer is expected to be part of Hulu’s live-TV streamed offering scheduled to be release later this year. Time Warner is a part owner of Hulu, along with The Walt Disney Co., Fox and Comcast’s NBCUniversal.

The Hulu deal could be key for Turner. The much anticipated but scantily described offering — expected to have a $40 monthly price point — could set the tone for similar offerings in the future.

Turner has been an enthusiastic participant in OTT services: Its AT&T distribution pact in September was one of the first for the telco’s DirecTV Now over-the-top service, which launched in December and has about 200,000 subscribers.

Eagan said that while the number of bundled-streaming services — including Sony PlayStation Vue, Sling TV and more on the way — is growing, most have been launched by existing pay TV distributors. Programmer-owned Hulu could offer a new perspective.

Eagan said channel-driven streaming services such as CBS All Access, which has about 2 million customers, have fared better than operator-led services like Sling TV, which has about 1.1 million subscribers.

“The question is what is going to happen when you get all of the individual channel OTT services and the package runs together,” Eagan said.

AT&T has not revealed pricing and content packaging for a set of over-the-top video services it will launch in Q4, but a top exec at the company said it’s incorrect to characterize the lead offering of the batch, DirecTV Now, as a “skinny” bundle.

“It is a rich bundle of content; it’s not a skinny bundle of content,” John Stankey, CEO of AT&T Entertainment Group and the exec leading the integration of AT&T and DirecTV, said Wednesday at the  Morgan Stanley Technology, Media & Telecom Conference in San Francisco.

In fact, Stankey’s not a big fan of the skinny bundle at all. “We think skinny bundles have a very small application in the market over time,” he said.

DirecTV Now, Stankey said, “is about getting that middle road” – between the traditional premium pay TV bundle and slimmed-down offerings, but offered at an attractive price point and improved acquisition infrastructure that does not require a heavy investment in CPE (consumer premises equipment).

Stankey also shed more light on the other two DirecTV-branded OTT products that will be rolled out.

DirecTV Mobile will take things a step further as a service that is even less expensive, but centered on on-demand viewing that offers a library of premium content. “That market has not been addressed well,” he said.

DirecTV Preview, the free, ad-supported offering, will provide good content “outside the paywall,” giving consumers a chance to sample and try the company’s video products.

With all three together, AT&T will go after the 20 million homes or so that are not part of the pay TV ecosystem today. While that does include cord-cutters and cord-nevers, it also covers people with “transient lifestyles” that can’t get access to the traditional pay TV infrastructure, Stankey explained.

“We think there’s an opportunity to broaden distribution with the right products and the right kind of cost structure.”

And OTT represents a third distribution conduit alongside satellite and managed IPTV (U-verse TV), but the aim is to operate them all on a common system.

AT&T’s plan is to support all of those entertainment products with a unified middleware and software platform, something that is seemingly akin to Comcast’s strategy with X1.

The first step along that path, Stankey said, is to get that nailed up for the OTT service and then to start the migration on the legacy U-verse and satellite TV services, giving AT&T agnostic access over managed and unmanaged distribution systems.

“Technically, that’s not an insignificant feat,” he said.

Earlier in the discussion, he acknowledged that AT&T has “a lot of platform work to do.”

“We didn’t buy DirecTV because we want satellite exclusively as a distribution medium,” Stankey said. “We bought it because it gave us scale in entertainment, and scale in distribution of entertainment.”

Stankey was not overly concerned about the readiness of the programmers for the OTT side of the equation.

DirecTV Now, he said, is the easy one because it’s about getting their content distributed to a new portion of the market, and “that’s good for everybody.” DirecTV Mobile is more challenging because it's VOD-focused and, therefore, has more tradeoffs.