AT&T launched HBO Max nearly two years ago and if you take recent numbers from AT&T into account, it's already a success.

According to the company, HBO and HBO Max finished its first quarter with 76.8 million subscribers globally, up 12.8 million from a year ago. The report came less than a month after AT&T completed its spin-off of WarnerMedia with Discovery, creating media behemoth Warner Bros. Discovery.

The deal effectively pulls AT&T out of the content waters. AT&T paid $85 billion for Time Warner Inc. three years ago. Its deal with Discovery values the WarnerMedia assets at $43 billion worth of cash and debt. Shareholders will have a 71% stake in the new company.

“Warner Bros. Discovery will aspire to be the most innovative, exciting and fun place to tell stories in the world--that is what the company will be about," said David Zaslav, president and CEO of the combined company, in a statement.

HBO Max Plus Sizing

HBO Max includes all of HBO’s programming, plus exclusive “Max Originals.” While that last may seem like just another value add, it’s not. It could be the real prize.

WarnerMedia has already reoriented its programming resources from its cable networks to the online video offering. An analysis published earlier in February 2020, three months before HBO Max's launch, by Ampere Analytics found that while new streaming shows accounted for just 7% of WarnerMedia's original commissions in Q4 of 2018, streaming commissions represented 73 percent of WarnerMedia’s new TV projects by Q4 of 2019.

The HBO Max programming pipeline includes The Flight Attendant, starring Kaley Cuoco; Ridley Scott's sci-fi drama Raised by Wolves; a Green Lantern series from Arrowverse creator Greg Berlanti; Jean Smart comedy and critical darling Hacks, which was recently renewed for a second season; and a Gossip Girl reboot from that show’s original creators. Gossip Girl was also renewed recently.

“This is the clearest sign yet that the home of the juggernaut Game of Thrones (that’s HBO) will in the future play second fiddle to HBO Max,” said Fred Black of Ampere Analysis. And it’s not just the number of commissions, says Black, but also “the types of content being commissioned.” 

“Everything,” one veteran producer told The Hollywood Reporter, “is dictated by the needs of HBO Max.”

What type of content does HBO Max need? Mostly genre shows. The whole of Warner’s cable empire commissioned only four sci-fi and fantasy titles last year, while the gestating HBO Max ordered 12 new genre series.

Still, stresses Robert Greenblatt, the onetime NBC chief and former chairman of WarnerMedia Entertainment, HBO’s traditional ethos will serve as inspiration: “HBO’s world-class programming leads the way, the quality of which will be the guiding principle for our new array of Max Originals.”

WarnerMedia's programming strategy is already starting to pay off. Thanks in part to HBO Max, HBO overtook Netflix (130 nods vs. 129) for most Emmy nominations in 2021 and continued that trend in 2022 with 140 nods for HBO and HBO Max and 105 for Netflix.

For consumers, HBO Max costs $14.99 a month. A cheaper, ad-supported version of HBO Max launched for $9.99 in June.

If you want to pay for a full year, the ad free version will cost you $149.99 and the ad supported version will run $99.99, a 15% discount.

Also: For HBO Max, Peacock, et al., Now Comes the Hard Part—Churn and Price Sensitivity Are Way Up, Deloitte Says

AT&T's Big Bet

Speaking of charges, AT&T paid $50 billion for DirecTV in 2015. It appears to have gotten very little out of the acquisition even though, like HBO Max, former AT&T CEO Randall Stephenson made the satellite TV company central to his video strategy. 

“Unfortunately, it has become clear that AT&T acquired DirecTV at the absolute peak of the linear TV market,” said activist investor group Elliott Management last September. According to The Hollywood Reporter, DirecTV was worth $40 billion in 2019. That’s a $10 billion drop in just four years. In 2021, that value has plummeted even further.

AT&T recently completed its spinoff of DirecTV along with AT&T TV and Uverse into a new company. The deal, with TPG, values AT&T's pay TV assets at $15 billion.

There's no word yet as to whether DirecTV, AT&T TV and Uverse subs will have to start paying for HBO Max with the spinoff. But DirecTV did cut its free promo of HBO Max from 12 to 3 months in August.

According to the Washington Post, AT&T didn’t just pay $85 billion for Warner’s assets, it also assumed $23 billion in Warner’s debt. That comes out to, let’s say, $105 billion, more than twice as much as the DirecTV deal. 

One of Elliott Management’s chief concerns is the mounting debt from this recent $200 billion acquisition spree.

Then again, those subscribers fleeing DirecTV are flocking to streaming services, which makes HBO Max — and by extension the WarnerMedia deal — very important to AT&T’s future. A successful HBO Max could have a profound halo effect on the mothership’s legacy cell phone and internet service businesses. 

"We’ve got this HBO Max quality product and AT&T TV quality product to bundle with our wireless,” said AT&T CFO John Stephens in January. “I kind of look at my competitors in the wireless side and see one of them bundling Netflix, and you see another one bundling Disney and I get that… When I think about it, I actually smile because it reinforces our thought processes on HBO Max. The difference is, is I have owners’ economics, and I have the umbrella of ownership of both.”

Stephenson recently pledged the company would be laser focused on such synergies, promising not to make any major deals in the next few years. He also predicted that, “over the next four or five years,” HBO Max would become “a 50 million subscriber business.”

Stephenson's promise, however, was broken with AT&T's WarnerMedia-Discovery deal.

HBO Max's Warner Bros. Discovery Fate

Warner Bros. Discovery has big plans for streaming. And while HBO Max will stay the same for now, the new company is looking to combine HBO Max with Discovery Plus into one "blowout DTC product."

“Right out of the gate, we’re working on getting the bundling approach ready,”
Discovery chief financial officer Gunnar Wiedenfels said at the Deutsche Bank Annual Media, Internet & Telecom investor event in March. “But the main thrust is going to be harmonizing the technology platforms, building one very strong combined direct-to-consumer product and platform, and that’s going to take a while.”

Merging products, Wiedenfels added, will help the newly combined company reduce costs.

While details on the combined DTC product are scarce, it will launch in the U.S. sometime next summer.

European Expansion

Warner Bros. Discovery is putting the brakes on HBO Max's international expansion, the company announced in July.

The service is currently available in 61 countries. But with WBD's announcement, HBO Max originals will be pulled from some countries. Additionally, any local productions not already in production will be axed.

In the European countries the service remains available, pricing is competitive, even undercutting Netflix in some regions.

The streaming service is also available in 39 Latin American and Caribbean territories. ■

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.”

Netflix has reached a deal to keep exclusively streaming classic sitcom Friends for another year.

The deal with AT&T’s recently acquired and rebranded WarnerMedia division (formerly Time Warner Inc.) means that Netflix will pay a reported $100 million to remain the exclusive U.S. streaming home for Friends in 2019. (The Wall Street Journal reported the renewal deal, while The New York Times reported the figure.)

Netflix has paid WarnerMedia around $30 million a season, or $500,000 an episode, for the show since 2014. It remains a popular draw on the platform. The streaming platform’s users erupted in Twitter fury this past week when Netflix announced that the show would be leaving the service at the end of the year.

AT&T reportedly has the option after 2019 to also stream Friends on its direct-to-consumer OTT platform, set to launch at the end of next year.

Revealing details about this platform last week, WarnerMedia CEO John Stankey said platforms like Netflix will see their libraries of licensed content grow “thinner” when companies like WarnerMedia and Disney launch their own OTT platforms and start keeping more of their content exclusive to their own platforms.

Contradicting Stankey, however, was his boss, AT&T CEO Randall Stephenson, who told WSJ’s Tech D.Live conference last month that the broader the distribution for shows like Friends, the better.

“When you have premium content, distribution is everything,” he said. “And broad and wide distribution is something I feel very strongly about. Do I care if Friends is shown on Netflix and on a Warner Media SVOD service? Probably not.”

WarnerMedia is shuttering FilmStruck, the subscription video on demand platform it launched back in November 2016.

The WarnerMedia divisions that operate the platform, Turner Networks and Warner Bros. Digital Networks, announced the decision over Twitter Friday. The platform, the exclusive SVOD home for the prestigious Criterion Collection of classic movies, is no longer signing up new subscribers. It will officially shut down on November 29.

“We’re incredibly proud of the creativity and innovations produced by the talented and dedicated teams who worked on FilmStruck over the past two years,” reads a statement on the Criterion Channel. “While FilmStruck has a very loyal fanbase, it remains largely a niche service. We plan to take key learnings from FilmStruck to help shape future business decisions in the direct-to-consumer space and redirect this investment back into our collective portfolios.”

The decision comes following AT&T’s takeover earlier this year of Time Warner Inc., its subsequent rebranding of the Time Warner assets under the WarnerMedia moniker, and its revelation that it will focus on broadly targeted streaming platforms.

Earlier this month, Warner Bros. Digital Networks similarly shuttered DramaFever, an SVOD platform focused on Korean dramas, and Turner is closing youth-targeted digital content studio Super Deluxe.

As for FilmStruck, WarnerMedia never said how many subscribers the service had drawn.

IT is home to some 1,800 contemporary and classic independent, arthouse, foreign and cult films—not only from the Criterion Collection, but also the Warner Bros. movie studio’s library of classic films.

The service is priced at $10.99 a month for those who want access to the Criterion Collection; and $6.99 for those who eschew that option. 

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.

In hammering against the AT&T-Time Warner deal last week, some individual groups appeared to be treating the CEO of Time Warner as “He-Who-Must-Not-Be-Named.” OK, we know, Lord Voldemort is a TW employee, sort of, but that is strictly in his capacity as the archest of arch villains in the Harry Potter tales.

For example, Sen. Bernie Sanders (I-Vt.), in his letter to the Department of Justice slamming the deal, proposal referred only to “the CEO of Time Warner” decrying all those millions in stock options that could be coming his way.

Having dutifully added the name of Time Warner CEO “Jeff Bewkes” to those nameless reports on the pushback, The Wire was momentarily panicked when the Senate Judiciary Committee sent out this notice last week about the oversight hearing on the deal: “Both Randall Stephenson, the CEO of AT&T, and Robert Marcus, the CEO of Time Warner, will testify.”

Could we have been wrong, or perhaps this was a case of “He-Who-Must-Not-Be-Named-Correctly.”

As readers of these pages know, Marcus is the now-former CEO of Time Warner Cable who also exited with millions in the bank after the Charter Communications merger.

Within 15 minutes, which is nanoseconds in D.C. time, the committee had sent as a follow-up an amended announcement with Bewkes where Marcus had been, plus an apology for any confusion.

Accepted.

As I read the news of the closing of the Charter Communications-Time Warner Cable transaction, I am sad, as a former TWC/ATC executive, to see the company disappear.

I worked for ATC and then Manhattan Cable in the 1980s. Under Trygve Myhren’s leadership (ATC’s CEO from 1975 to 1988), the company rationalized markets and realized that serving major DMAs was the way to go. But more importantly, Trygve and the team saw the future.

ATC pioneered advancing cable technology and capability: first video-on-demand, then pay-per-view, advertising sales (a tiny business), data services and retail. ATC also created one of the first national customer service/ retention departments, of which I was a proud manager.

Related:Charter’s New Road Map [subscription required] | Charter Sets Its New Technology Team [subscription required]

The company’s innovation continued as it became Time Warner Cable (merging with Warner Cable). TWC achieved great financial success and did bold experiments like the Full Service Network. Wow! What a concept — 500 channels. TWC took the leadership role in rolling out fiber networks and continued achieving meaningful adsales revenues, solidifying its position.

Today, as TWC winds down, Charter and Comcast are both at the forefront of delivering the most compelling customer offerings and services ever delivered by cable companies. They’ve become the innovators, creating meaningful business revenue above and beyond delivering programming — from advertising to content creation to serving businesses’ and consumers’ technology needs.

Related:Rob Marcus: Tuning Up TWC Before Handing Over the Keys [subscription required]

It will make a great case study to see Charter and Comcast evolve side by side, and to assess why both surpassed and survived the once much larger Time Warner Cable. I wish the entire Time Warner Cable team all the best.

R.I.P. Time Warner Cable and Bright House Networks (another storied company). Here’s hoping the Charter team, led by Tom Rutledge with his deep ATC/TWC roots, leads the company to new heights and pioneers the next chapter.

Time Warner Inc. — under scrutiny from a trio of activist investors — has moved in a direction that could make it easier for minority investors to affect change.

In the long run, though, it might just be the company’s size and the volatility of the content business that keeps it together.

Time Warner has quietly amended its corporate bylaws, allowing holders of at least 3% of its stock for at least three years to nominate two members to its board of directors.

Also, per documents filed with the Securities and Exchange Commission on Feb. 3, as many as 20 investors could band together to meet the 3% requirement and elect new directors.

Investors who meet those criteria even can have their board slate included in Time Warner’s proxy statement, saving them the hassle and cost of having to contact other shareholders directly.

Other companies have adopted so-called “proxy access” rules. Time Warner had been asked by some shareholders to do so in the past, but the rules failed to win sufficient votes.

ACTIVISTS CIRCLING

That the company decided to bypass another vote on the matter and go directly to implementation is a bit curious, given reports that activist investors Carl Icahn, Corvex Management chief Keith Meister (an Icahn protégé) and Trian Fund Management head Nathan Peltz are all circling the company.

People familiar with the company said the move is not a reaction to those reports. “The timing is unfortunate,” one person familiar with Time Warner’s thinking said.

But is it? According to several analysts, breaking up or selling Time Warner wouldn’t just be di_ cult — it also wouldn’t make much sense.

Driving most of the breakup speculation has been the 24% decline in Time Warner’s stock price in 2015.

So far this year, the stock is up about 10.5%, mostly on deal speculation. But the entire sector has been in a tailspin, as media companies across the sector are pressured by sluggish TV ratings, declining ad rates and falling subscriber rolls due to cord-cutting.

Time Warner is unique in that it successfully pushed back against 21st Century Fox’s unsolicited $85-per-share offer in 2014 by growing the stock.

Through bold moves like the launch of its standalone HBO online service HBO Now and significant changes at Turner, Time Warner pushed its stock price above the Fox offer, ending that year at $85.42 per share.

The stock continued to grow in the early part of 2015, but slid again in August after The Walt Disney Co. lost about 3 million subscribers. The Disney losses touched off cord-cutting fears for some investors and sent the sector as a whole into a downward spiral.

TOO BIG TO BUY?

With the latest declines, investors are looking for another bold move and the easiest one to make is a breakup.

Wells Fargo media analyst Marci Ryvicker did a sum-of-the-parts valuation of Time Warner that showed potential take-out values for the company ranging from $71.63 to $105.16 per share, but she couched that data with a heavy dose of skepticism. Ryvicker couldn’t see any company in the programming space that was large enough to swallow Time Warner whole. 21st Century Fox, which tried and failed in 2014 to take over the company, is trading at $26.49 per share — about 1.5 times lower than Time Warner at $71.70.

While premium channel HBO and the Turner Broadcasting System cable networks are obviously valuable assets, Ryvicker didn’t see them as having any more value as separate or spun-off entities.

“A sum of the parts is always just math, and to be frank, our math doesn’t matter,” Ryvicker wrote in her January report.

Credit Suisse media analyst Omar Sheikh took it a step further last week, releasing a detailed report mapping out three potential strategies for Time Warner: spinning off HBO, Turner and the Warner Bros. movie studio as three separate entities; spinning off just HBO; and spinning off just Turner.

One of the biggest barriers to any of the spin scenarios is that they would trigger between $10 billion to $11 billion in redemption penalties to certain bondholders, according to Sheikh. Add in the loss of synergies and scale economies inherent in separating the business, and Sheikh estimated that the value range of a Time Warner breakup is just $79 to $89 per share.

Bottom line: Time Warner is worth more together than apart, according to Sheikh.

According to the analyst, Time Warner in its current form could grow cash flow by 25% and net income by one-third over the next three years. And initiatives to slow down content licensing to third-party subscription video-on-demand services like Netflix could help expand multiples. Taking those factors into account, Time Warner could increase its valuation to $90 per share in 12 to 18 months, Sheikh estimated.

BETTER TOGETHER

According to Sheikh, vertical synergies benefits to Turner and HBO from buying content from Warner Bros. would mostly be lost in a Turner spinoff, as the studio wouldn’t have as much incentive to sell its content to the networks and could lose the benefit of having an anchor buyer for its TV and movie output.

A spinoff would also erode horizontal synergies — mainly higher affiliate fees — because Time Warner’s networks would no longer be bundled. And content costs could also rise for Turner and HBO, which would no longer have the economies of scale of being part of a larger parent.

Sheikh said he also believes that separating Turner from HBO eliminates any potential benefit from the premium network’s relationship with Apple for HBO Now.

“These benefits are highly likely to grow over time, in our view, particularly if the cost of developing content is pushed higher by competition from new digital competitors like Netflix and Amazon,” Sheikh wrote.

That could be significant, given the growth the analyst expects from HBO Now. The over-the-top service could have 14 million subscribers by 2020, with 4 million of them churning off the MVPD service, according to Sheikh.

SIDEBAR: For What It’s Worth

Credit Suisse media analyst Omar Sheikh doesn’t believe much is happening via speculation around a possible breakup of Time Warner Inc. Here are three potential scenarios he foresees:

Scenario                        Market Value                Market Value Per Share

Three-Way Breakup . . . . . . .$66.7B-$74.4B . . . . . . . . . . . . . $79-$88

HBO Spinoff . . . . . . . . . . . . . .$67.3B-$75B . . . . . . . . . . . . . .$80-$89

Turner Spinoff . . . . . . . . . . . . $66.7B-74.5B . . . . . . . . . . . . . . $79-$88

SOURCE: Credit Suisse estimates

New threats to the quick completion of Charter Communications’s $78.7 billion purchase of Time Warner Cable have surfaced from none other than TWC’s former corporate parent, Time Warner Inc., which has raised concerns with federal regulators over the combined company’s attitude toward over-the-top video competitors.

Meanwhile, FCC staffers continue to ask new questions about the power of the combined MSOs over new OTT service providers.

Charter last May agreed to purchase TWC in a cash and stock deal valued at $78.7 billion. That union was first expected to be completed by the end of 2015, but the window has since been expanded to the first quarter of this year.

If the deal is finalized, the combined Charter-TWC would have about 17.4 million customers across the country, including systems in New York and Los Angeles, and would be the third largest multichannel video programming distributor behind AT&T-DirecTV (26 million) and Comcast (22 million).

While the Charter-TWC deal is currently being reviewed by the FCC, a meeting on Jan. 11 between FCC staff members and executives at Time Warner Inc. and its premium service HBO has cast some doubt as to whether the deal will pass muster. Several Time Warner Inc. executives, including HBO president of global distribution Tom Woodbury, met with FCC staffers to discuss the merger, according to the ex parte filing of the Jan. 11 meeting.

The discussion centered around certain statements made by Charter executives that Time Warner Inc. said it believes “suggest that a combined Charter-Time Warner Cable would be inclined to take action directed at programmers in response to the development of ‘over the top,’ or ‘OTT,’ services with the purpose and/or effect of slowing down the development of OTT options to the detriment of consumers,” the filing stated.

Industry executives were mixed on what it all could mean. While the FCC has been a proponent of OTT, it hasn’t been entirely averse to big deals — it approved AT&T’s $48.5 billion merger with DirecTV, for example. And though most believe the Charter-TWC deal will win approval with conditions, the same thoughts preceded Comcast’s April decision to terminate its TWC deal.

Investors weren’t sure either. On Friday (Jan. 15), when the overall market was down more than 400 points by midday, Charter shares were down 4.1% ($7.12 each) to $165.19, and TWC shares dipped 3% ($5.24 each) to $176.72 per share.

In an interview last week at an event announcing Charter’s diversity plans after the merger (see next page), Rutledge said he was confident the deal would be approved but offered no predictions.

“We are doing well — most all of the states have approved the deal, and we’re working our way through the federal approval process, and I think that’s going well,” Rutledge said. “We haven’t attracted that much opposition, so we’re actually pleased at where we are.”

While Rutledge has talked tough about OTT in the past, he has softened his tone considerably in the wake of the TWC deal; in September, at the Goldman Sachs Communacopia conference, he said operators should “embrace OTT” because it drives broadband growth.

The FCC is clearly focused on access to over-the-top video in the Charter-TWC-Bright House Networks deal.

In a blog posting Friday (Jan. 15), BTIG media analyst Rich Greenfield pointed to past comments by Rutledge that seem to indicate there would be risks and consequences for programmers that go over the top.

While it’s too early to tell whether deal approval is in jeopardy, Greenfield highlighted some thorny issues facing Rutledge.

“[Y]ou have to ask yourself, ‘Is it really in the government’s best interests to allow him to control 25%-30% of U.S. broadband?’” Greenfield wrote. “Can Rutledge really be trusted and, if not, what conditions would protect the future of OTT video for consumers?”

On Jan. 4, the FCC paused its informal 180-day shot clock on the deal until Jan. 19 to give it more time to vet a raft of new and supplemental documents, including responses from Liberty Media to a laundry list of questions about access to over-the-top that reflected the FCC’s concerns.

Among those were queries about the incentive or ability of Liberty and/or its chairman, John Malone (who owns a 27% stake in Charter) to withhold programming from OVDs or MVPDs other than New Charter.

The FCC also asked for all documents from Liberty in which it had discussed HBO Now, CBS All Access, Comcast’s Stream, Dish’s Sling TV, Sony’s Playstation Vue or any other OTT streaming service.

Time Warner Inc. stock rose more than 4% Wednesday on a favorable analyst report, on a day when the Dow Jones Industrial Average plunged 250 points.

According to reports, the stock got a boost after Macquarie analyst Tim Nollen said he preferred Time Warner to other media players like Disney or CBS. Earlier, Pacific Crest media analyst Andy Hargreaves named Time Warner one of his top media sector stocks for 2016.

Time Warner shares closed at $68.62 each on Wednesday, up 4.7% ($3.10 each).

The market endured another volatile day of trading in the aftermath of poor manufacturing data from China. The 250-point decline builds on Monday’s losses of 276 points after China released manufacturing growth figures that were below estimates.

Cable stocks in general weathered Wednesday’s market storm as they did during Monday’s overall declines – with minimal losses and some gains.

Netflix was the top performer for the day, up 9.3% ($10.02 each) to $117.68, after CEO Reed Hastings announced at the CES Show in Las Vegas that the SVOD service increased its global footprint, adding 130 countries including Vietnam, India, Poland and Russia. Other gainers in the sector included AMC Networks, up 1% (74 cents) to $75.43, on the heels of its recent carriage renewal with the NCTC;  and Cable One, up 1% ($4.26) to $434 per share. Scripps Networks Interactive was down 2.8% ($1.50) to $51.90 per share, Comcast dipped 0.77% (43 cents) to $55.22 and Time Warner Cable slid 0.58% ($1.06) to $181.87 per share

NEW YORK — It wasn’t high art, but as roasts go, the one for Vice Media founder and CEO Shane Smith during a fundraiser for the Center for Communications Nov. 18 briefly showed a different side of the notorious media bad boy, who was given the Center’s Frank Stanton Award for Excellence in Communication.

Stanton was president of CBS from 1946 to 1971, overseeing the network’s Golden Age for journalists like Edward R. Murrow, Walter Cronkite and Dan Rather. Roasts are notoriously di_ cult to do, and not every joke hit its mark — there were a lot about Smith’s weight and prodigious appetites: he reportedly spent $300,000 on a single dinner with friends in Las Vegas during the International CES in January.

But amid the Sex Pistols intro music (Smith’s favorite band) and the steady stream of F-bombs — even from so-called staid TV executives — former Viacom CEO and current Vice board member Tom Freston offered a peek at a side of Smith most don’t see.

Freston got one of the biggest laughs, reading a list of “poignant” late-night texts he supposedly received from Smith. Examples: “You calm down, you Minnesota dust climber!” and “Cross your balls, we’re going in!”

But Freston also read one that Smith sent to him on Nov. 13, while Freston, HBO chief Richard Plepler (also a presenter) and Time Warner Inc. chairman and CEO Jeff Bewkes were having dinner in Paris (they were there for a U2 concert that was later canceled) mere blocks away from the terrorist attacks that night.

“Before we knew what was really going on, I heard a ping and I reached for my iPhone and read this message: ‘F**k dude, get out of there. Come home to me and be safe,’ ” Freston said. “That’s sort of Shane; he’s on all the time.”

— Mike Farrell

Comcast’s Alchin Shares a Coming Out Story at Film Screening

The LGBT community was out in force Nov. 23 for a special Washington, D.C., premiere screening of Comcast’s Focus Features film unit’s The Danish Girl, about Lili Elbe, the first recipient of sexual reassignment surgery.

In attendance were cast members and filmmakers, including director Tom Hooper and co-star Alicia Vikander. Star Eddie Redmayne, who plays Elbe and who won the Best Actor Oscar for Focus’s The Theory of Everything last year, was out of the country, but made apologies via video.

Also on hand at the Burke Theater at the U.S. Navy Memorial were Emmy winner Jeffrey Tambor and Bradley Whitford of Amazon Studios’s Transgender. Tambor also is familiar for a recent DirecTV ad campaign savaging large cable companies.

Introducing Hooper before the film was John Alchin, former co-chief financial officer of Comcast, who noted that the fact he is gay warranted a front-page story in a Philadelphia newspaper two decades ago. He said the reaction from Comcast’s Brian Roberts was, “good,” with him saying Alchin had made the company proud. Alchin said that when he told Brian’s father, Ralph, about his son’s comment, the late Comcast co-founder replied that he wasn’t surprised, as he had taught Brian everything he knew.

Alchin talked about the LGBT community’s progress toward “recognition, equality and inclusion.” But he suggested the fight continues, pointing to Houston, where an anti-discrimination ordinance was recently defeated.

“We still have lots more work to do,” Alchin said.

He also talked about Comcast’s “dedication to featuring diverse and independent voices on film and television” and pointed out that Comcast carries more than 160 independent networks.

Comcast has repeatedly been cited as among the best places to work for LGBT employees by the Human Rights Campaign.

— John Eggerton

Time Warner Inc. stock was down as much as 10.4% ($8.03 per share) to $69.27 each in early trading Wednesday after the media giant lowered earnings guidance and said it was considering curbing subscription video on demand windows, triggering a similar fall-off in other stocks in the sector.

 Time Warner stock ralled later in the day to close at $72.20 each, down 6.6% or $5.50 per share. 

AMC Networks fell the hardest, down 6.8% ($5.24 each) to $71.76 per share, followed by Viacom, closing at $47.92 each, down 6.6% ($3.37 per share). Viacom was followed by Scripps Networks INteractive down 2.7% ($1.67 each);  Starz, down 2.6% (90 cents each);  Discovery Communications, down 2.5% (78 cents each); and Disney, down 2% ($2.29 each).

Time Warner lowered its 2015 earnings per share guidance from $6 per share to $5.25 per share, citing the impact of a stronger dollar and  subscriber declines. While Time Warner did not specifically identify the amount of the declines, it said that subscription revenue was down by about 1% in the quarter.

Time Warner Inc. reported higher earnings as cost cuts at Turner Broadcasting boosted operating income. Profits were lower at HBO as it spent on marketing and technology to launch HBO Now.

Second-quarter net income rose 14% to $971 million, or $1.16 a share, from $850 million, or 95 cents a share, a year ago.

Revenue rose 8% to $7.3 billion.

The results were ahead of Wall Street expectations. The company also reaffirmed its guidance for full-year results.

At Time Warner’s Turner Broadcasting unit, adjusted operating income rose 20% to $1.1 billion as revenue rose and costs — including programming costs — declined. Turner’s revenue rose 3% to $2.8 billion.

Ad revenue was down 1% because of the strong dollar. Domestic ad revenue was up because of growth at its news networks and strong March Madness sales. Those gains offset the absence of NASCAR programming and having fewer NBA playoff games.

Adjusted operating income fell 8% at HBO, which had higher marketing and technology costs because of the launch of the HBO Now streaming service. Revenue at HBO was up 1% to $1.4 billion.

Read more at broadcastingcable.com.