AT&T CEO Defends Media Strategy, Including John Stankey as Possible Successor

Facing a boycott of sorts from an activist investor calling for senior management changes at AT&T, CEO Randall Stephenson Sept. 17 sought to outline to Wall Street why the telecom under its current management is on the right path in a rapidly changing media landscape.

Speaking Sept. 17 at Goldman Sachs 28th Annual Communacopia confab in New York, Stephenson said his decision to spend hundreds of billions of dollars acquiring satellite operator DirecTV and Time Warner was based in part on an evolving in a digital ecosystem.

“If you had asked me that question five years ago, I’d be hard-pressed to say it makes sense, in the old world,” he said. “In the new world, it makes all the sense in the world. We believe people are going to spend more and more of their day watching premium content.”

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Stephenson said AT&T has more than 170 million “customer relationships” requiring more bandwidth and connectivity to consume content, which is why he spearheaded the telecom’s $85 billion acquisition of Time Warner two years ago and the $67 billion purchase of DirecTV in 2015.

AT&T also operates 5,500 retail stores nationwide.

But it was those acquisitions, which have ballooned AT&T’s debt exponentially, while at the same time DirecTV and AT&T U-verse continue hemorrhaging subscribers (1 million this year) that led investor Elliott Management, who owns a $3.2 billion stake in AT&T, to write a letter to the board seeking changes.

Specifically, Elliott CEO Paul Singer wants Stephenson and COO John Stankey, who is also CEO of WarnerMedia, replaced.

Stephenson, who says the board will “evaluate [the letter] and see what makes sense for our shareholders,” says the content creation business is changing dramatically — moving from a linear TV distribution business model to over-the-top video.

The executive says WarnerMedia is uniquely qualified to meet the challenge with both himself and Stankey in their current positions.

“It’s a hard play to take a legacy company on legacy distribution models and make a pivot into digital distribution,” Stephenson said. “[Stankey] has done a really nice good job breaking down the [intra-company] silos. He’s got experiences that are long, wide and deep.”

“[WarnerMedia] is one of the largest-scaled TV and film production studios in the world,” he said, adding that AT&T has now become the largest distributor of HBO in the world, including 66% bigger than the premium channel’s No. 2 distributor.

Stephenson said acquiring Time Warner was due to the fact the media distribution world was changing and not growing on legacy pay-TV platforms, but rather digital platforms.

“We’ve had to reorient the business,” he said.

AT&T CFO Backs John Stankey, Downplays Apple TV+ Impact on HBO Max

The day after Apple announced pricing/content updates for its Apple TV+ subscription streaming service, and an activist investor called for the ouster of AT&T’s CEO and COO, the telecom’s CFO John Stephens came out swinging.

Speaking Sept. 11 at the Bank of America Merrill Lynch Media, Communications & Entertainment Brokers Conference in Los Angeles, Stephens didn’t directly address Elliott Management’s Paul Singer (who owns $3.5 billion of AT&T stock) or his letter to the board calling for executive changes, including replacing CEO Randall Stephenson and COO John Stankey — the latter also CEO of WarnerMedia.

AT&T CFO John Stephens

Specifically, Singer questions the cost/benefits involved acquiring DirecTV and Time Warner as the pay-TV market shrinks in a rapidly evolving over-the-top video ecosystem.

Indeed, AT&T expects to lose more than 1.3 million pay-TV subscribers in the current third quarter (ending Sept. 30).

Stephens, however, outlined why Stankey is the right executive to oversee Warner Bros., HBO and Turner operations, in addition to AT&T.

Stephens said AT&T’s goal to meld entertainment content with wireless direct to the consumer requires specialized leadership befitting Stankey’s skills.

AT&T COO/WarnerMedia CEO John Stankey

“John has IT and technology experience,” Stephens said. “He had network experience. He was at our business, a wireline group and the wholesale side. He has run consumer mobility. He’s had experience in strategy. He’s had experience, with Warner Media and real knowledge of it.

“So, he’s the guy that’s got the background, that capabilities and we know and knows us and he knows all our capabilities.”

Stephens said Stankey understands the AT&T culture (he’s been with the company almost 20 years).

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“He has the ability to move things and how to get things done,” he said. “It makes all the sense … and is the right way to go about moving forward, particularly with our real significant move with HBO Max.”

Indeed, AT&T in October is planning an extensive unveiling of HBO Max — yet another direct-to-consumer subscription service centered around the HBO brand.

With Apple pricing Apple TV+ at $5 monthly, the pending service costs a third of the current HBO Now SVOD service.

Stephens isn’t concerned, characterizing the nine original shows launching on Apple TV+ as

“We only have a 40-year head start with [HBO] … a quality product that is the premium of premium,” he said. “[The] depth of just HBO alone is tremendous and it’s much different than what was talked about by some of the other [SVOD] carriers.

“When you add to that the Warner Bros. library — some of the children stuff there, what it might be — new shows that might come out and other things, it reinforces, boy, we’ve got really quality assets and really quality capabilities that others just don’t have at their disposal. So, we feel really good about that.”

Stephens pointed out that a couple of the Apple TV+ original programs (“Mythic Quest,” “Little Voice”) are produced by Warner Bros. Television.

“So, I’m sure those are pretty good shows because the folks over at Warner Bros. do great work,” he said.

WarnerMedia CEO John Stankey Promoted to AT&T COO

In a major personnel move, AT&T Sept. 3 announced that John Stankey has been appointed president and chief operating officer of AT&T, effective Oct. 1, a new position reporting to Randall Stephenson, AT&T chairman and CEO.

Stankey will continue serving as CEO of WarnerMedia, the4 corporate umbrella operating Warner Bros., HBO and Turner.

The company also promoted Jeff McElfresh to CEO of AT&T Communications, effective Oct. 1, replacing John Donovan, who earlier announced his retirement.

McElfresh will lead AT&T’s largest business unit, AT&T Communications, reporting to Stankey in his new role will be, in addition to his current WarnerMedia executive team; and Brian Lesser, CEO of Xandr.

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“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 statement. “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.

Stankey, 56, joined AT&T in 1985 and has served in a variety of leadership roles, including: corporate strategy and M&A; media and entertainment; operations, IT and technology; consumer mobility, broadband and TV; and enterprise business.

McElfresh, 48, has nearly 25 years of experience with AT&T in a variety of strategic, operational and technology leadership roles. Before being named to lead AT&T Communications, McElfresh was president of AT&T Communications’ Technology and Operations group where he was responsible for the company’s network, technology, cybersecurity, data and labs operations.

AT&T, Starz Ink New Carriage Agreement, Including OTT Video

AT&T and Starz, a Lionsgate company, Aug. 30 announced a new multiyear content carriage agreement. The deal secures rights for AT&T to offer the full suite of Starz and Starz Encore premium linear and HD channels, on-demand, HD on-demand to subscribers of DirecTV, AT&T TV (formerly DirecTV Now) and U-verse video platforms.

“Our customers want more choice and value in addition to compelling entertainment in our channel offerings,” Daniel York, chief content officer, AT&T Communications, said in a statement.

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“Starz is pleased to have found a mutually beneficial way to extend our relationship over the next several years to give millions of AT&T subscribers access to our acclaimed premium original content and vast library of blockbuster films,” said Jeffrey Hirsch, Chief Operating Officer of Starz. “By working together, both companies are in a position to continue to deliver great value to our shared customers.”

AT&T CEO John Donovan Retiring Oct. 1

John Donovan, CEO of AT&T’s communications segment, which includes wireless and troubled DirecTV and DirecTV Now, has announced he is retiring on Oct. 1.

AT&T has not named a successor, although media reports suggest Lori Lee, CEO of AT&T’s Latin America operations and global marketing officer, could assume Donovan’s position and become the telecom’s most senior female executive.

The 58-year-old Donovan, who has been with AT&T since 2008, helped spearhead the telecom’s $48.5 billion acquisition of satellite TV operator DirecTV in 2014.

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With that service now projected to lose about 2 million subscribers annually to alternative distribution services such as SVOD and online TV, AT&T is struggling to reshape a traditional pay-TV distribution business in the rapidly changing over-the-top video ecosystem.

And simply launching online platform DirecTV Now hasn’t been the answer. The service continues to lose subscribers who signed up for the initial loss-leading $34.99 monthly fee. That fee has been upgraded to $39.99.

Last month AT&T said it was changing the service’s name to AT&T Now. Subsidiary WarnerMedia is launching HBO Max early next year, while continuing to operate HBO Now in its current form in the interim.

Indeed, consumer choice for accessing home entertainment continues to evolve — driven in large part by the actions of Netflix, Amazon Prime Video and Disney-owned Hulu.

Craig Moffett, an analyst for research firm MoffettNathanson, lauded Donovan’s telecommunications contributions to AT&T, while tempering praise with market realities in the overall home entertainment market.

“It’s the entertainment businesses that are the problem,” Moffett told The Wall Street Journal.

Pay-TV Lost 1.5 Million Subs in Q2

As expected, pay-TV took another beating when it comes to retaining video subscribers.

New data from Leichtman Research Group found that the largest pay-TV providers in the U.S. — representing about 93% of the market — lost about 1.53 million video subscribers in the second quarter, ended June 30.

The loss was up 264% compared with a net loss of about 420,000 video subs in the previous-year period.

The top pay-TV operators now have about 86.6 million subs — with the top seven cable companies having 46.5 million video subscribers, satellite TV services 27.5 million subs, the top telephone companies 8.8 million subs, and the top publicly reporting online TV services 3.8 million subs.

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Satellite TV services lost about 855,000 subs compared to a loss of about 480,000 subs in 2018. AT&T-owned DirecTV had record losses for the fifth consecutive quarter, while Dish TV had fewer losses than in any quarter since Q4 in 2014.

The top seven cable companies lost about 455,000 video subs compared to a loss of about 275,000 subs in 2018. Cable losses were more than in any quarter since Q2 2014.

The top telephone providers lost about 100,000 video subs compared to a loss of about 45,000 subs in 2018.

Online TV services, Sling TV and DirecTV Now, lost 120,000 subs compared to about 385,000 net adds in 2018.

Over the past year, top pay-TV providers had a net loss of about 5 million subs — compared to a loss of about 1.o6 million subs over the prior year.

Over the past year, DBS services lost about 3.175 subs — compared with a loss of about 1.59 subs over the prior year.

Over the past year, online TV services lost about 340,000 subs — compared to a gain of 1.84 subs over the prior year.

“This marked the fourth consecutive quarter of record pay-TV industry net losses,” principal analyst Bruce Leichtman said in a statement. “With an increased focus on acquiring and retaining profitable subscribers, DBS services accounted for more than half of the net pay-TV losses in 2Q 2019, and 63% of the losses over the past year.”

Networks Sue Online TV Service for Copyright Infringement

Major broadcasters Disney-owned ABC, CBS, Fox and NBC Universal have filed a lawsuit against an upstart online TV service offering free over-the-air digital TV service.

The suit — filed July 31 in U.S. District Court in New York — alleges Locast owner, New York-based non-profit advocacy group Sports Fans Coalition NY, violates broadcaster copyrights streaming content to users for free.

The suit is similar to 2013 litigation brought by studios against Aereo, the defunct OTT service that transmitted digital signals to subscribers via over-the-air antennas.

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The litigation also pits broadcasters against AT&T, which owns and operates WarnerMedia — although the telecom is not party to the lawsuit.

Aereo, unlike Locast, charged subscribers for access. The latter asks users for a $5 monthly donation. AT&T last month gave Locast a $500,000 donation.

“This donation will support SFCNY’s mission to make free broadcast content available to consumers and offer them more choice,” AT&T said in a statement.

Broadcast plaintiffs aren’t buying the charity.

“Locast is not a public service devoted to viewers whose reception is affected by tall buildings,” read the complaint. “Nor is Locast acting for the benefit of consumers who, according to Locast when promoting its purportedly free service, ‘pay too much.’ Locast is not the Robin Hood of television; instead, Locast’s founding, funding, and operations reveal its decidedly commercial purposes.”

Locast counters its service provides a free, public service retransmitting free over-the-air broadcasts permitted under the Copyright Act of 1976.

“We look forward to defending the claims — and the public’s right to receive transmissions broadcast over the airwaves — in the litigation,” Locast lawyer David Hosp told Consumer Reports.

Broadcasters disagree.

“Locast is simply Aereo 2.0, a business built on illegally using broadcaster content,” read the suit. “While it pretends to be a public service without any commercial purpose, Locast’s marketing and deep connections to AT&T and Dish make clear that it exists to serve its pay-TV patrons.”

Plaintiffs are seeking unspecified financial damages, including Locast’s profits, in addition to “maximum statutory” damages.

AT&T Rebranding ‘DirecTV Now’ to ‘AT&T TV Now’

As expected, AT&T has begun informing DirecTV Now subscribers that the online TV platform is changing its brand name to AT&T TV Now.

The telecom giant, whose WarnerMedia subsidiary is in the process of rolling out the HBO Max subscription streaming video service, is attempting to rejuvenate DirecTV Now, which continues to lose subscribers who signed up for the initial loss-leading $34.99 monthly fee. That fee has been upgraded to $39.99.

“In the coming weeks, the AT&T TV app will be available for download across various app stores, and current DirecTV Now customers will see this update automatically on their devices,” AT&T said in a statement. “We’ll share more details on this rollout when it begins.”

AT&T acquired El Segundo Calif.-based satellite operator DirecTV in 2014 for $48.5 billion. It acquired Time Warner in 2016 for $84.5 billion.

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AT&T Boss: HBO Max to Offer Live Sports, News — in the Future

HBO Max, WarnerMedia’s pending subscription streaming service, will “ultimately” offer live sports and news, in addition to original and catalog programming, Randall Stephenson, CEO of parent AT&T, told investors.

Speaking July 24 on the fiscal call, Stephenson said the branded OTT service would be revealed in further detail to investors in a presentation on the Warner studio lot in Burbank, Calif., on Oct. 29.

“You should assume that ultimately HBO Max will have … live sports and premium sports,” Stephenson said. “Those are going to be really, really important elements for HBO Max. The same with news.”

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The live programming and sports elements would significantly differentiate HBO Max from Netflix, Amazon Prime Video, Disney+ and Hulu, which cater to original and catalog programming.

AT&T CEO Randall Stephenson

In fact, Netflix remains adamant it will not offer live sports, a market Prime Video dabbles in with Major League Baseball and Premier League soccer in the United Kingdom.

WarnerMedia, the media successor to Time Warner, last week revealed the management team behind HBO Max, which is slated to launch in Spring 2020.

While banking on the HBO brand, the streaming service will borrow liberally throughout the WarnerMedia business portfolio, which includes Turner and Warner Bros.

Indeed, Turner has pay-TV carriage license agreements with MLB, the NBA and NCAA March Madness men’s national championship tournament. How those contracts would relate to HBO Max remains to be seen. But Stephenson doesn’t see a problem.

“There’s a lot of opportunity to take advantage of the unique content deals that we have within WarnerMedia,” he said.

The CEO said the recently-ended HBO series “Game of Thrones” significantly increased HBO digital subscribers – a trend he hopes will continue with Max.

“HBO Max will be a key part of this wireless strategy as we get into next year pairing unique premium video content with our wireless, TV and broadband business,” Stephenson said. “[It] is going to be something special in the marketplace. And the implications of that to profitability, we think, are pretty important.”

 

 

AT&T Drops Nearly 950K Q2 Pay-TV Subs, Including 168K DirecTV Now Customers

The hits keep coming to AT&T’s legacy pay-TV and nascent over-the-top video operations.

The telecom giant July 24 disclosed it shed 778,000 video subscribers in the second quarter (ended June 30) across its DirecTV and AT&T U-verse pay-TV operations. That compared to a sub loss of 262,000 customers during the previous-year period.

AT&T attributed the loss to an increase in customers rolling off promotional discounts, competition and lower gross adds due to a focus on the “long-term value [i.e. higher paying] customer base.”

“We expect this level of losses to continue and are predicting we need to get through … some of the other, if you will, less value-conscious-focused promotions that we’ve done in prior years,” CFO John Stephens said on the fiscal call. “That will take us through the end of the year to do that.”

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The company ended the period with 21.5 million subscribers – about 2 million fewer subs than a year ago.

DirecTV Now, AT&T’s standalone online TV service, continues to lose subscribers attracted to the initial loss-leader pricing.

The OTT service lost 168,000 subscribers in the quarter after adding 343,000 in the previous-year period. AT&T attributed the decline to higher prices and less promotional activity.

DirecTV Now ended the quarter with 1.34 million subs – about 469,000 fewer subs than the 1.8 million subs reported last year.

AT&T lost 34,000 high-speed Internet subscribers as it continues to transition broadband subs to its faster fiber network. Indeed, the company added 318,000 fiber subs.

It ended the period with 13.8 million broadband subs, including 3.4 million fiber. That compared with 13.7 million broadband subs and 2.2 million fiber customers last year.