DirecTV Stream: Lipstick on Pay-TV Pig

AT&T’s pending launch of standalone “DirecTV Stream” as the new brand name for its declining satellite pay-TV businesses (i.e. DirecTV, AT&T TV, and U-verse) marks the telecom’s latest makeover in a disastrous M&A legacy.

Marketing the platform with 15.9 million combined subs as a gateway (i.e. Roku and Fire TV) to third-party subscription streaming platforms such as Netflix, Amazon Prime Video, Hulu and even HBO Max is neither original or transformative. It’s still essentially a pay-TV business that lost 473,000 subs in the most recent fiscal period — 2.3 million subs over the past year.

DirecTV Stream is a short-term fiscal generator.

AT&T, the most highly-indebted company in the U.S., in February sold a 30% stake in DirecTV to private equity group TPG for $1.8 billion, valuing the El Segundo, Calif.-based operator at $16.25 billion — just six years after acquiring the company for $50 billion ($66 billion including debt).

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DirecTV Stream, under the leadership of new CEO Bill Morrow, will be spun off with $6.2 billion in debt as AT&T continues to chip away at a debt load that topped more than $180 billion following the $85 billion Time Warner acquisition.

“Regardless of the stated value of the deal, we believe it should suffice to say that AT&T is getting $7.6 billion of cash up front … [and] keeping 70% of the common equity,” Phil Cusick, analyst with J.P. Morgan, wrote earlier this year in a note.

As the saying goes, “a bird in the hand is better than two in the bush.”

Maybe, but AT&T still has $150 billion in debt at a time when it is spending billions on 5G rollout. The telecom’s other spin-off of a minority fiscal stake but majority operational control in WarnerMedia to Discovery CEO David Zaslav for $43 billion, underscored the telecom’s failed attempt to vertically integrate content with distribution.

“The truth is, AT&T made a boneheaded decision and now they’re paying for it, but in corporate America, no one really pays for it, no one’s even allowed to say it, no one’s allowed to admit it,” Jim Cramer, the outspoken “Mad Money” host, said recently on his CNBC program.

The TV analyst said it could have understood companies like Apple, Alphabet (Google) or Facebook pulling the trigger on such an enormous acquisition.

“They’d never do something as stupid, but at least they’re sitting on mountains of cash,” Cramer said.

AT&T Closes DirecTV Spinoff, Video Services Branded DirecTV Stream

AT&T and TPG Capital have closed their transaction establishing a new company named DirecTV. The new company will own and operate the DirecTV, AT&T TV and U-verse video services previously owned and operated by AT&T.

The newly branded DirecTV Stream will become the single brand for video streaming services previously launched by AT&T, excluding HBO Max. The transition will happen later this month. As a part of the deal, AT&T satellite, streaming or IP video customers will automatically keep their video service, any bundled wireless, internet or HBO Max services, and associated discounts with no action needed.

Not included in the transaction are WarnerMedia’s HBO Max streaming platform and regional sports networks, both of which are part of the pending WarnerMedia-Discovery transaction; Vrio (AT&T’s Latin American video operations, which are being sold to Grupo Werthein); U-verse network assets; and AT&T’s Sky Mexico investment. DirecTV will continue to offer HBO Max to subscribers along with any bundled wireless or broadband services and associated customer discounts.

DirecTV had approximately 15.4 million premium video subscribers at the end of the second quarter of 2021.

AT&T contributed its U.S. video business unit to the new entity in exchange for preferred units as well as a 70% interest in the common units of DirecTV. TPG contributed approximately $1.8 billion in cash to DirecTV in exchange for preferred units and a 30% interest in common units of the new company.

The DirecTV board will include Bill Morrow, CEO of DirecTV, and voting board members Steve McGaw and Thaddeus Arroyo, appointed by AT&T; and David Trujillo and John Flynn, appointed by TPG.

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“This is a watershed moment for DirecTV as we return to a singular focus on providing a stellar video experience,” Morrow said in a statement. “Building on our recent momentum, we are well-positioned to bring unparalleled choice and value to all of our customers under one iconic brand, whether they beam it or stream it.”

At close, AT&T received $7.1 billion in cash ($7.6 billion net of approximately $470 million cash on hand) and transferred approximately $195 million of video business debt.

HBO and HBO Max Add 2.8 Million Combined Q2 Subs

AT&T July 22 announced that its WarnerMedia subscription streaming video service, HBO Max, and HBO pay-TV channel added 2.8 million combined subscribers in the second quarter (ended June 30).

The platforms ended the period with 47 million combined subs, a gain of 10.7 million subs over the past year, and 67.5 million globally, up 12 million.

WarnerMedia ended the quarter with more than 12 million standalone HBO Max subscribers in the United States and 31.5 million transitioned subs from HBO pay-TV. HBO ended the quarter with 32,000 U.S. pay-TV subs and 3.5 million commercial subs — the former reflecting increased migration of subscribers from linear TV to streaming.

The company’s 20.5 million international Max and HBO subs consist of domestic and international, and exclude free trials, basic and Cinemax subscribers.

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AT&T now expects to generate upwards of 73 million global HBO Max/HBO subscribers by the end of this year. Max launched nationwide May 27, 2020.

Subscription revenue increased 21.3% to $4 billion, primarily reflecting the 38.5% growth of direct-to-consumer Max and HBO subscription revenue following the launch of Max in the year-ago quarter.

“HBO Max had another strong quarter and is ahead of plan to be a leading direct-to-consumer streaming platform, with both subscriber- and ad-supported choices,” AT&T CEO John Stankey said in a statement.

Electronic Arts Buys Mobile Game Developer Playdemic From AT&T/Warner Bros. Games for $1.4 Billion

Electronic Arts, AT&T, and WarnerMedia June 23 announced the sale of Warner Bros. Games’ mobile-games centric developer Playdemic, Ltd., to EA for $1.4 billion in cash.

The transaction generates more cash for AT&T to pay down $160 billion in debt following the Time Warner acquisition, while enabling Warner Bros. Games to focus on in-house IP games.

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Founded in 2010, Playdemic is known for its popular Golf Clash that allows players to compete with each other around the world in real time. Golf Clash is one of the leading mobile games in the U.S. and U.K. and has more than 80 million downloads globally to date. The game has been honored with numerous industry awards, including winner of the BAFTA Games Mobile Game of the Year (2018), Mobile Games Awards Game of the Year (2018), PocketGamer.biz Game of the Year (2017) and The Independent Game Developers’ Association (TIGA) Awards Game of the Year (2017).

“We have enjoyed working with the talented team at Playdemic as they have grown Golf Clash beyond all expectations into a hit mobile game with tremendous longevity,” David Haddad, president of Warner Bros. Games, said in a statement. “While we have great respect for the Playdemic team, our decision to divest is a part of our overall strategy to build games based on Warner Bros. storied franchises.”

The acquisition of Playdemic is part of EA’s mobile growth strategy focused on delivering exciting new games for its network of nearly half a billion players around the world. Playdemic’s portfolio and creative talent will be a significant addition to EA’s mobile growth engine. The acquisition will add to EA’s mobile portfolio of more than 15 live services across fast-growing genres, including lifestyle, casual, sports, and mid-core games.

“We founded Playdemic with a focus on creating highly engaging and innovative game experiences,” Paul Gouge, CEO of Playdemic, said in a statement. “Our success with Golf Clash has proven our approach and demonstrated the ability of our incredibly talented teams to develop and operate best in class mobile games.”

The acquisition price is subject to customary adjustments, and will be paid in cash at closing and retained by AT&T. The transaction is subject to customary regulatory approvals. The remaining Warner Bros. Games portfolio is included in the recently announced WarnerMedia-Discovery transaction and will become part of the combined media and entertainment company after the expected close of that transaction.

HBO Max GM Andy Forssell: Nothing Changes for at Least a Year — Except Movie Distribution

On the heels of AT&T’s $43 billion spin-off of WarnerMedia in a merger with Discovery, and pending corporate name change, life for the brand’s flagship streaming video platform, HBO Max, continues unchanged.

That’s the message from Andy Forssell, former interim CEO of Hulu, who was tapped last year by former Hulu boss Jason Kilar to be EVP and GM of Max.

Speaking June 3 on the virtual Barclays Future of Media Conference, Forssell said the mission at the SVOD/AVOD Max remains to produce compelling content and grow standalone subscribers — the latter totaling 11.1 million subs over the service’s first year.

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HBO and HBO Max ended the most-recent fiscal period with 44 million combined subs.

“Our mission today is the same as it was a couple of weeks ago: Run the business,” Forssell said. “We’re at least a year away from anything happening [with the merger]. So, certainly big news and one that we pay attention to — but it doesn’t change what we do.”

With Discovery CEO David Zaslav tapped to run the renamed Warner Bros. Discovery company, leaving Kilar and Forssell’s roles going forward in question, Forssell made no mention of his job future.

“Eventually, we’ve got to figure out how do you combine [Max] with Discovery [and Discovery+ SVOD] and what does that mean,” he said. “But for the [Max] team, it seems quite a ways off because we’ve got to wait for the Department of Justice and that type of [regulatory approval] process to play out.”

In the meantime, Forssell said you should expect the company to continue to rejigger the theatrical window through 2022. WarnerMedia made industry shockwaves announcing it would release the Warner Bros.’ 2021 theatrical slate concurrently on Max for 31 days — after doing so with Wonder Woman 1984 on Christmas Day 2020.

That singular streaming strategy will be tweaked next year to re-embrace exhibitors, but the days of the traditional theatrical window are not likely returning, said the executive.

“You’re going to see in 2022 a lot of experimentation that’s going to be far more wide-ranging than it would have been without COVID,” Forssell said.

Specifically, the executive said studios would apply a mixture of PVOD/SVOD and theatrical distribution depending on the movie, current events and market conditions.

“We’ll see experimentation across the board,” Forssell said. “You’ll see everybody trying almost all [distribution] models next year.”

He said the simultaneous release of WW84 on Max saw two-third of the movie’s streaming audience also watch the entire first season of original series “The Flight Attendant” starring Kaley Cuoco.

Forssell said that the streaming audience for the second Warner movie release on Max, The Little Things, attracted a wider audience via Max than it would have strictly through theatrical.

“In other words, The Little Things really enjoyed the benefit of a huge wave of audience,” he said. “So we look at that very closely.”

Indeed, Max’s latest original series, “Mare of Easttown” starring Kate Winslet, has generated strong consumer responses on both on the service and linear television.

“It’s a record setter on Max,” Forssell said.

The executive thinks that as streaming access accelerates, transactional distribution of movies “probably drops” over time. He thinks that when combining SVOD with ad-supported VOD, the possibility of penetrating the equivalent 100 million households reached during pay-TV’s peak is not unreasonable.

“By the end of [next year], I think we’ll have a really clear signal on how does that evolution move,” Forssell said. “We believe there’s a place for theaters in the long term. Super important to us that something like that thrive and survive. But again consumers will tell us.”

WarnerMedia Getting New Name: ‘Warner Bros. Discovery’

Following the merger of Discovery and WarnerMedia, the former Time Warner is getting yet another name change. The new company will be called Warner Bros. Discovery, according to Discovery CEO David Zaslav, who notified staff in a June 1 town hall. The new name is dependent upon regulatory approval of the $43 billion merger.

Time Warner’s name was changed to WarnerMedia in 2018 after it was acquired by AT&T, which is now spinning off the company with the new merger agreement. In addition to Turner and Warner Bros., WarnerMedia and Discovery’s prized assets include streaming platforms HBO Max and Discovery+.

The initial “Warner Bros. Discovery” wordmark for the proposed company.

The initial wordmark for the proposed company includes the iconic line from the Maltese Falcon, “the stuff that dreams are made of,” an additional homage to the rich legacy of Warner Bros. and the focus of what the proposed company will be about.

“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,” Zaslav said. “We love the new company’s name because it represents the combination of Warner Bros.’ fabled 100-year legacy of creative, authentic storytelling and taking bold risks to bring the most amazing stories to life, with Discovery’s global brand that has always stood brightly for integrity, innovation and inspiration.

“There are so many wonderful, creative and journalistic cultures that will make up the Warner Bros. Discovery family. We believe it will be the best and most exciting place in the world to tell big, important and impactful stories across any genre — and across any platform: film, television and streaming.”

 

CEO Stankey Says AT&T Key to HBO Max Success

AT&T just announced it is spinning off a 30% minority stake in WarnerMedia for $43 billion, the latter including Warner Bros., Turner, HBO and HBO Max. AT&T CEO John Stankey contends the Max subscription streaming platform launched last summer would not be “where it is today” without the assistance and support of the telecom giant.

Speaking May 24 on the virtual JPMorgan 49th Annual Global Technology, Media and Communications Conference, Stankey said vertical integration of the former Time Warner media giant (a.k.a. WarnerMedia) helped the telecom expand its brand while validating Max on a global scale.

HBO and HBO Max ended the most-recent fiscal period with 44.2 million combined subscribers. That tally could expand to 63.9 subs worldwide when Max launches in Latin America and the Caribbean in June. A less-expensive ad-supported tier is slated to a launch next month as well.

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“I think realistically, HBO Max would not be where it is today, if not for the strength of the two combined companies, what AT&T was able to bring both in distribution as well as some of the economic clout — market clout, to be able to normalize agreements, and get the product and service off the mark,” Stankey said.

He said AT&T’s continued push of wireless distribution and high-speed Internet, helped more than pave the way toward consumer adoption of HBO Max.

“We had a strong belief that we could help our domestic connectivity business significantly,” Stankey said. “And that started us down the path of the direct-to-consumer evolution.”

The executive contends Max will help AT&T expand high-speed Internet and fiber connections in markets around the world.

“Our connectivity business is kind of captive to the United States for the most part,” Stankey said. “And as a result, when you start looking at the opportunity to grow a fantastic subscriber base … we kind of look at this and say, ‘it’s time to unleash the media assets to go and seize, you know, multi $100 billion opportunity and become one of the premier assets for distributing content,'” he said.

Discovery CEO David Zaslav will be tasked with operating WarnerMedia and Discovery+, the latter the five-month-old SVOD service featuring largely reality-based DIY programming. Stankey contends the combined companies’ synergies can help fund growth in the new OTT video business.

“It’s a deeper content library that can carry forward. And it brings exactly some of that heft in the international side of things, [which is] going to be necessary to scale up [Max and Discovery+] worldwide.”

CEO Jason Kilar Reportedly Seeking WarnerMedia Exit

WarnerMedia CEO Jason Kilar reportedly was kept out of the loop until near the end of AT&T’s announced $43 billion spin-off of the former Time Warner to Discovery Inc.

With Discovery CEO David Zaslav in charge of the new unnamed company, Kilar, who joined WarnerMedia only last year, is looking to exit the company and his contract, according to The New York Times, which cited sources familiar with the situation.

Kilar’s name was noticeably missing from the May 17 morning press release announcing the mega merger, despite both Zaslav and AT&T CEO John Stankey heaping praise on the former co-founder/CEO of Hulu.

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“Jason is a fantastic talent,” Zaslav said on the conference call. Kilar also likes to be charge, especially when it involves streaming video and digital distribution. Kilar exited Hulu in 2013 after five years when he felt a loss of control on senior management decisions.

Earlier this month, Kilar cited as his biggest regret at Hulu his inability to convince Hulu co-owners, which included 20th Century Fox, Disney, Comcast/NBCUniversal and later Time Warner, the wisdom of global distribution.

“I think it’s totally fair to bash, candidly, Hulu’s lack of global footprint that could have been possible starting in 2008,” Kilar said on the MoffettNathanson Media & Communications Summit.

“This is ultimately a global business. I think it was very hard for the board members of Hulu to feel that this new, small thing called Hulu was going to disrupt their existing businesses across the globe. Now, that happened anyway because of Netflix and others, so that’s why I regret it.”

 

 

AT&T, Discovery Merging Media Assets to Create Streaming Video Giant

AT&T and Discovery on May 17 announced a definitive agreement to combine WarnerMedia’s Warner Bros., HBO, Turner and CNN media assets with Discovery’s reality TV-based HGTV, Food Network, Animal Planet, Magnolia, Eurosport and international entertainment businesses to create a new unnamed standalone global entertainment company focused on streaming video.

Under the agreement, which is structured as an all-stock transaction and expected to close in mid-2022, AT&T would receive $43 billion (subject to adjustment) in a combination of cash, debt securities, and WarnerMedia’s retention of certain debt. AT&T’s shareholders would receive stock representing 71% of the new company; Discovery shareholders would own 29%. The boards of directors of both AT&T and Discovery already have approved the transaction. The deal, which must pass the federal regulatory approval process, would help AT&T significantly trim its massive ($170+ billion) debt load accumulated through the acquisitions of DirecTV and Time Warner, among others.

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Discovery CEO David Zaslav would lead the proposed new company with a management team and operational and creative leadership from both companies.

The companies expect the transaction will create substantial value for AT&T and Discovery shareholders by bringing together some of the industry’s top management teams, content creators, TV series and movie libraries. More importantly, the companies expect the deal to accelerate both companies’ plans for direct-to-consumer (DTC) streaming services for global consumers, which revolve around HBO Max and Discovery+, respectively.

The new company would have significant scale and investment resources, with projected 2023 revenue of approximately $52 billion, pre-tax earnings of $14 billion. The AT&T and Discovery combination expects to realize at least $3 billion in cost synergies annually, which typically translates into significant job cuts across both companies.

“This agreement unites two entertainment leaders with complementary content strengths and positions the new company to be one of the leading global direct-to-consumer streaming platforms,” AT&T CEO John Stankey said in a statement. “It will support the fantastic growth and international launch of HBO Max with Discovery’s global footprint and create efficiencies which can be re-invested in producing more great content to give consumers what they want.”

“During my many conversations with John, we always come back to the same simple and powerful strategic principle: these assets are better and more valuable together,” added Zaslav. “It is super exciting to combine such historic brands, world class journalism and iconic franchises under one roof and unlock so much value and opportunity.”

Report: AT&T, Discovery Looking to Merge Media Assets

Could WarnerMedia, HGTV, Animal Planet, TLC and Food Network soon be corporate siblings? Media reports suggest AT&T, which owns WarnerMedia, is in negotiations with Discovery to merge media assets in an attempt to better compete in the streaming video world against Netflix and Disney, among others.

Bloomberg is reporting that some kind of a deal could be announced in the coming week. Who would run the combined assets is unclear as Jason Kilar, who heads WarnerMedia, and Discovery CEO David Zaslev both have separate leadership skills. Kilar, who helped launch Hulu, would appear a frontrunner considering his experience in the digital ecosystem. Kilar brought on former Hulu CEO Andy Forssell to run HBO Max and WarnerMedia’s direct-to-consumer business.

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For AT&T CEO John Stankey, a merger of WarnerMedia, which includes Warner Bros., Turner and HBO, better validates the $85 billion spent acquiring the former Time Warner three years ago. That purchase sent AT&T’s corporate debt through the roof — a financial weight the telecom has been trying to reduce ever since. Stankey has been shedding non-core (and core) assets as fast as he can, including selling off Time Warner’s stake in Hulu, AT&T’s New York corporate space, anime unit Crunchyroll, and DirecTV, among other actions.

For Discovery, which launched a branded SVOD platform in January, getting penetration in a saturated market was always going to be a significant challenge — despite offering such assets as “Property Brothers” and Chip and Joanna Gaines’ Magnolia Empire, among others.

HBO and HBO Max ended the most-recent fiscal quarter with 44.2 million subscribers. Discovery+ topped 13 million subscribers at the end of April since launching in January. A strong start, but paltry when compared to Netflix’s 200+ million subs and Disney+ exceeding 103 million. Amazon just disclosed that its Prime Video service has 175 million subs.