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.

 

AT&T to Start Capping Unlimited HBO Max Data Use

AT&T quietly announced it would begin capping data use for its wireless subscribers — a move that would affect some HBO Max subs from unlimited streaming. The telecom cited recent legislative action California supporting statewide net neutrality for the decision.

“California has enacted a ‘net neutrality’ law banning ‘sponsored data’ services that allowed companies to pay for, or ‘sponsor,’ the data usage of their customers who are also AT&T wireless customers,” the company wrote in a blog post. “Unfortunately, under the California law we are now prohibited from providing certain data features to consumers free of charge.”

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After President Trump’s FCC rescinded a federal net neutrality law that treated the Internet as a utility prohibiting ISPs from charging for higher bandwidth and streaming speeds, California, among other states, enacted its own net neutrality law. A federal judge last month upheld the move.

Prior to California’s law, AT&T said sponsored data subscribers were able to browse stream apps (i.e. HBO Max) from devices without using their monthly data allowance. The telecom said video providers utilized sponsored data enabling subscribers to stream movies and TV shows over their wireless service without it counting against their wireless data plan.

“Since it began, our sponsored data service, and competing offers from other wireless providers, have delivered significant benefits and saved consumers money,” AT&T wrote. “Consumers also have enjoyed an explosion of video streaming services.”

AT&T said the Internet does not recognize state borders, and thus the new law not only ends its ability to offer California customers free data services, but also similarly impacts customers nationwide.

AT&T is calling Congress to adopt federal legislation that would provide “clear, consistent and permanent” net neutrality rules for everyone to follow.

“A state-by-state approach to ‘net neutrality’ is unworkable,” wrote the telecom. “A patchwork of state regulations, many of them overly restrictive, creates roadblocks to creative and pro-consumer solutions. We have long been committed to the principles of an open internet. We deliver the content and services our customers want because it’s what they demand, not because it’s mandated by regulation.”

HBO Max ‘Orbit’ Launching at SXSW Online March 19

WarnerMedia will launch an interactive digital experience to promote its HBO Max streaming service at SXSW Online 2021 on March 19. The “HBO Max Orbit” experience is designed to introduce audiences to the streamer’s universe of content using cutting-edge, emerging technology.

The “Max Orbit” experience responds to facial movements and voice prompts from audiences as they explore and interact with thousands of movie and TV show moments, characters, and stories. In the experience, users will be able to explore Max’s library — titles from HBO, Warner Bros. Pictures, DC, and Cartoon Network, among others. More than 150,000 scenes clipped from Max series and films, including “Game of Thrones,” “Lovecraft Country,” “Love Life,” “The Big Bang Theory,” “The Looney Tunes Show,” Tom and Jerry, and Zack Snyder’s Justice League, will be integrated into the online experience and accessible with a nod of the head or a few spoken words.

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Max Orbit will also feature interactive design elements for Godzilla vs. Kong as a nod to the pending film debuting March 31 in theaters and on Max. While at Max Orbit, festival attendees will have the opportunity to participate in a “flock to unlock” challenge starting at noon ET March 19 to unlock an exclusive clip with never-before-seen scenes from the film.

The Max Orbit technology will respond to how a user is moving their face and will surface clips of characters matching their movements in real time. Specific clips in the SXSW Online experience will trigger “challenge mode,” which prompts users to move their face to find clips that match a certain title on screen or use their voice to utter a phrase from a specific show within a timed window. Successful completion of these challenges unlocks frames from the exclusive clip.

“The pandemic has forced brands from all sectors to reimagine experiential marketing and devise new ways to engage and delight users with content,” Jason Mulderig, SVP of brand marketing for HBO Max, said in a statement.

Experience design firm Hush developed the digital/physical experience and the Max Orbit technology for both the Web and retail flagships, which leveraged a bespoke content ingestion pipeline that uses machine learning to process hundreds of terabytes of content to power the user experience.

“Strategically, we were able to lean into the fact that HBO Max’s library is unparalleled in quality and scale,” David Schwarz, HUSH Partner, said in a statement, adding that the exhibit needed to be functionally intuitive and fast, but also dreamlike, extemporaneous and unexpected.

“The best [content] explorers in history didn’t change their world, they just found beautiful ways through it,” Schwarz said.

Following its SXSW Online debut, an in-person version of Max Orbit will open in select AT&T flagship stores starting in April. The AT&T 5G-powered retail experience will exist within a 360-degree chamber, integrated into the existing layout of the store and designed to optimize the feeling of a vast audio-visual space.

CEO Jason Kilar: HBO Max No. 2 Revenue SVOD Service in U.S.

Backed by an industry leading $14.99 monthly subscription fee, and growing subscriber base, HBO Max is the second-largest (after Netflix) revenue-generating SVOD service in the U.S., according to WarnerMedia CEO Jason Kilar.

Speaking March 12 on the AT&T analyst day, Kilar said more Max subscribers were added in the final seven months of 2020 than linear service HBO added in the previous 10 years.

Kilar said management’s goal around Max from the start has been to reach a broader, younger and more engaged audience than HBO.

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“I’m happy to report, we’re seeing just that,” he said, adding that 43% of the platform audience is under the age of 35, while 50% of viewers are female. HBO typically skews more male viewers.

Since launching on May 27, 2020, Max and HBO have topped 41 million in combined subscribers — a tally WarnerMedia had projected wouldn’t occur until the end of 2022.

“We exceeded that milestone more than two years ahead of plan,” Kilar said. “The launch of Max has not only covered the decline in linear subscribers, it has actually driven material growth.”

Kilar said Max users are twice as “engaged” as HBO users in terms of daily viewing hours — a metric the executive hailed considering Max’s elevated subscription fee.

“Based on publicly available data and analysts’ estimates, we believe that we are already the No. 2 revenue-generating standalone subscription video-on-demand service in the U.S.,” he said.

Kilar said he expects Max revenue per subscriber to continue increase as retail subs comprise an increasing percentage of the overall sub base. Indeed, the executive said the company earns a 90% margin on each retail Max subscriber added in the U.S.

“The economics of HBO Max’s growth are compelling,” he said.

Kilar said WarnerMedia remains “encouraged” by its decision to release all 18 of Warner Bros. Pictures’ 2021 theatrical releases on Max (for 31 days) simultaneously in the U.S. market.

“Given the effects of COVID, we have been happy, proud even, to give consumers the choice to see our great stories in the home or in theaters in 2021,” he said, adding that theatrical releases are often the first content new Max subs stream.

“We have seen a reduction in [subscriber] churn, in part due to the motion picture strategy.”

AT&T: HBO Max/HBO Aims for Up to 150 million Subs by 2025; AVOD Service Coming in June

On AT&T’s March 12 investor day event, the telecom issued updated subscriber metrics for its HBO and HBO Max properties. The company, which operates WarnerMedia, parent to Warner Bros. Pictures, HBO and Turner, says it now expects between 120 million to 150 million HBO Max/HBO subscribers by 2025 — up from the 75 million to 90 million projected in October 2019.

Heady numbers considering Max generated just 4 million subscribers after launching on May 27, 2020 — a tally that doubled to 8.6 million last October. AT&T then combined Max subs with premium channel HBO to realize 41.5 million combined U.S. subscribers at the end of 2020, compared with 38 million at the end of September.

HBO Max international expansion and AVOD launch are slated for June. AT&T expects to launch Max in 60 markets outside the U.S. this year (39 territories in Latin America and the Caribbean in late June and 21 territories in Europe in the second half of 2021). Those markets do not include the U.K., Germany, Italy and Australia due to existing content distribution agreements with HBO. Also in June, the company expects to launch in the U.S. market an advertising-supported (AVOD) version of HBO Max.

“It’s going to be a very big year for HBO Max across the globe,” WarnerMedia CEO Jason Kilar said on the March 12 AT&T investor day event. He said rollout of the AVOD version of Max  in June would help change the platform’s consumer dynamics. Max AVOD already has $81 million in upfront commitments from advertisers, according to the company.

“Ad-supported [VOD], when executed thoughtfully and elegantly, is a powerful way to lower prices for everyone,” Kilar said. “We’ll be doing just that in June, here in the U.S.”

Max is expected to double revenue to $15 billion in the next five years. “We expect to break even by 2025,” he said.

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Separately, AT&T, which ballooned its corporate debt past $170 billion with the acquisition of Time Warner in 2016, has been trying to lower its debt-to-earnings to more manageable level ever since. However, the company now expects to end 2021 with a net debt-to-adjusted EBITDA ratio of about 3.0, reflecting an anticipated increase in net debt of about $6 billion to fund the C-band spectrum purchases.

During 2024, AT&T expects to reach a net debt-to-adjusted EBITDA ratio of 2.5 times or lower. To achieve, the telecom expects to use all cash flows after total dividends to pay down debt and will continue to look for opportunities to monetize non-strategic assets. The company also does not plan to repurchase shares during this period.

AT&T CFO on Concurrent Theatrical, HBO Max Release: ‘It Was Something COVID Did to Us’

With retirement looming at the end of the month following a 28-year career at AT&T, CFO John Stephens has a lot to feel good about. Speaking March 8 on the virtual Deutsche Bank’s 29th Annual Media, Internet & Telecom Conference, Stephens said the rollout of the HBO Max subscription streaming service and concurrent access to Warner Bros. Pictures theatrical releases have left him feeling equally pleased.

The studio is releasing its entire theatrical slate simultaneously on Max. Titles released thus far include Wonder Woman 84, The Little Things, Judas and the Black Messiah and Tom & Jerry.

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“We announced we’d do it for a year, and we’re in that process now,” Stephens said. “What we’re seeing is not only good viewership of those movies on Max, but engagement that follows [on the platform] that’s been encouraging. So real success with it thus far.”

Stephens said Warner had no choice but to explore a more direct-to-consumer strategy, with theaters shuttered or operating with limited seating capacity due to the COVID-19 pandemic.

“I would suggest it was something COVID did to us,” he said. “We pivoted in that COVID environment.”

Stephens said that while theater re-openings will be gradual, holding back titles risks running to a backlog of theatrical titles at other studios.

“The flood of the theaters, even if they’re open, would change all the [distribution] economics anyway,” he said. “So we had a choice: I personally agree with that choice and it’s worked really well. And you’ve seen that in the quality of Max numbers.”

Going forward, the CFO said the studio and WarnerMedia would continue to learn from the strategy, gathering data on user metrics both domestically and abroad.

“We’re still just a few months into this process,” he said. “And we’re certainly uncertain as to when the economy is going to be fully open. I wouldn’t suggest this is anything more than a one year effort.”

Meanwhile, Stephens said the momentum at Max has exceeded expectations. Ad-supported AVOD Max launches later this year in Latin America.

“We think there’s an opportunity to expand the customer base by having thoughtful, careful AVOD product,” he said. “We had more customers last year than HBO had in the last decade. So feel good about that. Feel good about the quality of that product, the engagement, people’s use of that.”

Stephens said the Max launch would be catered different in each country, contending the HBO brand has “different flavors” depending upon which country you’re in. Stephens cited AT&T buying out the third-party minority stake in HBO Latin America in order to have complete ownership of the product when launching Max.

“You’ll see us do [Max] launches in different time frames and different manners respect to those contracts and existing relationships,” he said.

Walmart Expands Board With Ex-AT&T Boss Randall Stephenson Appointment

NEWS ANALYSIS — Walmart has named former AT&T CEO Randall Stephenson to its board of directors, effective March 3, expanding the board to 12 members. Stephenson, who retired less than 12 months ago with a reported $270,000 monthly pension and benefits after 13 years as CEO of AT&T, is being sought for his “leadership skills and insights in finance, technology, retail and brand management,” according to Greg Penner, chairman of the Bentonville, Ark.-based retail behemoth’s board.

“We look forward to working with him as we drive Walmart’s strategy forward and continue providing effective governance for all our stakeholders,” Penner said in a statement.

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Stephenson will join a board whose annual compensation per member ranges from $260,000 to Penner’s $500,000 — with virtual meetings occurring as often as determined to be “necessary or appropriate.”

No doubt Stephenson has experience at the highest levels within corporate America. He also has a fiscal legacy some might question as less than effective. When the 60-year-old Stephenson departed AT&T, he left the telecom-turned-Hollywood player saddled with a staggering $180 billion in debt — a fiscal burden AT&T continues to labor downsizing to manageable levels.

The bulk of that debt was incurred following two high-profile Stephenson-led acquisitions: The 2014 purchase of DirecTV for $67 billion, including the assumption of satellite TV operator’s debt; and the 2016 acquisition of Time Warner for $85 billion, plus assumption of the media giant’s outstanding debt. Time Warner properties Warner Bros., HBO (and HBO Max), and Turner operate under the WarnerMedia umbrella.

Following closure of the Time Warner deal former President Trump’s Justice Department tried to derail, citing antitrust issues, activist hedge fund Elliott Management sent a letter to Stephenson and the board questioning why AT&T needed to own a movie studio, and wondering if the telecom could pay off its debt, among other issues. Elliott later sold all of its 5 million AT&T shares.

Indeed, no sooner had the ink dried on the DirecTV deal than the pay-TV operator began hemorrhaging subscribers to over-the-top video competitors such as Netflix — a common theme within linear TV. Subsequent efforts to hitch a ride to online TV via DirecTV Now failed. The platform is now called AT&T TV Now, with AT&T announcing a $10 monthly rate hike, effective in April. AT&T’s legacy pay-TV platforms lost a combined 617,000 subscribers in 2020.

Through Dec. 31, 2020, AT&T wrote off $15.5 billion for the DirecTV business. That came in addition to a $13.8 billion AT&T fiscal loss in the fourth quarter and a $5.2 billion loss for the fiscal year. In February, AT&T spun off 30% of DirecTV in a $8 billion cash deal with private equity group TPG to to create “New DirecTV,” encompassing satellite, online TV and cable service U-verse.

“The AT&T deal with TPG is good, it will keep investors, workers, customers and executives happy,” analyst Jeff Kagan wrote in a March 1 blog post.

AT&T Spinning Off Pay-TV Units in $8 Billion Cash Deal

As expected, AT&T Feb. 25 announced a $8 billion cash deal with private equity group TPG to create a new company, dubbed New DirecTV, encompassing satellite TV operator DirecTV, online TV platform AT&T TV and cable service AT&T U-verse.

The telecom giant said it would use the funds to pay down debt accrued in its $85 billion acquisition of Time Warner in 2016, in addition to focusing company interests on WarnerMedia, HBO Max and 5G.

Under terms of the transaction, which is expected to close in the second half of the year, New DirecTV will be jointly governed by a board of directors with two representatives each from AT&T and TPG, as well as a fifth seat for the CEO, which at closing will be Bill Morrow, CEO of AT&T’s U.S. video unit. Following the close of the transaction, AT&T will own 70% of the company and TPG will own 30%.

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AT&T expects to receive $7.8 billion ($7.6 billion in cash and the assumption from AT&T of $200 million of existing DirecTV debt). TPG will contribute $1.8 billion in cash to New DirecTV in exchange for preferred stock units.

“[The deal] supports our deliberate capital allocation commitment to invest in growth areas, sustain the dividend at current levels, focus on debt reduction and restructure or monetize non-core assets,” CEO John Stankey said in a statement.

AT&T has for some time tried selling off its pay-TV units, with little success. The premium TV business is shrinking as consumers gravitate toward over-the-top video services, including online TV. The company reported a loss of 617,000 subscribers in the most-recent fiscal quarter. It ended 2020 with 16.5 million combined DirecTV, AT&T TV and U-verse subs, down from 19.5 million at the end of 2019.

That AT&T TV is included in the deal underscores the telecom’s ongoing challenges in the niche market — as well as offering TPG a stake in an online TV ecosystem led by Disney-owned Hulu+Live TV with more than four million subscribers.

“As video consumption habits evolve, the new DirecTV will continue investing in its offering to provide value to its customers, including through next-generation streaming pay-TV services,” said David Trujillo, partner at TPG.