AT&T Looking to Sell Off Hulu Stake

When AT&T acquired Time Warner for $85 billion, the purchase price pushed the telecom’s net debt skyward to about $170 billion by the end of the year.

Corporate debt (debt-to-pre-tax earnings ratio) is a relative thing. Too little and investors worry a company isn’t maximizing revenue potential. Too high and concerns about financing the debt and or worse loom into the picture. Wall Street looks for a company to have a debt ratio between 0.3 and 0.6, according to some analysts.

AT&T will end 2018 with a debt ratio of 2.8.

For CFO John Stephens, who is tasked with decreasing that ratio, the solution involves scrutinizing internal overhead costs, reducing redundancies and liquidating non-core assets — such as WarnerMedia’s 10% stake in Hulu.

WarnerMedia, which includes Warner Bros., HBO and Turner, acquired the Hulu stake in 2016 for $583 million when it was Time Warner. The SVOD and online TV platform with 20 million subscribers is co-owned by Disney, Fox and Comcast and reportedly valued at more than $9 billion.

With WarnerMedia planning to launch proprietary SVOD service in late 2019, co-owning a rival service makes little sense.

Indeed, eliminating corporate headquarters, minority investments in Sky Mexico and Hulu, among other options, could generate AT&T upwards of $8 billion in cash, according to Stephens.

“If we’re successful in that, that would bring us down to that 2.5 [debt ratio] range [by the end of 2019],” Stephens said on AT&T’s Nov. 29 analyst day event. “We’re going to focus on getting that done. With our [$500 billion] balance sheet, we are in a very good position.”

The CFO contends AT&T will have free cash flows approaching $12 billion at the end of the year, which he said will be applied to reducing the debt. The company expects to generate $26 billion in free cash flow in 2019.

AT&T expects to generate $1.5 billion in cost savings (corporate overhead, procurement purchasing, marketing, etc.) and another $1 billion in revenue savings (churn reduction, cross-selling products) by 2021, including $700 million in savings by the end of 2019, $2 billion by the end of 2020.

“People who know our company, know we’re pretty good with cost synergies,” Stephens said. “Sharing assets and capabilities across the business, we can learn from them and WarnerMedia can hopefully learn from us.”

 

 

Brad Bentley to Head WarnerMedia’s OTT Video Group

WarnerMedia has reportedly named Brad Bentley as EVP of direct-to-c0nsumer development, the unit in charge of developing the former Time Warner’s over-the-top video platform launching in 2019.

Bentley, who most-recently headed marketing at AT&T’s entertainment group, will spearhead the unnamed branded OTT service that will offer combined HBO, Warner Bros. programming, in addition to select third-party content.

Separately, Jeremy Legg, chief technology officer at Turner, will now include technology oversight at HBO as well.

“These initial changes are intended to build a direct-to-consumer organization and execution capability necessary to move the overall effort forward and answer the many questions that must be addressed prior to launch,” John Stankey, CEO of WarnerMedia, wrote in a staff memo first reported by Variety. “As work streams are better defined, I expect there will be further changes and adjustments to our operating model — exactly what, when and who, remains a work in progress that will be heavily influenced by this early work.”

Stankey, in an earlier townhall meeting following AT&T’s consummation of its $85 billion acquisition of Time Warner, said ongoing operations within Turner, Warner Bros. and especially HBO would include challenges aimed at targeting an increasingly fragmented consumer.

Indeed, Legg’s expanded management duties come just days after a technical snafu involving consumer payment software forced Turner executives to stream for free on Black Friday golf’s first-ever pay-per-view event featuring Phil Mickelson and Tiger Woods.

“I fully expect our journey in the coming months will cause us to assess, recalibrate and adjust time and again,” wrote Stankey.

 

WarnerMedia Shuttering Korean-Themed ‘DramaFever’ SVOD

WarnerMedia Oct. 16 announced it is shutting down DramaFever, the $4.99 monthly subscription streaming video service featuring Korean dramas and Asian programming Warner Bros. acquired from Softbank in 2016.

“Today, Warner Bros. Digital Networks will be closing its DramaFever OTT service due to business reasons and in light of the rapidly changing marketplace for K-drama content, a staple of the service’s programming,” WarnerMedia said in a statement.

The media company created following AT&T’s $85 billion acquisition of Time Warner (which included Warner Bros., HBO and Turner) said Warner Bros. Digital Labs would continue operating, serving as the tech engine behind many of WBDN’s operations.

The move was expected after WarnerMedia CEO John Stankey issued a statement announcing the future launch of a branded SVOD service in early 2019.

 

 

WarnerMedia CEO: ‘My Job is Not to Build Another Netflix’

On the heels of AT&T’s odd corporate decision announcing — in an Oct. 10 regulatory filing by the CFO — the future (Q4 2019) launch of a subscription video-on-demand service, WarnerMedia subsidiary CEO John Stankey rushed out a follow-up statement with few additional details.

Stankey, who was in Los Angeles attending a media conference, said the unnamed and unpriced service would help WarnerMedia expand its reach by offering consumers a new distribution choice for HBO, Warner Bros. and Turner’s collection of films, television series, libraries, documentaries.

“We expect to create such a compelling product that it will help distributors increase consumer penetration of their current packages and help us successfully reach more customers,” Stankey said in the statement.

Speaking at the Vanity Fair New Establishment Summit, Stankey said the OTT video service would be different from existing products on the market.

“My job isn’t to build another Netflix,” he said.

As expected, the executive – who made news earlier this year when he challenged HBO to up its game – said the OTT venture would be spearheaded by HBO with Turner (CNN, TNT, TBS) and Warner Bros. content bundled in.

“Our job is to build a compelling offer of content that gets a large number of customers,” Stankey said.

That apparently includes creating original content for AT&T businesses that include DirecTV Now and pending AT&T Watch.

“We’ll do both within our business,” Stankey said.

 

 

 

 

 

AT&T Reiterates Operating Turner Separate from WarnerMedia Pending DOJ Appeal

AT&T CFO John Stephens reaffirmed the telecom will continue to operate Turner Broadcasting System as a separate business from WarnerMedia.

Turner, which includes CNN, TBS, TNT, Turner Classic Movies, Cartoon Network, Adult Swim, Boomerang and TruTV, had been included under the Time Warner corporate umbrella prior to latter’s $85 billion acquisition by AT&T.

With the Department of Justice appealing its federal court antitrust loss stopping the merger, AT&T said it would operate Turner separately until the appeal deadline on Feb. 28, 2019.

Speaking Sept. 10 at an investor event in New York, Stephens said that while Turner would historically operate under WarnerMedia – headed by John Stankey – it would remain independent until resolution of the DOJ appeal.

“While we have committed to running Turner as a separate business pending the appeal, we intend to move the results of some of our other network properties such as our regional sports networks under Turner when we report [third-quarter, ending Sept. 30] results,” Stephens said.

It’s been speculated that CNN, which has been in the crosshairs of President Donald Trump’s “fake news” allegations, was the reason the DOJ filed its late antitrust litigation in the first place.

AT&T had sought to obtain communication between the White House and the DOJ regarding the case but was denied by the judge overseeing the case.

“This just continues what has been a very odd series of procedures by the DOJ,” Paul Sweeney, media analyst at Bloomberg, told The Dallas Morning News in July. “It’s perplexing to legal experts I’ve spoken to, and certainly investors.”

Meanwhile, Otter Media, the digital media company co-owned by AT&T and former 21stCentury Fox executive Peter Chernin, has been moved from AT&T’s entertainment group segment to WarnerMedia following the telecom’s acquisition of Chernin’s stake last month.

“We will continue to show financials at a reporting unit level for Turner, HBO and Warner for comparability purposes,” Stephens said.

WarnerMedia Acquires Full Control of Otter Media

WarnerMedia has assumed control of Otter Media after corporate parent AT&T acquired The Chernin Group’s controlling stake in the joint venture. Financial terms of the deal were not disclosed.

AT&T and former Fox executive Peter Chernin founded Santa Monica, Calif.-based Otter Media in 2014 to develop direct-to-consumer subscription video and advertising business models.

The company claims a global audience of more than 93 million unique monthly consumers, with more than 75 billion video views projected this year. Additionally, Otter Media’s SVOD platforms have more than 2 million paying subscribers.

Otter Media subsidiaries include Ellation, a SVOD service provider with content offerings under the Crunchyroll and VRV brands, as well as digital media company Fullscreen and its Rooster Teeth brand. Otter also has ownership stakes in Gunpowder & Sky studio, as well as Hello Sunshine, a media company founded by Oscar winner Reese Witherspoon.

Otter Media will continue to run by Tony Goncalves, who was named CEO earlier this year. Goncalves reports to WarnerMedia CEO John Stankey.

“Working with Tony, we look to harness Otter’s expertise in feeding the passion of online audiences to augment our portfolio of digital assets and help us further engage, connect and entertain consumers around the globe,” Stankey said in a statement.

“With AT&T’s direct-to-consumer relationships, vast data and varied content, I believe they can accelerate Otter’s growth,” added Chernin. “The combination with WarnerMedia will create a new-era media company, serving customers with every type of content delivered through every possible distribution channel.”

 

WarnerMedia Boss Looking for Larger OTT Video Audience

Size matters to WarnerMedia CEO John Stankey. The new boss at the former Time Warner (Turner, HBO and Warner Bros.) wants to bring scale to WarnerMedia’s slate of pending and existing direct-to-consumer platforms.

And that begins with HBO. As has been previously reported, Stankey seeks to up the premium channel’s original content slate through increased spending and year-round releases.

“My goal is to give the HBO team the resources to greenlight additional projects already in the development funnel,” Stankey said on the July 24 fiscal call. “That would keep consumers from jumping in-and-out of [HBO Now]. If we can smooth [program] scheduling, then we drive down churn, improve retention and subscriber growth.”

Second-quarter (ended June 30) operating income at HBO remained essentially flat at $530 million. Growth in revenue was offset by increased expenses, including programming and marketing costs. Programming expenses increased 15% due to higher original and acquired programming costs. The increase in marketing costs was related to original programming. Operating income included $39 million of costs related to the AT&T merger.

AT&T CEO Randall Stephenson said traditional and new-age media companies are all pursuing the same goal of selling directly to consumers.

“The modern media company must develop extensive direct-to-consumer relationships,” he said. “And we think pure wholesale business models for media companies will be really tough to sustain over time. The recent valuations of media companies are reinforcing this point.”

Both Stephenson and Stankey contend bundling WarnerMedia brands is the best way to bring larger audiences to individual OTT platforms. AT&T has about 170 million customers across its various distribution channels, including mobile, satellite, broadband and telecom.

“If you put CNN.com, Otter Media (which AT&T co-owns with The Chernin Group) and Bleacher Report together, there are almost 200 million unique monthly users to each of those sites,” Stephenson said. “This is a scaled direct-to-consumer business.”

The CEO believes that personalizing content and advertising through OTT video will create “unique” consumer experiences.

“It’s pretty exciting,” Stephenson said.

Stankey said that since the close of the $85 billion Time Warner acquisition, corporate has been busy with the “blocking and tackling” that comes with a merger, including integrating corporate and staff functions, and aligning corporate management as part of $2.5 billion in group synergies.

The executive wants to expand audiences for OTT ventures, including HBO Now and recently launched DC Universe platform.

“They’re all good within their own right, [but] they generate what I would consider to be small-scale audiences,” Stankey said. “A company our size, we want to be generating audiences in the tens of millions. Not in the single-digit millions.”

The executive believes WarnerMedia’s strong brands are more powerful when bundled together than as stand-alone properties.

“So, over time we are going to think about how the discreet brands we have [can be unified] into a more consistent, more-focused experience,” he said. “That starts to bring some scale.”

 

WarnerMedia Boss: HBO Has to Up its Game

NEWS ANALYSIS — The status-quo at HBO apparently isn’t good enough for the new boss at WarnerMedia — AT&T’s corporate shell comprising Turner, Warner Bros. and HBO following its $85 billion acquisition of Time Warner.

The award-winning premium network behind “Game of Thrones,” “Big Little Lies,” and “Westworld,” has to increase “hours of engagement,” John Stankey, who replaced Time Warner CEO Jeff Bewkes at WarnerMedia, reportedly told a company townhall meeting with HBO CEO Richard Plepler last month following the merger.

As reported by the New York Times, Stankey wants HBO programming to become habitual in a consumer market he says is driven by portable devices that capture their attention “every 15 minutes.”

“It’s going to be a tough year,” Stankey said. “It’s going to be a lot of work to alter and change direction a little bit.”

Tough words to hear for a signature network that has 40 million domestic subscribers (nearly 150 million globally) and was often lauded by Bewkes (a former boss at HBO) during his fiscal calls.

Specifically, Stankey believes increased consumer interaction with programming will generate data, which he says enables better monetization of content and is “very important to play in tomorrow’s world.”

With HBO spending about $2 billion on original content — a quarter what Netflix is spending — Stankey hinted operating budgets could be increasing.

He said HBO would have to transform from a boutique operation to generating content that has wider appeal.

“We need hours a day,” Stankey said. “It’s not hours a week, and it’s not hours a month. We need hours a day.”

Indeed, HBO Now, the standalone $15 monthly SVOD service, reportedly has about 5 million subscribers — less than 10% of Netflix’s domestic sub base.

Stankey told employees they should be happy AT&T and not another media company such as Fox or Disney acquired Time Warner due to the lack of job overlap. At the same time, he said HBO has to make money at “the end of the day.”

“We do that,” interjected Plepler, according to the Times. “Just not enough,” responded Stankey.

A curious statement, indeed, considering HBO generated about $6 billion in operating profit in 2017.

Plepler deftly diffused the situation saying HBO did as well as it could with the hand it was dealt at Time Warner.

“And we well understand that that is not going to be sustainable going forward,” he said.

Departed Turner CEO John Martin Was a Friend of Home Entertainment

NEWS ANALYSIS – Lost in the rapid-fire of events at the closure of AT&T’s $85 billion purchase of Time Warner was the departure of John Martin, CEO of Turner.

AT&T Entertainment CEO John Stankey, who became CEO of renamed WarnerMedia, replacing retiring CEO Jeff Bewkes (at former Time Warner), made the announcement June 15 in a memo to employees.

WarnerMedia includes Warner Bros., HBO and Turner (TBS, TNT, CNN, Turner Sports, Cartoon Network, among others).

Martin, who was also former CFO of Time Warner, was appointed CEO of Turner in 2014 by Bewkes. A proponent of the merger, Martin also once called AT&T’s online TV platform DirecTV Now, “a money-losing business,” – a comment not likely ignored by his new corporate bosses.

“This initial Turner organization structure will allow me to work more closely with more Turner leaders and accelerate my personal learning of the business as we define our shared priorities across the company,” said Stankey regarding Martin and other Time Warner executives’ exits.

Regardless, Martin was a long-time advocate of home entertainment – including UltraViolet and electronic sellthrough of content.

In 2010, Martin backed the short-lived rollout of premium VOD, which would allow consumers to rent a new-release theatrical movies in the home within days of its box office debut.

In 2012, on a fiscal call, Martin showed a sense of humor when he said he was encouraged by “recent signs” of stabilization in home entertainment, with total consumer spending “actually flat” for the year.

He chastised the industry (i.e. Disney) for not rallying around UltraViolet as the primary cloud-based content ownership platform.

“Look, challenges still exist [in home video],” Martin told a separate investor event, adding that secular challenges had mandated the industry to embrace alternative distribution strategies such as street-date transactional video-on-demand and premium VOD, among others.

“Warner Bros. has been the leading studio at trying to move toward embracing new technology, advantaging channels that are higher margin and disadvantaging those channels that are lower margin,” he said.

Martin believed it was that mindset that pushed Warner to spearhead rollout of UltraViolet. He said adoption of the platform was “not where we want it to be,” but that the studio took the leadership position at the time when ongoing technological challenges mandated action.

“Somebody’s got to try and move forward because the industry has to move more quickly to embrace these higher-margin opportunities,” he said.

Warner earlier this year joined Disney and other studios (except Lionsgate and Paramount Pictures) in support of the latter’s rebranded Movies Anywhere platform.