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.

AT&T Eyes AVOD on HBO Max to Widen ‘Available’ Customer Base

In addition to streaming Warner Bros. Pictures first-run movies, HBO Max’s major initiative in 2021 revolves around rolling out an ad-supported component to the platform’s SVOD legacy.

Speaking Jan. 5 on the virtual Citi Global TMT Conference, retiring CFO John Stephens (at the end of March) said AVOD enables WarnerMedia to expand its “available customer” footprint in the same way broadband and data plans have helped grow the cellular business.

“That’s what AVOD is going to help us do: expand the opportunity to serve customers in a different way,” he said.

As ad-supported VOD platforms proliferate in response to SVOD market domination by Netflix, Disney+, Hulu and Amazon Prime Video, the distribution channel, which includes The Roku Channel, IMDb TV, Pluto TV, Shout! Factory TV and Tubi, has been dogged by a dearth of higher profile content.

NBCUniversal’s Peacock streaming service, which launched in July as the market’s first hybrid SVOD/AVOD business model, is looking to change that. The ad-supported VOD option is targeting original content, including live sports such as the U.K.’s Premier League soccer to entice viewers.

AT&T CEO John Stankey told an investor even last year that live sports is an appealing component to OTT video in Europe.

“You’ll probably see as we move through AVOD, maybe we do some additional live work that we have coming forward,” he said.

Stephens said he fully expects AVOD to impact Max SVOD sub growth both positively and negatively, while at the same time luring non-SVOD consumers to the pay model.

“I see [AVOD] as an opportunity to serve additional customers, and from a finance perspective, amortize the investment in content over a greater customer base,” he said.

AT&T Continues to Hold Open the Theatrical Window

AT&T CFO John Stephens was one of many U.S. moviegoers who donned a mask and watched Christopher Nolan’s Tenet at the movie theater over the Labor Day weekend. The movie has generated about $150 million at the global box office despite continued theater shutdowns in key markets such as California and New York.

Speaking Sept. 9 on the virtual Bank of America Media, Communications and Entertainment confab, Stephens reiterated WarnerMedia’s ongoing support for the theatrical window — a stance undermined in recent months by the Walt Disney Co.’s decision to embrace premium video-on-demand for the live-action Mulan remake and Universal Pictures’ decision to entertain PVOD and theatrical releases for all new major studio films.

John Stephens

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Stephens said a movie on the scale of Tenet plays best on a large screen rather than in a consumer home. Indeed, more than 50% of the movie’s $20.1 million Labor Day weekend domestic box office occurred at Imax screens, the biggest of the big screens.

“I couldn’t have imagined being able to see [Tenet] and enjoy it in the same way here in my home,” Stephens said. “We understand the distribution model is going to evolve … so we’re going to continue to look at [PVOD], but in no way do I want to imply that we’re not going to continue to work with those theater owners.”

Tenet is on track to equal last year’s It: Chapter Two, which generated $211.5 million at the domestic box office for Warner to finish 2019 in the No. 10 spot, just behind the studio’s Oscar-winning Joker with $333.7 million.

AT&T CFO: WarnerMedia Staff Cuts Not Due to HBO Max Launch

WarnerMedia downsizing 600 positions on Aug. 10, which included the departure of longtime Warner Bros. Home Entertainment executive Ron Sanders, was not done in response to the launch of subscription streaming video-on-demand platform HBO Max, according to AT&T CFO John Stephens.

Speaking Aug. 11 at the virtual Oppenheimer Technology, Internet & Communications confab, Stephens said the job cuts — spearheaded by new WarnerMedia boss Jason Kilar — were done to refocus the company and eliminate redundancy.

AT&T CFO John Stephens

“All of these [business] groups are then focused and speak with one voice and, quite frankly, allow for some streamlining of support services, and back-office and G&A services,” Stephens said. “I view it as more of a refocusing of the company.”

Stephens said the cuts were not about a need to “adjust anything,” but rather to make WarnerMedia perform better going forward.

Sanders, who followed high-profile departures of Bob Greenblatt and Kevin Reilly on Aug. 7, was president of Warner Bros. worldwide theatrical distribution, and president of Warner Bros. Home Entertainment. With theatrical distribution at a standstill due to the ongoing coronavirus pandemic, coupled with WarnerMedia’s non-disclosure of home entertainment on its financial statements, current uncertainties in the studio business perhaps undermined Sanders’ job status.

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Indeed, the primary focus at WarnerMedia remains HBO Max, which launched May 27 with about 4 million subs into a crowded SVOD market spearheaded by Netflix, with Amazon Prime Video, Hulu and Disney+, among others, at the distance.

“The biggest thing, the most exciting thing for us [going forward] is HBO Max,” Stephens said.

Finally, Stephens said AT&T has downsized its $180 billion corporate debt level 15% to $153 billion through June 30. The telecom ballooned its debt following the $85 billion acquisition of Time Warner, which included Warner Bros., HBO and Turner.

Warner Sticking With Theatrical Window — For Now

After Universal Pictures set off an industry firestorm announcing it would pursue simultaneous theatrical/PVOD distribution for new movies, the CFO of Warner Bros. parent AT&T told an investor event the studio is sticking with the 90-day theatrical window for now.

Speaking online May 12 on the virtual MoffettNathanson 7th Annual Media & Communications Summit, John Stephens sought to quell any notion Warner Bros. would upend industry norms as the movie theaters remain shuttered due to the coronavirus pandemic.

That said, the studio on May 15 will launch its first skipped theatrical/PVOD release with Scoob!. The movie becomes the second major animated family film after Universal Pictures’ Trolls World Tour to bypass theatrical release in favor of digital release. Trolls World Tour reportedly generated $100 million through VOD, the digital equivalent of rental. Scoob! will be available either as a digital rental or purchase.

“We’ll learn from [Scoob!],” Stephens said. “We’re interested in new ideas, whatever’s good for consumers, but we’ll continue to work with our [exhibition] partners.”

Major exhibitors such as AMC Theatres and Regal Cinemas have vowed not to screen any theatrical movie concurrently available to digital channels at launch.

Despite Highest SVOD Price, HBO Max a ‘Real Bargain,’ AT&T CFO Says

When HBO Max launches later this month (May 27), it will be the one of most expensive high-profile subscription streaming video services at $14.99 monthly — more than twice the price of Disney+ and two dollars more than Netflix’s standard plan. WarnerMedia is offering the service for $12 monthly for a year if pre-ordered before May 27.

That’s still a great deal to AT&T CFO John Stephens. Speaking online May 12 at the virtual MoffettNathanson 7th Annual Media & Communications Summit, Stephens said Max would “quite frankly” attract many more demographics than competing SVOD services.

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Indeed, Max will feature a “Friends” reunion (delayed due to the coronavirus), a “Gossip Girl” reboot and a Grease spin-off, among other original fare.

“So from that perspective, I think it’s something that’s going to be accepted as very high-quality and significant content that goes across the whole family unit or multiple individuals, as opposed to just one demographic. As such, I think it’s at the right price point,” Stephens said.

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The executive said the platform would be tweaked and adjusted based on consumer feedback.

“[We’ll] see how that plays out. We’ll make adjustments,” Stephens said.

AT&T CFO: $500 Million Invested in HBO Max Content Through Q4

During AT&T’s HBO Max Day last year, senior executives said WarnerMedia planned to spend upwards of $1.5 billion on content for the SVOD service launching in May with about 10,000 hours of programming.

Speaking Jan. 8 at Citi 2020 Global TMT West Conference in Las Vegas, AT&T CFO John Stephens said WarnerMedia spent $500 million on Max content through the end of the fourth quarter (Dec. 31, 2019) largely through acquiring rights to notable content, including exclusive streaming rights to “Friends,” “The Office,” “Doctor Who,” “Luther,” as well as two original movies from Reese Witherspoon’s production company and four from “Riverdale” producer Greg Berlanti. Anna Kendrick is slated to star in a romantic comedy series called “Love Life.”

“We’ve made that investment in HBO Max by holding back some really, really high-quality content so that we can use it,” Stephens said. “And we feel really good about it.”

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The executive expects Max to sign up 10 million initial subscribers by segueing new AT&T customers to the service through commercial tie-ins and cross-promotions.

“We’re working to get it so they can sign right into HBO Max. We’re very hopeful,” Stephens said.

He said the company has a good track record attracting consumers to HBO, including about 30 million subscribers paying the identical $15 monthly (twice the Disney+ fee) Max fee through pay-TV distributors.

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“We’ve got the greatest market study out there,” he said. “We know what the price is, what [an appropriate] price point is, and [Max] is a much higher quality.”

Stephens was alluding to pay-TV distributors offering Max to linear subscribers — heretofore a contradictory situation since one channel would appear to infringe upon the other.

“We certainly want to work closely with them because we think [Max] provides a great stickiness to all the products that are out there,” he said.

The executive said WarnerMedia would produce “really high-quality content,” including shows targeting a “different demographic,” a series of female leads and other demographics.

“We did a great job of holding on to those customers,” Stephens said. “We have confidence that the quality of the content that can be developed by our team is there and can retain customers and interest customers and recruit customers. And so now we just need to make that a key part, and I think [we have] clearly done that.”

HBO in September acquired the Hugh Jackman dark comedy Bad Education at the Toronto Film Festival for $20 million.

CFO: AT&T TV Sub Loss Peaked in Q3

When AT&T launched DirecTV Now in 2015, the telecom had big hopes the standalone online TV service would help migrate pay-TV subs to over-the-top distribution.

The media company envisioned gradually weaning consumers from the cable guy (U-verse) and satellite (DirecTV) to streaming video and competing against Sling TV, (shuttering) PlayStation Vue, YouTube TV and Hulu with Live TV, among others.

Initial consumer response to the loss-leading $34.99 monthly service was strong, quickly generating 1.8 million subscribers. Then came a $5 price hike, and DirecTV Now began hemorrhaging subs — losing 83,000 subs in Q1 after shedding 267,000 subs in Q4 2018. It lost another 168,000 DirecTV Now subs in Q2.

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AT&T had seen enough, changing the DirecTV Now brand name to AT&T TV.

Speaking Dec. 3 at the Wells Fargo Technology, Media & Telecom Conference in Las Vegas, CFO John Stephens said the worst is behind sub losses for AT&T TV. Indeed, the telecom lost a whopping 1.4 million AT&T TV subs in Q3.

“The transition we are going through is new stuff,” Stephens said. “But we are optimistic we’ve hit the peak sub losses in the third quarter.”

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Stephens said going forward sub losses should be offset by growing broadband subscribers and pending SVOD service HBO Max, which launches early next year, and will be targeted towards AT&T’s 170 million consumers, including mobile and broadband. That tally increases to 200 million when factoring in CNN and sports-themed Bleacher Report.

“We have a base that’s dramatic,” he said.

Stephens contends AT&T’s rollout of 5G wireless and high-speed fiber networks will return AT&T TV to positive growth.

“Access to stream AT&T TV is going to be more efficient,” he said.

CFO: WarnerMedia Asset Better Than Expected; Disney Eyeing AT&T’s Hulu Stake

A day after a federal appeals court ruled in favor of AT&T’s $85 billion acquisition of Time Warner, resulting in the creation of WarnerMedia, CFO John Stephens said ownership of the parent to Warner Bros., HBO and Turner has been a fiscal home run.

“It’s turned out to be an asset that may be better than we expected. And we expected a lot,” Stephens told an investor group.

Speaking Feb. 27 at the Morgan Stanley technology, media and telecom conference in San Francisco, Stephens attempted to shoot down media speculation that layoffs and additional cost cutting would occur following the court’s decision.

“We’ve been very careful to set up a separate operating unit [with WarnerMedia] that’s a lot like Time Warner,” he said. “We wanted to protect the culture, we [didn’t] want a finance bean counter from a telephone company go in to what is a tremendously good asset.”

Stephens said results over the past nine months at WarnerMedia have been “consistently” good. They continue to generate cash, they continue to generate value, produce some great-value content.

“The performance of the people at Time Warner … I couldn’t be more pleased with,” he said.

Indeed, through Feb. 24, Warner Bros., led by Aquaman and Clint Eastwood’s The Mule, continues to top all studios at the domestic box office with 22.4% market share and $313.4 million in revenue, according to

“They continue to generate cash, they continue to generate value … produce some great-value content,” Stephens said. “Sharing that really high-quality content is important.”

From a M&A perspective, he said supply-side integration, marketing, data analytics would be combined without infringing upon WarnerMedia’s culture.

“They [had] a CFO [Howard Averill] and we have a CFO. Those kinds of head-counting synergies have been achieved,” Stephens said.

Stephens said he expects the final season of “Game of Thrones” to drive HBO Now subscribership. He said AT&T is considering putting HBO on unlimited mobile wireless packages – with the increased revenue used to fund additional content spend.

“There’s benefits there that can fund some of those things,” Stephens said. “We want to have that same kind of [‘Thrones’] excitement year round.”

Separately, Disney is reportedly in discussions with AT&T to acquire its 10% stake in Hulu. When combined with Fox’s 30% interest, Disney could control 70% of the SVOD and online TV platform, along with Comcast’s 30% stake.





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.”