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.

Activist Investor Seeks Ouster of AT&T CEO Randall Stephenson, COO John Stankey

With AT&T spending more than $163 billion acquiring DirecTV and Time Warner (now WarnerMedia), the telecom remains challenged paying down debt and orchestrating a clear strategy for the combined assets in an age of cord-cutting.

That appears to be the gist why activist investor Paul Singer’s Elliott Management sent a 24-page letter to the AT&T board seeking executive changes, according to industry tip sheet “Byers Market”.

Paul Singer

In the letter, Singer contends AT&T’s shareholder returns have underperformed the S&P 500 by well over 100 percentage points over the past 10 years.

He said the share-price underperformance has occurred as AT&T’s M&A strategy has taken it into multiple new markets over a series of deals totaling nearly $200 billion, and as its operational performance has measurably declined.

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As a result, AT&T, according to Singer, is “deeply undervalued,” trading at just over half the multiple of the S&P 500 — by far its biggest discount yet.

Singer, who owns a $3.2 billion stake in AT&T, is known for taking stakes in publicly held companies and firing off letters to the board in hopes of exacting executive change — which often occurs.

About AT&T, Singer reportedly seeks the removal of CEO Randall Stephenson and COO John Stankey (who is also CEO of WarnerMedia) regarding the former’s merger & acquisition strategies.

Specifically, Singer contrasts AT&T’s M&A strategy with former Time Warner CEO Jeff Bewkes.

“When Bewkes took over Time Warner as CEO, he inherited a sprawling company with numerous related but non-core assets — AOL, Time Warner Cable, a collection of publishing assets and other smaller businesses,” read the letter. “He then spent the following decade divesting the non-core assets in order to focus on Time Warner’s leading content franchises.
This strategy paid off: Time Warner became both a flourishing media enterprise and a strong investment, returning more than double the S&P 500’s ~140% return during Bewkes’ 10-year tenure.”

Singer called on the board to evaluate (i.e. sell off) assets such as DirecTV, AT&T’s Mexico operations and U.S. wireline (pay-tv) platform (U-verse) platforms, among others.

In a response, AT&T’s board said it would review the letter, adding the company has already implemented many of the changes outlined by Singer.

The letter comes following the surprise retirement of John Donovan, CEO of AT&T Communications, and the Sept. 3 promotion of Stankey to COO.

Singer, in the letter, said he remains “cautious on the benefits of the [Time Warner, DirecTV] combination.”

Indeed, AT&T’s rollout of standalone online TV service, DirecTV Now, has seen the platform jettison hundreds of thousands of subscribers after it began ending the service’s initial $34.99 monthly fee. The service has been rebranded to AT&T TV.

The telecom has big plans for the launch of HBO Max, a SVOD platform intended to compete with Netflix, Amazon Prime Video, Disney+ and Apple TV+, among others.

At the same time, Max would appear to signal the end for HBO Now, the four-year-old SVOD service with less than 6 million subscribers.

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 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 CEO: WarnerMedia Looking to Partner SVOD Service With Pay-TV Operators

WarnerMedia’s pending fourth-quarter soft-launch of a branded subscription streaming video service will look to partner with — rather than antagonize — third-party pay-TV operators.

Speaking May 14 at the JPMorgan Global Technology, Media and Communications  Conference in New York, Randall Stephenson, CEO of AT&T, said the service would be centered around HBO and be included with a pay-TV subscription.

“The MVPDs, Comcast, we think are going to be an important partner to all of this,” Stephenson said. “If you’re a Comcast subscriber and you acquire HBO, you will get this [OTT video] capability with your HBO subscription on Comcast.”

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The proposed symbiotic relationship between SVOD and linear television distribution is significant considering the former was launched in part to replace pay-TV.

Indeed, Dish Network launched pioneering Sling TV in 2015 in an effort to offset declining satellite TV subscribers. AT&T followed with DirecTV Now.

Yet, online TV subscriber growth has cooled. Sling added just 7,000 subscribers in the most-recent fiscal period, and DirecTV Now lost 83,000 subs compared to a gain of 312,000 subs last year.

Stephenson said the new SVOD service is projected to generate “tens of millions of subs” — a figure dependent upon AT&T sustaining its base of DirecTV and U-verse subscribers.

The strategy is not dissimilar with Comcast, which plans to launch an OTT service free to Xfinity subscribers, with non-subscribers charged a monthly fee.

“Keeping the satellite, the U-verse customer base in check and stable is really important because it’s going to be a major distribution platform [for SVOD],” Stephenson said. “And then we want to just continue to push digital distribution on top of that as well.”

Much of that distribution will be centered around HBO, which is currently generating strong viewership through the last season of “Game of Thrones”.

Stephenson said content investment at HBO has “stepped up considerably” this year with the second seasons of “Big Little Lies” and “Succession” slated to follow “Thrones,” in addition to new series, “Chernobyl”.

“We’ve got a lot of really great content coming online as ‘Game of Thrones’ winds down,” he said.

WarnerMedia CEO John Stankey Blasts HBO Europe Sale Speculation

Following AT&T’s $85 billion acquisition of Time Warner, the company was left with more than $170 billion in debt. Senior executives have publicly stated that reducing  the company’s debt load by $20 billion is a primary goal in 2019.

That apparently does not include selling off HBO operations in Europe.

WarnerMedia CEO John Stankey has denied a Financial Times report suggesting the unit responsible for “Game of Thrones” and other programming was being sold.

HBO Europe has about 10 million subscribers across Scandinavia, Spain and Poland.

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“We normally do not comment on speculation, but when a news outlet is advised that their reporting is factually incorrect and report it anyway, we feel compelled to set the record straight,” Stankey said in a statement. “There is no truth whatsoever to the Financial Times’ story saying AT&T is or has considered selling HBO Europe. It’s completely baseless and inaccurate. HBO Europe is a valuable asset for our growth plans in Europe.”

Regardless, HBO has seen high-level staffing changes, including the departures of longtime CEO Richard Plepler, chief digital officer Diane Tryneski, chief revenue officer Simon Sutton, Kary Antholis, president of HBO miniseries and Cinemax programming, Rebekka Rockafeller, SVP of digital products, and Gilman Wong, VP of digital products and chief architect.

Earlier this year, AT&T sold office space in Manhattan, N.Y. in a deal reported to top $2 billion.

WarnerMedia reportedly is leasing back the 1.5 million square feet of office space at 30 Hudson Yards, which includes an observation deck on the 100thfloor — the highest in the Western Hemisphere.

 

AT&T Eyeing HBO, Warner Content for AVOD Distribution

AT&T currently markets standalone over-the-top video services DirecTV Now and Watch TV — the latter offering mobile access to 30 pay-TV channels for $15 monthly and no long-term contract.

Watch TV has generated about 500,000 subscribers since its debut last June. DirecTV Now, which jettisoned more than 260,000 subs after ending promotional pricing late last year, has about 1.6 millions subs.

The telecom now appears to be considering ad-supported VOD — long a stepchild to subscription streaming VOD service such as Netflix, Amazon Prime Video and Hulu.

With Amazon subsidiary IMDb.com launching a free ad-supported VOD service, Hulu’s basic SVOD plan featuring commercials, and Comcast launching AVOD for Xfinity subscribers in 2020, AT&T is pondering ad-supported distribution for select content from subsidiary WarnerMedia.

Speaking on the Jan. 30 fiscal call, CEO Randall Stephenson reiterated that companies with “very strong” IP, “deep libraries” of IP are the ones that are going to succeed over time.

He said Warner Bros. CEO Kevin Tsujihara and WarnerMedia boss John Stankey have been analyzing optimal distribution channels and license opportunities for content.

Tsujihara helped craft the recent non-exclusive license extension with Netflix for “Friends,” a deal that lets WarnerMedia stream the venerable sitcom through its pending SVOD service launching later this year.

Stephenson said WarnerMedia content would be targeted toward what he called “two-sided” business models that include SVOD and AVOD.

“There’s a demand and the customers have become accustomed to advertising free subscription services,” he said. “And we think HBO and a lot of the Warner content [is] premium content will fit into that mold.”

While Stephenson didn’t reveal AVOD specifics, he said the recent acquisition of Xandr to help sell targeted digital advertising to AT&T’s 170 million mobile and broadband subscribers, underscored opportunities for advertising-supported models that help keep content (i.e. catalog) prices down, keep consumer costs down and help fund additional content acquisition and purchasing.

“Xandr is a big part of making that model work,” he said. “So, our model will be a two sided model, with a heavy subscription service, with some ad-supported elements to it as well.”

 

 

 

AT&T Posts 267,000 DirecTV Now Q4 Subscriber Losses

Stop the funeral for pay-TV.

AT&T’s signature alternative — broadband-based DirecTV Now — suffered a major blow in the fourth quarter, ended Dec. 31, 2018.

The telecom Jan. 30 reported that the standalone online TV service lost 267,000 subscribers compared to gains of 368,000 subs in the previous-year period. The period included 65,000 free trial subscriptions.

AT&T attributed the decline to ending the service’s $35 monthly promotional pricing.

The tally does not include WatchTV, AT&T’s recent app-based $15 online TV service, which ended the year with 500,000 subscribers.

DirecTV Now ended the year with 1.59 million subs compared to 1.15 million subs at the end of 2017.

The subscriber loss is a shot across the bow for online TV, which launched in 2015 with Dish Network’s Sling TV. Hailed as an antidote to declining pay-TV – and SVOD – online TV offered premium TV channels without long-term contract at a fraction of the price of the traditional cable bundle.

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Yet, AT&T’s legacy U-verse pay-TV service added 12,000 subscribers, compared to a loss of 60,000 video subs last year. The distribution channel ended the year with 3.68 million subs compared to 3.63 million at the end of 2017.

The company ended the year with 14.4 million high-speed Internet subscribers, which was up a scant three-tenths of a percent from 14.35 million at the end of 2017.

Meanwhile, satellite service DirecTV lost 403,000 subscribers in the quarter – up 274% from a loss of 147,000 subs in the previous-year period.

El Segundo, Calif.-based DirecTV ended the year with 19.2 million subs – down 6% from 20.4 million subs at the end of 2017.

For AT&T CEO Randall Stephenson, reducing the company’s $183 billion debt load following the $85 billion acquisition of Time Warner is the No. 1 goal in 2019.

“In 2018, we generated record free cash flow while investing at near-record levels,” Stephenson said in a statement. “Our dividend payout as a percent of free cash flow was 46% for the quarter and 60% for the year, allowing us to increase the dividend for the 35th consecutive year. This momentum will carry us into 2019 allowing us to continue reducing our debt while investing in the business and continuing our strong record for paying dividends.

 

Federal Appeals Court Questions DOJ Economic Concerns Regarding AT&T/Time Warner Union

Federal Appeals Court judges Dec. 6 questioned lawyers representing the Department of Justice about the government’s economic concerns regarding AT&T’s $85 billion acquisition of Time Warner.

The Justice Department’s antitrust division filed an appeal of a district court judge’s June approval of the merger that resulted in the formation of WarnerMedia — citing the deal would lead to higher pay-TV pricing and content blackouts for consumers, among other issues.

Government attorney Michael Murray argued U.S. District Court Judge Richard Leon erred in “economic logic and reasoning” in relation to possible blackouts of consumer access to content occurring during carriage disputes between content holders and pay-TV and over-the-top video distributors.

“‘Incentives remain the same’ for a super company to threaten a ‘blackout,’ in which it withholds content from distributors, in order to cripple rivals,” said Murray, as reported by CNN Business.

But D.C. Circuit Court of Appeals Judge Robert Wilkins countered that there exist arbitration procedures in place for carriage disputes  — systems Wilkins said Judge Leon used in his decision.

“So how can we just ignore that and say the district court has irrationally switched positions?” asked Wilkins.

Speaking Dec. 4 the UBS 46thAnnual Global Media and Communications confab in New York, AT&T Randall Stephenson remained optimistic the appeals court would validate the merger.

Specifically, Stephenson said the appellate court is looking for errors in law, not whether the district court judge “gets the facts right or not.” He said AT&T hired appellate lawyers during the original trial to consult on the strength of their case as it applied to the rule of law.

“We feel like Judge Leon wrote a pretty tight order and it was an order that was very fact-specific to the AT&T/Time Warner case, and so we feel like we have an order that should stand up well in the appellate review,” Stephenson said. “And so, we’re anxious to get this piece of it behind us.”

 

Wither HBO Now?

With WarnerMedia launching a branded subscription streaming video platform next year that will incorporate original and catalog content from HBO, Warner Bros. and Turner, in addition to third-party providers, the question arises: What will become of standalone SVOD service HBO Now?

Launched in 2014, HBO Now topped 5 million subscribers earlier this year. WarnerMedia is wrapping much of its unnamed OTT product around the HBO brand, with tiers of service ranging from studio movies to original series such as “Game of Thrones” and “Westworld,” among others.

Speaking Dec. 4 at the UBS 46th Annual Global Media and Communications confab in New York, AT&T CEO Randall Stephenson reiterated that the WarnerMedia streaming platform would not be another Netflix — focusing instead on Warner, HBO and Turner content.

“The goal of [CEO] John Stankey and WarnerMedia is not to create a direct-to-consumer product that rivals Netflix in terms of being a warehouse of content,” he said, adding that traditional pay-TV business models distributing wholesale content are old-school.

“Those businesses are getting disrupted aggressively,” Stephenson said.

The executive said the market needs an OTT product that “can achieve a very high penetration of [WarnerMedia] content with audiences.”

And HBO — via HBO Now — has its foot in the door.

“All media companies are coming to grips with the reality to better establish a direct relationship with [their] audiences,” Stephenson said. And with more than 140 million pay-TV subscribers globally, HBO resonates.

“I once compared Netflix to Walmart — not derogatorily … but when I’m shopping [and] I need something … I go to Walmart,” Stephenson said. “Well, if you’re looking for video content, regardless what it is, people will go to Netflix because it is just a warehouse. And it’s an impressive warehouse. That is not our ambition.”

Stephenson said management recognizes the need to ramp up original content spending at HBO — infusing the platform with year-long new offerings in addition to platform investment.

“[HBO boss] Richard Plepler is pretty excited,” Stephenson said. “He knows how to put together programming that will attract audiences. We’re very confident we’re going to have an HBO product that’s more fulsome.”

With WarnerMedia representing 17% of AT&T’s profitability, Stephenson said Warner Bros. remains a significant creator of TV content — including producing 70 scripted TV series in the past year to third parties including Netflix.

The executive mentioned Netflix had resigned license rights to Warner Bros.’ venerable sitcom “Friends” on a non-exclusive basis.

“That means ‘Friends’ can go onto our platform as well,” Stephenson said.

“We think we have enough IP and capability we can put together a product that will be very attractive,” he said. “It’s not a pervasive library of content warehouse like Netflix, but we think it is a very impressive product that will achieve very high penetration. Expectations are very high for this product.”