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AT&T’s Randall Stephenson: Premium Content, Advanced Advertising Key to Making Time Warner Merger Work

AT&T will invest deeply in premium content, advanced advertising technology and expanding its high-speed data customer base in order to make the Time Warner merger a success for the telco giant.

Speaking Thursday at a Wells Fargo Securities conference in New York, AT&T chairman-CEO Randall Stephenson and CFO John Stephens painted a sunny picture of the company’s prospects now that it has finally closed its $85.4 billion acquisition of Time Warner after prevailing last week in a federal anti-trust trial.

Stephenson noted that political developments in the 18 months since the Time Warner deal  was struck in October 2016 has made the marketplace even more robust for the capabilities that the combined company will now bring to market. Stephenson cited last year’s sweeping corporate tax reform legislation and the FCC’s repeal of net neutrality rules as positives for AT&T’s strategic goals — an irony given that those policy reforms came from the same Trump administration that sought to block the AT&T-Time Warner union.

Those changes are “really significant in terms of what it does for value creation for us and the Time Warner deal,” Stephenson said. 

The AT&T chief emphasized the importance of having premium content to distribute across its network of what he described as 170 million customer relationships around the world. He sees access to broadly distributed direct-to-consumer platforms is crucial for content creators like what is now WarnerMedia’s HBO, Turner and Warner Bros.

“I believe the days when you can just create premium content and be a wholesaler — those days are over,” he said. “I don’t believe that’s a sustainable business model.”

Stephenson acknowledged that old-fashioned linear subscribers at AT&T’s DirecTV unit are sure to continue to gradually decline in the coming years. AT&T has about 25 million video subscribers through its DirecTV and U-verse services. That combined number has stayed steady during the past few years even as the traditional linear DirecTV platform has seen declines because of the gains from the fromDirecTV Now OTT service launched in 2016. On Thursday, DirecTV added an even lower-priced, skinny bundle option called WatchTV for $15 a month.

AT&T’s challenge now is to make the company’s enlarged operations add up to more than the sum of its parts. “How do you integrate all of these (units) together to create a unique customer experience,” Stephenson said. “We now have the components for this. Now we’re all about execution.”

Stephenson once again stressed that the targeted advertising opportunities available to Turner and DirecTV are expected to significantly improve the company’s advertising sales volume and allow the networks to experiment with reduced ad loads to improve the viewing experience. His “enthusiasm and conviction” is fueled by DirecTV’s success so far with using data to command higher rates for the small amount of ad inventory it receives from networks on its platform.

At present those sales have come from “brute force” of DirecTV’s ad sales team, Stephenson said, but AT&T intends to invest in building what he called “an exchange” to allow for more automated, real-time ad buying. AT&T expects it will take about two years to get the effort up and running, and it hopes to attract outside companies to use the platform as sales infrastructure. Stephenson sees it as a means of making a traditional TV provider more competitive with digital giants. AT&T last year recruited former GroupM CEO Brian Lesser to lead the charge as CEO of advertising and analytics.

“With time and investment we’re convinced we can do this,” Stephenson said. “I haven’t met the advertising executive yet who’s said ‘I’d like to spend more money with Google and Facebook.'”

To support all of this activity AT&T continues to invest in upgrading its telco infrastructure with fiber and preparing for the long-awaiting 5G wireless technology that Stephenson promises will “change the customer experience radically.”

The prevailing consumer trends of migrating to on-demand platforms, increasingly via mobile devices, makes Stephenson comfortable with the big swing of the Time Warner deal.

“Five years from now people will be consuming more premium content than they are now, not less,” hesaid. “The demand seems insatiable… That’s really the foundation. That’s why we made such a big bet on Time Warner.”

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