AT&T committed upwards of $100 billion to acquire Time Warner. After laying out that kind of capital, AT&T leaders would be crazy not to invest heavily in content for HBO, Warner Bros., and Turner. That’s the message sent by John Stankey, the AT&T veteran who is CEO of the newly minted WarnerMedia division, in an interview with Variety just as he sets out this week on a get-to-know-me tour of WarnerMedia’s core operations.
“We’re not going to do a $100 billion transaction and be short-sighted for want of investment of a billion additional dollars to make a difference in these large businesses,” Stankey said. “We wouldn’t do a transaction that handicapped our balance sheet and our ability to grow the businesses.”
The hard-fought transaction has left AT&T with more than $180 billion in debt. That’s a big number, Stankey acknowledged, but he noted that it is still manageable as the enlarged AT&T is on track to deliver about $50 billion in annual earnings and upwards of $160 billion in annual revenue.
The marketplace for top-tier content has exploded in the 18 months since AT&T and Time Warner reached their handshake deal on the acquisition that closed June 14 after many twists and turns, including a six-week anti-trust trial in Washington. AT&T’s unqualified victory in the bench trial has energized the AT&T and WarnerMedia troops after a long period of uncertainty.
The rising cost of doing business for content producers at a time when top showrunners are commanding nine-figure contracts for exclusive production pacts is an industry-wide challenge, one that WarnerMedia and AT&T are well-equipped to meet, Stankey said. Warner Bros. earlier this month committed as much as $400 million to uber-producer Greg Berlanti, who is the engine of so much of the studio’s TV activity. The eye-popping numbers commanded by industry superstars underscore why Time Warner needed a partner to remain competitive in its home Hollywood turf. He pointed to 21st Century Fox’s decision to sell its core assets — sparking a bidding skirmish between Disney and Comcast — as further evidence that bigger is better right now.
“These things go through cycles. There’s clearly a bit of a land grab going on right now,” Stankey said. “It’s better to be a large-scale company with the ability to invest in high-quality individuals like Greg Berlanti or others that you can leverage their creative talents across multiple platforms and give them the opportunity for new creative expression than be somebody who is sub-scale who doesn’t have that flexibility. That’s probably one of the drivers behind some players in this industry who are already deciding it’s time for them to sell their assets as opposed to continue to operate them. I like where we are as a business. I like the fact that we have multiple platforms.”
Stankey sees the key to growth as using the combined company’s clout, resources, and capability for innovation to mine new opportunities to distributing content. Unsurprisingly, AT&T sees the emerging mobile content arena as a prime target given the size of its footprint of more than 100 million wireless data subscribers worldwide.
“We have an opportunity to innovate mobile,” Stankey said. “I think there will be a segment of the creative (community) out there that finds those platforms and our scale and customer base an intriguing place to do business. That’s my challenge — to make sure they see that and want to do business with us.”
Stankey’s immediate focus now that the dust has settled on the deal’s closing is to introduce himself to Time Warner’s 24,000-plus employees. “None of these employees know me or who I am. I need to pull some of the mystery out of the equation,” he said. “I want people to get to know me and a little bit about my point of view.”
In his 33 years to date with AT&T, Stankey led the telco giant’s 2015 acquisition of DirecTV and steered the arduous Time Warner acquisition. He also worked with Chernin Group to establish the Otter Media partnership focused on investing in streaming media and digital content. His past roles have included serving as head of AT&T’s Business Solutions unit, head of telecom operations, and as chief technology and chief information officer.
Stankey has not made any major changes to the structure of Time Warner, leaving HBO, Warner Bros., and Turner as standalone units under the same leadership, with the exception of Turner CEO John Martin, who has departed. Stankey said they studied various scenarios and ultimately decided that it didn’t make sense to fiddle with a structure that worked well for the businesses under the previous regime. The primary focus is not re-routing the org charts but growing the businesses and looking for ways to prosper through innovation.
“We intend to invest in these businesses to grow them. We want to make sure we’re investing aggressively in content,” he said. “We expect we’ll want to innovate in the mobile space to demonstrate that there’s great opportunities to package and move content over mobile infrastructure in a way that can be accretive to the existing media model and not dilutive or detrimental to it.”
Stankey’s boss, AT&T chairman-CEO Randall Stephenson, has talked up the potential for the combined company to command top rates for advertising through the use of advanced targeting formats powered by audience data provided by AT&T’s wireless customer base. Stankey sees the ability to marry AT&T’s data-mining capabilities with WarnerMedia’s content creation engines as a way to elevate the services and the profitability of both sides of the Dallas-based conglomerate and address consumer demands for lower prices and greater mobility at the same time. To that end, AT&T is expected to soon unveil a skinny bundle of streaming channels, including WarnerMedia’s TBS and TNT, delivered over its wireless platform that will be offered for as little as $15 a month.
“We’ve got a great opportunity to bring data and information to how we run these businesses, particularly the target advertising so we can integrate around the advertising model,” Stankey said. “It’s clear that the customer is fatigued about how much they’re paying for content these days. The best way to combat that is to prove you can raise (sales) yields from advertising, and to use advertising to develop premium content, and do it in a way where we can get money from both sides of the equation, through subscription from the consumer as well as advertising from third parties that can keep good premium content out there with broad choices and affordable price points. That’s where our focus is.”
The focus on collecting and analyzing audience data and revamping the advertising sales process may lead to the creation of a central data and advertising division down the road. But for now, Stankey sees no major restructuring on the horizon. He expects changes to present themselves organically as the companies discover what they need to pursue the innovation agenda. “Those things will drive incremental change in the organization,” he said.
Stankey said he expects to be “a little bit of a vagrant” for the near term as he visits WarnerMedia outposts, but for the most part he will be based in New York, at Time Warner Center, for now. (WarnerMedia is on track to move out of Columbus Circle to new digs on the West Side’s Hudson Yards area next year).
In his spare time, Stankey has been plowing through DVDs and screeners in an effort to “get up to speed on the vast library of WarnerMedia content,” he said. Stankey cited HBO’s “Westworld” as a show that has impressed him of late (“I’ve gotten hooked on it,” he said). He and his wife are big fans of Netflix’s “The Crown,” he added.
Like Stephenson, Stankey is quick to concede that he is a showbiz outsider who has been tasked with steering high-gloss businesses through a tumultuous period of change for traditional media and entertainment players. After the long wait to get the deal over the final hurdle, Stankey is revved up and ready to dive in.
“I’m absolutely ecstatic and excited about the opportunity ahead,” he said. “Very few people have an opportunity to put two businesses together with this kind of history. It’s going to be an incredible, intellectually stimulating management and business challenge.”