Months after AT&T agreed to buy Time Warner, senior leaders from HBO, Warner Bros. and Turner flew out to the telecom giant’s headquarters in Dallas to meet their new bosses.
They sat in a cavernous conference room configured like a classroom for a series of “AT&T University” presentations. John Stankey, then CEO of AT&T Entertainment Group, and others sent a clear message to the gathering of media company executives: AT&T planned to harness the power of Time Warner’s content to help sell more services to its wireless telephone and broadband customers.
Signs that a new world order was taking shape emerged when the conversation turned to HBO, considered the crown jewel in Time Warner’s treasury. Participants were asked to describe what words came to mind when they thought of HBO’s reputation. “Quality” and “artistry” were among the superlatives quickly offered. As the conversation progressed, it became apparent that AT&T would be looking for more from the premium brand.
More than two years later, with Stankey now CEO of the rechristened WarnerMedia, AT&T’s vision for its hard-fought $85.4 billion acquisition is coming into view. And as some predicted back at AT&T University, the magnitude of change implemented by the new regime has been dizzying and jarring.
From pay scales to performance metrics, the corporate cultures of AT&T and the famously siloed Time Warner are worlds apart. The divides that must be bridged span the distance between Dallas, New York and Burbank.
“Most of the time we’re not even speaking the same language,” laments a senior HBO executive.
Stankey, an imposing figure who has the build of an NFL linebacker and a resonant baritone voice that commands attention, brings a far different management style to the role than his smooth-talking predecessor, Time Warner chief executive Jeff Bewkes.
There is nothing about Stankey that screams Hollywood. The 56-year-old California native grew up in the Palos Verdes area and spent 33 years as an executive at AT&T and its predecessor phone companies, living in Dallas from 2000 to 2017. Since 2017, he has divided his time between New York and Los Angeles to steer WarnerMedia.
Some have found Stankey to have a drill sergeant-like manner and to be blunt, bordering on brusque, in the workplace. But others find his straight-talking style refreshing and say that after a difficult year, he is loosening up and showing a more congenial side. He has a dry sense of humor and a quick wit that offsets his buttoned-up manner. “He’s laughing more in meetings,” one executive notes. “And that’s put people at ease.”
Still, Stankey’s vocabulary is salted with corporate- and tech-speak about “consumer funnels” and “customer life cycles” and such. Surely, he is the only current media mogul who would describe success in streaming as finding “the threshold number that you engineer your product to in order to get a certain amount of [consumers’] time every day.”
There is a feeling among some on the Warner Bros. lot that Stankey has little regard for the studio’s distinct culture and the work of making movies and television. “He thinks we’re spoiled creative people,” one top studio executive opines.
Stankey makes no apologies for ruffling feathers, nor his reputation for favoring a no-nonsense approach to management. He describes himself as a “fairly direct” person.
“I’m not one who minces a lot of words,” Stankey says during a lengthy interview with Variety at his 46th-floor corporate office in New York’s new Hudson Yards complex. “I try to be as candid and open as I can with folks. If you ask me a question, you’re pretty much going to know what’s on my mind.”
In any case, Stankey brings a fresh set of eyes for evaluating an industry in the throes of disruption. The task ahead of him is Herculean, as WarnerMedia has to integrate what is essentially three separate companies — HBO, Warner Bros. and Turner — to work together as they never have before, both with one another and with AT&T. Prior to the AT&T acquisition, Time Warner kept the three as separate operating units in order to make it easier to sell them individually if the right offer came along.
AT&T is counting on an integrated WarnerMedia to be a steady supplier of earnings as the telco behemoth grapples with paying down its enormous debt load (which stands at $162 billion) and making big investments in content and technology. Stankey landed the hard job of implementing these radical changes.
“He’s tough, hard-charging, and he get things done,” says Michael D. Smith, professor of information technology at Carnegie Mellon University. “The big challenge he faces is he’s an outsider. That has its advantages because he sees the business differently, but it also means he’s seen as an outsider who is a threat to the established way of doing things.”
Predictable culture clashes emerged as the AT&T era began, which means that the transition Stankey is leading has been anything but smooth.
In the past five months, the leaders of HBO, Warner Bros. and Turner have been pushed out. HBO has undergone the most significant restructuring in its 47-year history. The assets in the Turner cable unit have been carved up and redistributed. Former NBC Entertainment chairman Bob Greenblatt was recruited to lead HBO, HBO Max and Turner’s entertainment channels as WarnerMedia Entertainment chairman.
In June, Stankey made a surprise hire in tapping BBC Americas chief Ann Sarnoff as the chair and CEO at Warner Bros., replacing Kevin Tsujihara. Sarnoff, who starts next month, is the first female to lead the nearly 100-year-old studio.
Capping off a frenetic first half of the year, WarnerMedia raised the curtain July 9 on the launch plan for its global streaming platform HBO Max, to the chagrin of some at HBO. The premium cabler will serve as the foundation of the HBO Max subscription service, which will do battle with rivals Disney Plus and Netflix when it launches in spring. HBO Max will include a collection of separate non-HBO streaming channels and on-demand archives drawn from the WarnerMedia vault.
The decision to lend the prestigious HBO moniker to non-HBO programming, something that would have been unthinkable a few years ago, is the biggest signal that a new era has dawned for the former Time Warner fiefdoms.
“If you’re going to be relevant in entertainment distribution moving forward, you’re going to have to have a scaled product that gets into the most households,” Stankey says. “There’s a tremendous amount of urgency around [HBO Max]. It’s good for AT&T overall that the world is moving to direct relationships with customers. That’s not foreign to AT&T’s business.”
WarnerMedia is embarking on a major pivot in strategy as the competition in the pay-TV and streaming arenas ratchets up to unprecedented heights. Disney is on track to launch the Disney Plus streaming bundle on Nov. 12. Hulu is poised to become a bigger player in original content now that Disney controls it. Apple plans to launch a streaming video service later this year. Netflix and Amazon are also stepping up content spending and research and development.
In short, the ground is shifting under the feet of those in the media and entertainment businesses. Consumers are migrating from traditional MVPDs to lower-cost streaming options. AT&T and WarnerMedia are banking on HBO Max to create a new profit center that will offset declines in both companies’ traditional core businesses.
“The bet is on Warners’ new streaming service to get AT&T to the promised land,” says Peter Csathy, founder and chairman of Creatv Media.
In the interview, Stankey outlined how AT&T will try to avoid becoming AOL 2.0 and make the Time Warner acquisition work over the long haul. He is purposefully taking a hammer to the walls that separated HBO, Warner Bros. and Turner. He pledges to spend what it takes to launch HBO Max, including an estimated $500 million increase in HBO’s programming budget for 2019 and 2020.
“If you’re going to be relevant in entertainment distribution moving forward, you’re going to have to have a scaled product that gets into the most households.”
“We didn’t put $100 billion into a transaction for want of a couple billion to figure out how to run it better,” Stankey says. “We are going to invest in [content] and we are going to put several billion more in to make sure that $100 billion investment pays off in the way we expect it would.”
He also defends AT&T’s decision to load up on debt. Despite that pressure, Stankey maintains WarnerMedia’s commitment to investing in content across all its platforms, which also includes plans to rev up its kids and family production and the CNN news and sports unit headed by Jeff Zucker.
“This debt load was a decision we made consciously, [confident] that we know how to get ourselves back to a healthy balance sheet,” says Stankey.
Peter Chernin, head of Chernin Group and former leader of News Corp.’s media businesses, got to know Stankey when he partnered with AT&T in 2013 in an effort to buy Hulu. That led to Chernin Group and AT&T partnering in the Otter Media joint venture, which AT&T bought out last year.
“He’s a very bright, thoughtful, strategic guy, and he’s fundamentally a decent, honorable person,” Chernin says. “AT&T was a great partner in Otter Media. There was nothing that [Stankey] promised me that he didn’t deliver.”
Stankey’s new colleagues describe him as a razor-sharp businessman. He’s proved himself to be a quick study when it comes to complex market decisions, such as the calculation of the impact that investment in HBO Max will have on the company’s traditional cable and content profit centers.
But there was a period of adjustment. Toby Emmerich, chairman of Warner Bros. Pictures Group, admits to being wary of a boss he now praises as “smart” and “thoughtful.”
“For me John is a textbook example of ‘Don’t judge a book by its cover,’” says Emmerich. “I was guilty of that. I found myself apprehensive in those first few meetings with him. Of course there’s his physical presence, with that deep baritone, and his long tenure and success in an industry I knew almost nothing about other than once calling AT&T customer service to upgrade to the family plan. But John made a significant effort to get to know me and our motion picture group, starting out with a lot of listening.”
Those who have worked with Stankey during the past year say he is tough on executives about articulating a vision, devising a strategy and defending their rationale for decisions. “He’s an incredibly smart guy who can get to the bottom of any problem,” says Kevin Reilly, chief content officer for HBO Max. “He’ll push back if he feels it’s not been thought through in a way that shows you’ve done your homework.”
With a muted CNN playing in the background on a giant-screen TV, Stankey leans forward in his chair to stress that the massive corporate marriage he brokered has been going smoothly — based on his deep experience with acquisitions and integrations.
“I’m action-oriented. I have a bias to wanting to move forward, not to contemplate and evaluate,” Stankey says. “The first step is trying to get everybody to agree to do something. Absent that, I’ll make the decision on behalf of everybody, if they don’t want to call or pick the direction, for want of not staying in the same place.”
|To deliver his vision, Stankey is counting on key lieutenants including Bob Greenblatt (center) and Toby Emmerich (right).
Stankey: Ben Baker for Variety
The entertainment industry is an insular world that is hostile to outsiders. Compounding the challenge, when Stankey finally took the reins, he faced a workforce that was frustrated and demoralized after having been “frozen in place,” in the words of a Warner Bros. staffer. The closing of the sale was delayed for two years while AT&T did battle with the Justice Dept., which unsuccessfully sued to block the deal on antitrust grounds.
Sarah Aubrey, former head of programming for TNT, who has segued to steer original content for HBO Max, says one of Stankey’s strengths as a leader is galvanizing a team and articulating the mission.
“He is very clear and very consistent in what he’s asking of us,” she says. “The importance of that kind of clarity at a time of so much change in our business — that cannot be underestimated.”
The turmoil at HBO over the past few months has been magnified by the fact that numerous long-serving senior executives have followed ousted CEO Richard Plepler out the door, including president and chief revenue officer Simon Sutton, distribution chief Bernadette Aulestia, miniseries head Kary Antholis and PR chief Quentin Schaffer. In New York, HBO has also moved into the Hudson Yards complex — under the same roof as its parent company for the first time in years.
Casey Bloys, HBO’s president of programming, says Stankey’s introduction was positive because one of his first acts was to approve the increase in HBO’s content budget. “My first impression of him was great: He came in saying, ‘Go spend more, and go do more,’” Bloys says.
There’s been speculation that AT&T will nudge HBO into more middle-of-the-road programming in order to broaden its appeal. So far, those concerns have been unfounded, insiders say. “There is nothing we have planned for 2019 or 2020 that I wouldn’t have ordered five years ago,” Bloys notes.
Stankey is aware of the unease that employees face after mergers and restructuring, having spearheaded eight major transactions over his career. “While you’re forming that new direction, there’s a lot of noise in the system,” he says. “But my experience would suggest that as soon as people start doing the real work and that real work yields success in the market, all of that noise falls away.”
Adds Greenblatt: “By and large, I think people understand that the changes being made are vital to set WarnerMedia up for the future.”
At Warner Bros., Stankey faced an early test when scandal erupted around chairman-CEO Tsujihara. The studio leader had become close to Stankey and had just been given more responsibility to oversee some assets that had been in the Turner bucket. Then a story surfaced, complete with text messages, accusing Tsujihara of having an affair with actress Charlotte Kirk and using his power as studio chief to help her land acting jobs.
Tsujihara denied that he ever played a “direct role” in getting Kirk hired onto a project, and wrote in an all-staff email that WarnerMedia’s leadership had known about “details surrounding this situation some time ago.” Though Tsujihara agreed to cooperate with an internal investigation, his situation quickly became untenable, and he was forced to resign. It was an embarrassment for Stankey given that he’d just handed Tsujihara a promotion.
Stankey bristles when pressed on what he knew about Tsujihara’s behavior before elevating the former executive’s role. “I don’t comment on any personnel-related issues just as a matter of course or practice whether with Kevin or anybody else,” he says, his voice hardening.
There’s no denying that Tsujihara’s exit cast a pall over the studio lot. Despite the serious allegations, the affable executive, who took pains to remember names and personal details about staffers, was well-liked.
Some executives at Warner Bros. had initially feared that AT&T would take a hatchet to employee expenses and perks while also reining in production spending and constricting their ability to attract top talent. Instead, executives have a mandate to increase their output. And so far, executive lunch and dinner tabs haven’t been rejected by accounting.
At present, Warner Bros. makes roughly 20 films a year. Stankey believes the number could rise to as many as 30 movies annually, which would make it the most prolific among the major studios.
“We can do more,” says Stankey. He notes that the amortization cushion provided by HBO Max will enable the company to take bets on dramas, thrillers and other genres that are becoming an endangered species in a movie business obsessed with comic book movies and big-budget fantasies.
“The tentpole franchise dynamic has squeezed a lot of stuff out of theatrical production,” says Stankey. “This is going to allow some things to come in that more super-serve various niches in the customer base.”
On the TV side, Warner Bros. TV Group president Peter Roth credits Stankey with reaffirming the studio’s longstanding strategy of selling programming broadly across the industry even as it focuses more internal resources on supplying HBO Max.
Stankey understands that Warner Bros. Television as a studio must continue to operate from a spirit of independence, giving our talented roster of creative artists the freedom to deliver their projects to whichever platform provides the best fit,” Roth said. “John’s passion for the company and his leadership in encouraging a highly collaborative environment has been inspiring.”
Stankey has also had a crash course in the talent-relations component of his job. He took the lead in hammering out a megadeal with “Star Wars: The Force Awakens” director and “Alias” creator J.J. Abrams that will see the filmmaker helm movies and shows for Warners’ various platforms. Stankey flew to London in September to begin talks with Abrams, pitching him on WarnerMedia’s ability to offer him a broad array of homes for his content — from traditional theatrical releases to streaming and video games. The pact is believed to be valued at least $500 million, and while Stankey doesn’t confirm a deal has been reached, he heaps praise on Abrams.
“I’m action-oriented. I have a bias to wanting to move forward, not to contemplate and evaluate.”
“Why somebody like J.J. is so interesting to us is because they’re incredibly creative and accomplished at what they do and they have this great curiosity about wanting to do things across different platforms,” says Stankey. “Try different things. Work on different technologies to see if new formats can be developed.”
The WarnerMedia chief has also forged a friendship with Michael B. Jordan, the “Creed” star whose Outlier Productions recently signed a first-look deal with Warner Bros. Jordan was particularly impressed with Stankey and his team’s decision in 2018 to adopt a company-wide commitment to boost the number of women and underrepresented groups in all areas of production. It’s an issue close to Jordan’s heart. Outlier was one of the first production companies to adopt contract riders that mandate that its movies and shows make concerted efforts to hire diverse casts and crews.
“John makes WarnerMedia a place where artists have creative freedom, not just around subject matter but across platforms,” said Jordan. “That forward-thinking model and his openness to different perspectives and points of view was a big part of what solidified my commitment to expanding Outlier Society’s partnership within the organization.”
Of course, Stankey and WarnerMedia need to spend significantly and work hard to keep talent like Abrams and Jordan happy if they’re going to have the firepower to take on Disney, which boasts brands such as Pixar and Marvel; and Netflix, which has been inking megadeals of its own with the likes of Ryan Murphy and Shonda Rhimes. Making sure that HBO Max debuts with an irresistible array of compelling and exclusive content has been consuming much of Stankey’s time and that of his top lieutenants.
Stankey downplays the suggestion that HBO Max is a bet-the-company proposition. But, he says, “I think it’s fair to say that if, over time, AT&T doesn’t have broad [consumer] relationships like that, it’s going to be hard to compete against the Googles and the Facebooks and the Amazons of the world.”
Stankey maintains AT&T has an advantage over other traditional competitors moving into streaming because HBO and AT&T are already well-established subscription businesses.
But analysts think that Disney Plus has painted WarnerMedia into a corner by announcing that it will initially be priced at $6.99. In contrast, HBO currently sets subscribers back $14 to $15 a month, so it stands to reason that adding more stuff to the platform would come at a higher cost. There have been reports that the company was looking for HBO Max to hit the market at between $16 to $17, but that looks like an expensive proposition at a time when users can access all the Marvel, Pixar and “Star Wars” movies and shows they want for half the price.
“It puts them in a real bind,” says Craig Moffett, founding partner of MoffettNathanson. “They want to preserve their existing business, but they are also worried about missing the market. But if they discount the service too much, they will crater their cash flow.”
All of these corporate shifts and integrations are being undertaken as debt is being amassed, and big money is being spent as part of a huge bet that may never pay off. The traditional television business has decided that streaming is the future and that the only way to preserve its bottom line is to dive in feet first. In the short term, that means sacrificing hundreds of millions, if not billions, of dollars in licensing revenue. It means trying to establish new forms of distribution that are unfamiliar while reaching out to customers who have abandoned cable for Netflix and YouTube. And there’s a very real chance that it could all fail spectacularly.
On earnings calls and at investment presentations, media executives often talk up streaming services as a way to grow the overall pie. Stankey maintains that may not be the case. But just as AT&T moved from providing primarily landlines to wireless packages as customers changed the way they communicated, so too must WarnerMedia roll with the tide.
As for the creative side of the media company’s business, prolific film and TV producer Greg Berlanti, who has a mammoth overall deal at Warner Bros. that runs through 2024, says getting to know Stankey has been an education.
“He’s given me a greater sense of the lay of the land” in media, Berlanti says. “As a creative person, I’m looking for stability and leadership so I can just worry about making the best shows possible. John is an incredibly commanding and thoughtful leader.”
Stankey may not be intimately familiar with the creative community, but he knows how important the work that comes from Berlanti and his peers is to the products AT&T wants to market around the world.
“I do not lose sleep at night worrying about our creative direction around here,” Stankey says. “Our challenge will be getting that great creative strength and marrying it with great technology and the ability to manage customer life cycles. If we can get that three-legged stool working, then we’re unstoppable.”