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Telecom giant AT&T’s WarnerMedia content unit is expecting to provide some specifics about its direct-to-consumer plans in the fourth quarter, unit CEO John Stankey told an investor conference on Thursday, but he shared his thoughts on key elements that are needed for a successful service. He also argued that the Department of Justice has “a weak case” in its legal appeal in an attempt to unwind the AT&T acquisition of Time Warner.
“I think you’ll see us be declarative around it in the fourth quarter,” Stankey said about the direct-to-consumer strategy at the Bank of America Merrill Lynch 2018 Media, Communications & Entertainment Conference in Los Angeles in a session that was webcast. “It is very important to be in a position that we have a direct relationship with the customer. I think we start with a lot of assets and strength across our three divisions that put us in a unique position.”
Reiterating that “I don’t want to re-create Netflix,” the exec said the streaming giant in three years won’t look the way it does today given that it is working “very aggressively” to have more original content and reduce its reliance on library programming. “We need to think about what’s unique and special at WarnerMedia and AT&T that we can bring to the table in a product that works for us,” Stankey explained.
HBO and its “unique brand” will be a key part of the direct-to-consumer portfolio, with its mix of high-quality scripted content, documentaries, “some sports and a great library of movies,” he said, explaining that starting with “something that is so unique” and has such high engagement levels as HBO helps. But the CEO emphasized: “That in and of itself isn’t enough in a scaled direct-to-consumer construct. There need to be other assets around that.”
What does that mean? “More around that is probably going to come under other brands that are bundled together, but when a customer looks at those brands, they understand what each brand represents in terms of the kind of experience that they want to achieve,” Stankey said. “This is not fragmentation. It’s quite the opposite. … It needs to allow for customers to assemble the content in a way that makes sense for them and their household, but it clearly needs to have brand distinction.”
The exec concluded by saying that AT&T and WarnerMedia have “a great library to be able to do that, we have a great family of brands to allow us to position our content and other providers’ content.” Stankey also mentioned that he expects existing distribution deals for WarnerMedia content to continue to be an important part of the business mix.
WarnerMedia houses HBO, Warner Bros. and the Turner networks, which AT&T acquired in its $85 billion takeover of Time Warner that closed in June after U.S. District Court Judge Richard Leon allowed the mega-deal to move forward despite a government challenge in a landmark antitrust lawsuit.
Following the deal close, the Justice Department launched an effort to unwind the combination, with a review of the federal judge’s decision to allow the merger being fast-tracked. Stankey on Thursday reiterated AT&T’s suggestions that it does not expect the DOJ to prevail. “This was a weak case that was filed going in,” he told the investor conference. “It is a weak case on appeal.” That doesn’t mean the company doesn’t respect the legal process, with its legal team focusing on that, while the operating team focuses on executing strategies, he added. “We are operating the way we expected we’d operate.”
So what has been his and his team’s focus in the first 100 days of the Time Warner integration? “I survived, that’s number one, I guess,” Stankey quipped. “And the organization survived me.” He said the three focus areas have been devising initiatives to strengthen the cash flow trajectory of the business, moving into the direct-to-consumer space and making the three WarnerMedia units work together more closely. While they used to be “three distinct operating units and cultures,” the exec said the focus is now on “a higher degree of cooperation” without diluting financials, brands and creative processes.”
Does everyone on the WarnerMedia team agree about all plans and visions? “I have never had the luxury of managing any organization” that was unequivocal about all issues, Stankey said. “Do I believe the organization is behind [the core plans] on the leadership level? I do. Do I think that there is complete unity of what specific plays need to be run in each strategy that needs to be executed? We are still working through some of that. I think we have more agreement than disagreement, but we still have some areas where we are trying to debate that, bring data to the equation, prognosticate on where the market is going to go.”
Asked about Warner Bros., Stankey on Thursday again said “hats off to [CEO] Kevin [Tsujihara] and [chairman of the Warner Bros. Pictures Group] Toby [Emmerich] and their team.” He specifically lauded the theatrical releases and strength of the studio’s TV production business, but also mentioned two areas for improvement. “Some of our franchises, in particular at DC, we all think we can do better,” he said. “They have been great, they have been profitable, there has been less volatility than in previous years, but we think there’s yet another gear,” which can have a “significant” financial impact. The second issue for the studio is “we want to drive more efficiency in our marketing and promotion,” with data and targeted advertising, along with the benefits of size being among the areas of opportunities, Stankey said.
HBO was again a focus of his appearance.
Stankey previously said that the premium cable outlet was set for changes that would lead to more content to reach a broader audience and better compete with such streaming services as Netflix and Amazon, arguing: “It’s going to be a lot of work to alter and change direction a little bit.”
On Thursday, he lauded HBO as “an impressive asset” with a compelling brand. But the exec said there is upside to add millions of subscribers. “I’m not happy that maybe only 40 percent of households engage on HBO,” he said. “I aspire that that be much greater than that.”
Stankey didn’t specify what kind of incremental investment HBO would get under new owner AT&T, but said, “We are prepared to make the incremental investments that are accretive to the product and the construct. … There is still great growth left in the product.”
One key goal will be to “have something for everybody throughout the year” to grow the subscriber base and look to reduce churn, he added..
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