AT&T's HBO Max Reveal Adds Intrigue to Activist Investor War

Leonardo Santamaria

CEO Randall Stephenson has fended off Elliott Management's demands for a shake-up (for now) while agreeing to give WarnerMedia chief John Stankey, essentially, "a yearlong job interview" for the top role.

On Oct. 29, WarnerMedia CEO John Stankey was front and center as the company laid out its content strategy, including splashy new series from Greg Berlanti, Ridley Scott, Elizabeth Banks, Issa Rae, Mindy Kaling and more for HBO Max, the Netflix rival launching in May 2020 with 10,000 hours of programming at price of $15.

With parent AT&T at least signaling that it's in sync with activist investor Elliott Management following tensions between the conglomerate and the hedge fund, Stankey would appear to be safe from further critiques about mismanagement of media assets including DirecTV, which sparked the most condemnation from Elliott.

In fact, both sides seemed to agree that AT&T's portfolio should be fully reviewed and no new acquisitions will take place. So, is Stankey out of the woods (for now) and still the heir apparent to take the CEO reins when Randall Stephenson, 59, steps down sometime after 2020? It depends on whom you ask.

AT&T-WarnerMedia sources say Stankey, 56, who recently added AT&T president and COO to his title, has Stephenson's full confidence. Stankey's tenure so far has included overhauling a vast array of media assets including Warner Bros. and HBO during a turbulent stretch of weeks earlier this year in which nearly every top executive was ousted or exited, including Warners' Kevin Tsujihara and HBO's Richard Plepler. In March, he installed Bob Greenblatt as chairman, WarnerMedia Entertainment and direct-to-consumer, overseeing HBO and Turner programming, and in June hired former BBC executive Ann Sarnoff as Warner Bros.' first female studio CEO.

Stephenson also has publicly given Stankey the full weight of his support. In a note to employees Oct. 28, Stephenson called Stankey "talented" and added, "The Board and I have high expectations for John. I'm excited for him and look forward to seeing him tackle his new responsibilities. Together, we are all about execution and delivering on our three-year plan."

But sources familiar with Elliott's strategy say the $38 billion activist hedge fund, founded by Paul Singer, wanted Stankey out as head of WarnerMedia and did not have faith in his decision-making on content matters. "DirecTV has been a loser from day one," says one source of AT&T's $48.5 billion acquisition in 2015, just before subscribers cratered. "That's on Stankey."

Elliott partner Jesse Cohn, the brash 39-year-old who spearheaded the hedge fund's move to buy $3.4 billion in AT&T common stock sometime during the past year (one source puts the date at around mid-February), made no secret that he was gunning for Stankey. That put AT&T on edge given that Cohn successfully ousted CEOs at other companies in which Elliott was invested, including Athenahealth's Jonathan Bush and Arconic's Klaus Kleinfeld.

But sources say Cohn was appeased by AT&T's intention to find a new WarnerMedia CEO and allow Stankey to focus on his larger role in the top echelon of the parent company. "It's a win because John Stankey will have a yearlong job interview for AT&T CEO in which he'll have to perform," says a knowledgeable source.

Stankey has lofty numbers to hit. At the Oct. 29 presentation at Stage 21 on Warner Bros. Studios’ Burbank lot, he outlined the company's plan will boost signups by offering HBO Max for free to its existing 10 million HBO customers, which will pave the path for 50 million domestic subscribers by 2025.

Included in that 10,000 hours of programming will be such TV hits as Friends, The Big Bang Theory and South Park as well as the full HBO catalog and Warner Bros. films like Joker. The company will be beefing up originals exponentially with 31 in the service's first year, much of it female-skewing, which will help HBO Max expand its audience beyond HBO's predominantly male demographic.

Meanwhile, AT&T has begun a search for a new WarnerMedia leader and is said to be considering internal candidates. CNN topper Jeff Zucker's name was floated during a recent board meeting, says a source. Elliott is not pushing for anyone in particular.

As for DirecTV, Elliott isn't overtly demanding a sale, though it is pleased that the prospect is on the table. While Stephenson previously balked, AT&T said Oct. 28 that its DirecTV, U-verse and DirecTV Now brands lost 3.6 million subscribers year-over-year, ending the quarter with 21.6 million subs. "It will be an important part of our strategy over the next three years," Stephenson said of DirecTV during an earnings call. "But no portion of our business is ever exempt from a continuous assessment for fit and performance."

Wall Street analyst Robert Routh at FBN Securities speculates that the hedge fund might want AT&T to buy Charter Communications. "There's no way AT&T could buy Charter if they own Direct TV, but if they were to get rid of DirecTV and combine AT&T, Charter and Time Warner, you might have something to compete with Comcast," says Routh. "You have to ask yourself, what is the ultimate goal here? Is it just to get rid of DirecTV? Is that what Singer wants? I doubt it. Or is it to position them to do something they can't do now because they own one or both of those?"

But an insider downplays that scenario, calling it "asinine."

Despite the fact that AT&T revealed a steep decline in pay TV subscribers, the stock jumped 4.3 percent to $38.49 that same day as the company appeared to patch up its differences, with AT&T conceding that it would take a broader look at various candidates when Stephenson exits the CEO post and give Elliott two seats on the board in the next 18 months. Elliott commended AT&T in a statement "for the positive steps," but there was no mention of Stankey.

The unloading of assets already has begun. On Oct. 27, AT&T announced that it has agreed to sell its majority stake in Central European Media Enterprises for $1.1 billion to pay down debt accrued during its recent acquisition spree.

"The question is what's the right business for AT&T to be in given the shifting media landscape," says analyst Eric Handler of MKM Partners. "What are the assets you really need to be a successful telco company five years from now, 10 years from now, and what's non-core?"

This story first appeared in the Oct. 30 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.