AT&T CFO Downplays Warner Talent Drain Risk, Touts Value of Vertical Integration

AT&T CFO John Stephens
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AT&T CFO John Stephens

"We got a long history of working with the talent, and we'll continue to work with them," John Stephens tells a virtual Citi conference when asked about Warner's controversial 2021 film release strategy.

WarnerMedia owner AT&T continues to see benefits in vertical integration, meaning operating content and distribution assets, CFO John Stephens said on Tuesday.

Speaking during Citi’s 2021 Global TMT (Technology, Media, Telecom) West Virtual Conference, he acknowledged "the challenge is to maximize" the value of combining these assets, but lauded how the approach "adds to the quality of our offerings." He emphasized: "We feel good about the strategy. We believe in it."

Stephens didn't give a subscriber update for streaming service HBO Max before AT&T next earnings report and call, but said December commentary from management was a "good indicator," adding that "we are pleased with what’s going on with engagement and … the response from our customers."

In early December, AT&T CEO John Stankey had said the streamer was nearing 12.6 million activated users.

Stankey back then also argued that the company can use the decision to bring its 2021 Warner Bros. film slate to the streaming service and cinemas to "accelerate that further" to "penetrate the market faster," even though that decision has drawn criticism. The studio announced day-and-date releases for its 17-film slate, which will hit HBO Max for a one-month window that starts the same day they will hit U.S. theaters. The slate includes such projects as The Matrix 4DuneGodzilla vs. Kong and Space Jam: A New Legacy.

"Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio and woke up to find out they were working for the worst streaming service,” filmmaker Christopher Nolan, whose relationship with Warners dates back to Insomnia in 2002, told The Hollywood Reporter last month. Acknowledging criticism from Nolan as well as cinema groups, Stankey said in December: "I know there’s a lot of noise out in the market, people with different viewpoints," but that happens "anytime you are going to change a model."

Stephens said Tuesday that the company was simply trying to make the best of "a really difficult situation" in the form of the coronavirus pandemic. Could the move to a talent drain? "We got a long history of working with the talent, and we'll continue to work with them," the AT&T CFO said, arguing that he thinks talent knows that "this is a unique situation" and "we can’t change that." So it is all about keeping "this system moving healthily forward, utilizing the great content that is already there," Stephens added.

AT&T management has said it will shed "tangential" assets that may cause "distractions" from its core focus. For example, it has been understood to be looking for final bids to sell a stake in its satellite TV unit DirecTV, with private equity groups a key focus as possible buyers to avoid regulatory concerns. By keeping a major stake, DirecTV could still leverage DirecTV's distribution reach.

Stephens declined to discuss specific assets on Tuesday, but emphasized the company has reviewed all assets to "determine whether they fit within our priorities."