WarnerMedia CEO Talks HBO Shake-Up, Why He Won't "Cave" to Trump's Jeff Zucker Demand

John Stankey AT&T DIRECTV NOW - Getty - H 2019
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"You cannot be content to be in 25 percent of households and think that’s going to be a sustainable economic equation against the likes of Amazon, Google, Netflix and others," says John Stankey about AT&T's distribution aspirations.

The first step in WarnerMedia’s reconfiguration in an effort to compete with deep pocketed content insurgents including Amazon and Apple came Monday with the announcement from CEO John Stankey of an expected executive and asset realignment.

The shake-up saw HBO CEO Richard Plepler exit the company and former NBC Entertainment chairman Robert Greenblatt hired as chairman overseeing entertainment assets (including HBO) and upcoming direct-to-consumer properties (set to launch in in the fourth quarter), while CNN chief Jeff Zucker added sports to his portfolio and Warner Bros. head Kevin Tsujihara added global kids and young adults content to his purview.

In an interview with The Hollywood Reporter, Stankey stressed that the changes are not streamlining efforts; AT&T has taken on mountains of debt ($180 billion) to acquire Time Warner for $81 billion and spent millions defending the merger against a Justice Department appeal, finalized less than a week ago.

“What we did today is not about layoffs and cost-cutting,” Stankey said Monday. “It’s about getting the organization configured to more elegantly invest in our content and use it across a variety of distribution platforms.”

Stankey spoke about breaking down silos, his aspirations for WarnerMedia’s OTT platforms and why he never considered letting Jeff Zucker go. 

There has been trepidation and consternation in the creative community about the future of HBO, where Richard Plepler had a lot of autonomy. What steps have been taking to reassure the creative community through this transition?

I think Richard was a great executive; I don’t have any question about that. But those who came before Richard [also] built the HBO brand into what it is today. Casey Bloys will continue in that role with the same charter he has today. Creators want to work with him because of his approach. That’s not going to change. Casey has been very clear in sending that message to the creative community over the last 48 hours and assuring them that what we’re doing is still the same and we’re still open for business. But we’re going to find a way to do some things differently and take the brand and content to a new level.

Last year, during a town hall at HBO, you issued a mandate to produce more content, to go broader and that HBO would have the resources to do that. Netflix spends $8 billion annually on content. What kind of resources are you funneling toward HBO?

Just look at the release schedule for HBO between last year and this year and you will see that for every month of the year there’s a meaningful and significant piece of content being released to the customer base that will keep our audiences engaged for the entire year. I think that’s an improvement over the position that HBO was in last year. It’s a much better way to run a customer base, so that they know they can come back to a product and find something refreshing and interesting. And I would submit that the content that people will be seeing and watching is of the quality and the characteristic that we want to see from the HBO brand. That’s what we were trying to characterize when we were talking about it a year ago — how do you take HBO and the great characteristics that it has and get even more out of it? That’s what our direct-to-consumer offer is about. HBO is the anchor, and then they have other places that people can jump into other brands and other experiences. Maybe that’s not what the charter of HBO has been. That’s what we intend to do.

Why is Bob Greenblatt the right person to navigate that?

You really need somebody who can look across the broad portfolio of content and brands to ensure that you have that overall architecture right. Bob is a unique individual in this industry. He’s accomplished at going straight down the fairway with mainstream stuff and has proven with his work at NBC that he can build and maintain audiences in some of the most challenging dynamics of broadcast TV. And yes, he’s also had tremendous experience being a tastemaker and curator during his time at Showtime. How much do we have to invest to build that? Well, look, we invest as much in WarnerMedia as Netflix does every year. In some cases we keep it for ourselves and in some cases we license it to them. Our ability to build content of scale and quality is really second-to-none in terms of an in-house production capability. And now Bob will make the decision about how much we should hold on our own platforms and how much we should license to third-party distributors. He’s got his pick of the litter in terms of what he needs to do to build the right audience. We’re not giving guidance on what that number is. But as the customer base grows, it obviously will sustain a larger and larger investment.

But you will keep more content in-house as your direct-to-consumer platforms grows?

I think it’s very safe to say that more of our content will be distributed on our own platform, but we’ll also be making some of those products available to others to distribute as well. We don’t view this as a zero-sum game. I would expect that these augmented offers and these increased libraries on our direct-to-consumer product will also be available for partner distributors.

Do you have any concerns about subscription fatigue?

I won’t characterize it as subscription fatigue, but I think there is a limit to the amount of discretionary spending that a customer will put into buying entertainment in aggregate. That is, as limited in number; I don’t know where that cutoff is, but it’s probably somewhere around three or four [subscriptions services per household]. And what that tells you is that it needs to be a product of scale; it needs to be a product that has a broad aperture of content available to it that appeals to a base that makes up a household or a family. The reason we had to bring these properties together is that the only way that we manage to hit that aperture at scale is by using our combined assets. And so we’re removing the friction as to how our divisions work with each other so that we can bring an offering together and at scale across an organization that is singularly incentivized and motivated to do that rather than stay in sub-scale.

What’s your mandate for Jeff Zucker in terms of the new sports assets in his portfolio? Is Turner going to be more aggressive in going after rights? 

Clearly one of the things we want Jeff to work on is to ensure that we have an ample number of live and event-oriented hours on the networks moving forward. And where we stand today, we’d like to see that increase. Jeff has two really significant digital properties, our two best and the most significant across the AT&T company: CNN.com and Bleacher Report. It’s a great opportunity to have those assets its one place under one leader to begin to leverage them more effectively than by splitting them today. So that will be one of his many challenges.

There aren’t a lot of top sports rights — NFL, NBA (which Turner has) or MLB — available in the near term, though.

There’s no immediate tier-one property coming up right now. But there is an insatiable appetite for live entertainment, sports and otherwise. And I believe that there are emerging sports that, with the right kind of business development, could become tomorrow’s significant audience attracters. Our job is to use our properties to start to build those properties. A good example might be what we’re doing with the AAF [the Alliance of American Football, founded by Charlie Ebersol and Bill Pollan]. We’re starting to distribute that on a streaming platform and work with the league to develop it over time. We expect that if we do that right, it will be network-based content. Jeff’s role isn’t necessarily to go out and find the easy play, the existing major sports league. It will be finding the ones that haven’t emerged that will probably be better suited to the demographic that’s coming up. They tend to be faster games, more focused games, whether it be e-league-related things or digital gaming.

Last year at this time, there was speculation that you would let Zucker go in order to appease President Donald Trump and smooth the way for the merger. Was that ever discussed?

No. I’m delighted that Jeff is here. And I’ve been delighted that Jeff is here from day one. There’s never been any discussion about letting Jeff go. Number one, he’s done a great job. And number two, it’d send a really bad signal to the rest of society if that was the kind of thing we’d cave on. We spent a lot of money fighting a court case. If it was as easy as letting Jeff go, we probably could have done that before we spent hundreds of millions of dollars fighting it. (Laughs.) We felt very strongly about the position that we were in, that it was the right thing to do for this country and its institutions.

Why do you think Trump was so against the merger?

I don’t know. This is so behind me right now. I’m so happy that this appeal is done and the Justice Department has realized that they have no opportunity to pursue this further and we are officially done. And I can move forward to do the things I need to do to innovate for this company.

This would seem to be a ringing endorsement for Kevin Tsujihara and the team at Warner Bros.

I think it’s an endorsement of a theatrical organization at Warner Bros. that turned in a year that damn near any other studio would be incredibly proud to have in terms of the win-loss ratio, and what they were able to accomplish. And not just across tentpole films like [those of] DC, but the entire slate that they put out and boundaries and the barriers that they broke from an artistic quality perspective, in terms of diversity and inclusion. It’s an organization that had a banner year. It’s an endorsement of what Kevin and [Warner Bros. Pictures Group chairman] Toby [Emmerich] have done over the last three years to reposition that organization and give it focus. 

What is your view on theatrical windows? Do you think a best picture Oscar for Netflix’s Roma would have sent the wrong message?

I absolutely believe that the art is best represented in theatrical debuts for many pieces of content. If there was not a theatrical window and there was not an ability to watch something in that kind of a setting, we would see different art being created. I think it plays a very important role moving forward. Now, do I think 100 percent of the movies that are turned out are better seen in a theater? No. Or there isn’t a segment of the population that would like to see something earlier in its life cycle and no matter what you do, they’re not going to leave their house and ever go see it? Yes. A rising tide lifts all boats.

Are you going to unload your stake in Hulu to Disney? 

We certainly indicated that we don’t see it as a strategic element of our portfolio moving forward and to the extent that we get a fair offer for the value of it, we’re open to selling it. As a matter of practice, of course, we don’t speculate on M&A. 

How many subs do you need to make your direct-to-consumer products viable?

I will tell you how we think of direct-to-consumer and why we are so committed to moving in this direction: In an environment where media is moving to scale and where consumption needs to be in scale, no longer is having 25 percent the market an acceptable equation. The reason we’re putting the WarnerMedia companies together is to build a scaled product so we can aggregate the kind of audiences we need moving forward, so we have a relationship with 60 to 70 percent of the homes in the United States. Even if it’s for a small service that is only $10 or $15 a month. In order to have that scale, in order to have the economics to produce and distribute moving forward, you have to be thinking over the next couple of years that you’re going to be able to penetrate the majority of American households. You cannot be content to be in 25 percent of households and think that’s going to be a sustainable economic equation against the likes of Amazon, Google, Netflix and others. That’s how I think about what our aspirations on penetration are.