AT&T's Randall Stephenson Says Time Warner Merger Creates a "Modern Media Company"

Randall Stephenson - Vanity Fair New Establishment Summit 2017 - Getty-H 2018
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"Between the two of us, we added three grandchildren to our family," Stephenson, with AT&T CFO John Stephens at his side, said of the 600 days it took to complete the takeover of HBO, CNN and the Warner Bros. studio.

Randall Stephenson, chairman and CEO of AT&T, on Thursday said a lot happened during the 600 days it took to acquire HBO and CNN-owner Time Warner for $85 billion.

"Between the two of us, we added three grandchildren to our family," Stephenson, with AT&T CFO John Stephens at his side, told the Wells Fargo Telecom Conference during a keynote address that was webcast. The deal, nearly two years in the making, was also in the works during the election of U.S. president Donald Trump, Stephenson recalled, which was followed by "sweeping" U.S. tax reform and the repeal of Title II regulation on his core wireless and broadband businesses.

He told investors that "600 days is too long. But while all that transpired, some really positive developments transpired that actually caused us more enthusiasm, and not less." The Time Warner deal has seen AT&T swallow a host of film and TV assets to make the phone giant a major media power player after its earlier acquisition of DirecTV.

Stephenson said the takeover of CNN, HBO and the Warner Bros. studio has made AT&T a "modern media company," as it acquires new premium content and direct-to-consumer relationships and ramps up its TV advertising and analytics business to be run by ex-WPP exec Brian Lesser.

He argued that creating premium content and driving it as a wholesaler through cable and satellite TV distributors was no longer a sustainable business model. "You better have extensive relationships directly with the consumer," Stephenson said, as he pointed to 170 million pay TV, broadband and mobile customers and their screens that AT&T can drive entertainment content through going forward.

Stephenson also talked about the launch of AT&T's skinny bundle offering, WatchTV, to help keep its U.S. TV subscriber base at around 25 million. "It's a very nice bundle that will be available to our unlimited customers. It's a nice margin bundle. The content costs are low. You don't have a lot of sports programming. And there's an entertainment and news feature," he said of the new offering to be available on smartphones and other streaming devices.

Stephenson said 2017 saw overall TV subscriber declines due to new digital over-the-top players like DirecTV Now and YouTube TV following Sling TV into the market. Going forward, he predicted TV subscriber declines will return to normal levels, and be reversed by AT&T after its takeover of Time Warner.

"We actually think we'll be growing it [TV subs] over the next couple years," Stephenson told the Wells Fargo conference. That effort will be lifted by premium content consumption continuing to grow amid the golden age of TV. "It's up. Where and how and when people consume premium content has shifted. But it's up. It's being consumed," Stephenson said.

Asked to predict what the TV business will look like in five years, Stephenson recalled being asked the same question by Judge Richard Leon during the recent antitrust trial to weigh AT&T's takeover of Time Warner against opposition from the U.S. Department of Justice.

He repeated the answer he gave on the witness stand. "If you had gone back five years and asked me what AT&T will look like five years from now, I'm embarrassed to say I probably would have missed it," Stephenson conceded.

Such is the pace of change impacting the global entertainment business. But Stephenson, while insisting he had no crystal ball to predict the next five years, argued demand for premium content will continue to grow.

"It's why we made such a big bet on Time Warner," he said.