AT&T COO John Stankey Talks Up HBO Max Launch, Customer Demand

AT&T CEO John Stankey

AT&T CEO John Stankey

The next AT&T boss told an investors conference about using the service to sell consumers on buying more premium TV, wireless and internet products.

John Stankey, president and COO and set to be come CEO of telcom giant AT&T on July 1, on Wednesday laid out a road map for how the telecom and media conglomerate will weather the economic storm caused by the novel coronavirus pandemic.

"The big question incumbent on all of us is what this climb out of this hole looks like and what kind of dynamics occur in the second half of this year," Stankey told the J.P. Morgan Global Technology, Media and Communications Conference as he opened an appearance that was webcast.

Stankey discussed the impact of the COVID-19 crisis on AT&T's varied businesses, especially the entertainment and media divisions. He pointed to small businesses, hit hard by having to shut down during the pandemic, disconnecting cable packages.

Stay-at-home TV viewers, by contrast, are "engaging with (pay TV products) more than they were prior to the crisis," Stankey added. WarnerMedia has also seen its movie studio business shut down production and tentpole movies kept out of local multiplexes as they shutter, which has forced a rethinking of its theatrical release strategy.

"It's tough to have a prediction about what's going to happen in the studio business, although it's not a large contributor of cash flows," Stankey said. And he pointed to a 20 percent decline in aggregate advertising revenues for his media networks.

Stankey also talked about HBO Max entering the streaming wars May 27. "We expect the customer demand to be as high as what we expected. … Our investment levels are probably a little tempered for this year because a lot of that was production-oriented and we're looking at a situation where we can't drive as much production as we'd like," he told investors.

But besides converting current HBO subscribers to HBO Max, Stankey also talked about bundling the streaming product with other AT&T offerings, including wireless, broadband and TV packages, and being able to do so via an adaptable software-based distribution platform.

"We used to distribute entertainment over broadband networks and then we started to see proprietary cable networks being built that allowed the dawn of the cable networks and the 500 channel-era," he recalled. The latest innovation from AT&T will be new distribution platforms built up around HBO Max to become "the aggregation point and distribution of entertainment moving forward."

Traditional linear TV as a result will shrink as consumers opt more for entertainment alternatives available through apps like HBO Max, and which are not tied to proprietary hardware. "As pay TV continues to restructure, it maybe moves from the 500-channel land down to 300, down to 200 and becomes more a consolidated offering of live, sports, unscripted content and news. Over time, we'll see these bundled together and packaged together," as AT&T's TV and streaming VOD businesses converge, Stankey argued.

A shrinking pay TV universe will inevitably mean cost-cutting and the refocusing of AT&T as the conglomerate puts big bets on software-based entertainment distribution like HBO Max and broadband connectivity for its subscribers.

"Now it's time to make sure that the broader AT&T that isn't circled around those areas rationalizes and reengineers," Stankey said. That may well lead to more sales or combinations of business assets for efficiency.

"The business has been taking a hard look at any place where we can extend the balance sheet further and do things differently," Stankey said.