John Stankey WarnerMedia CEO One Year: Departures, Silos

AT & T WarnerMedia CEO John Stankey made a promise to his wife, Shari. He had received episodes of the last season of "Game of Thrones" in advance. But he would not look. Instead, he would watch with her, in real time, at home – including the finale.

"No big party," Stankey said last week on the 46th floor of his brand new three-day Hudson Yards office in Manhattan. "I made a commitment."

The reason Stankey was so serene about Game of Thrones was perhaps because he had already won the real version – the iron throne of WarnerMedia. And Stankey wasted no time enacting new rules of the country or dismissing those who disagreed.

"You are hoping for the best – hoping that people will want to subscribe to the new leadership and stay," Stankey said. "It's the nature of the M & A game."

The "new direction" Stankey is talking about is a systematic reorganization of Time Warner, renamed WarnerMedia last year. The goal is to realign the company with the future of media consumption. The basis of his bet is a new streaming service that merges the three divisions of the former Time Warner – Warner Bros., Turner and HBO. To create his vision, Stankey thinks that it is necessary for everyone to develop a common guideline: to ensure that 70 million subscribers pay for the streaming platform, which does not have to pay for it. has not been named yet.

The failure could be catastrophic. AT & T's debt is raising nearly $ 200 billion – making it the largest issuer of corporate debt in the world. Craig Moffett, a senior telecommunications analyst, calls this amount "terrifying".

"The media has moved into an environment where scale is essential," said Stankey, citing Disney's $ 71.9 billion deal on Fox's assets (and the divestiture of Sky to Comcast ), as well as the imminent merger of CBS with Viacom, among other examples more assets under management. "Someone from the existing media space will build a platform of scale and will reach 70 to 80 million subscribers.We would like it to be us.If you keep the cultures separate, you will never get the benefits that the three together bring. "

Nearly a year ago, after a long struggle with the Justice Department, AT & T and Stankey took control of a sprawling media company with three major corporations: a legendary production studio, Warner Bros., founded in 1923; Turner Broadcasting, named after media mogul Ted Turner, who merged cable channels such as CNN, TBS and TNT with Time Warner in 1996; and HBO, founded in 1972 by Charles Dolan and sold to Time Inc. as the first national cable channel.

The first year of Stankey's tenure was dominated by the titles of former Time Warner executives who left their jobs. The first CEO, Jeff Bewkes, retired in June, alongside Turner CEO John Martin. Then, once the DOJ lost its legal challenge and AT & T was free to merge Time Warner as it pleases, the starts accelerated. HBO President Richard Plepler resigned in February. A few weeks later, Kevin Tsujihara, CEO of Warner Bros. Entertainment, came out in the middle of an inappropriate sexual relationship with an actress.

In summary, these are the three CEOs of Time Warner's core divisions and the Time Warner CEO himself, all of whom left less than a year after the acquisition of AT & T.

Stankey's leadership style has also hurt some people.

At least two current WarnerMedia executives have never met Stankey since he became CEO last year, according to people close to the case. Few internal explanations have been provided on what Stankey thinks of certain divisions of WarnerMedia and their broader roles within the company and the streaming service, officials said.

Stankey also took the employees unprepared by being too public with ideas that were not completely cooked.

At AT & T Analysts Day, Stankey unveiled a three-tier streaming service last year: an inexpensive movie-only service, a premium service featuring original programming and popular movies, and a third service bringing together the first two and adding library content from WarnerMedia.

Several WarnerMedia officials said privately after the event that they had discovered the three-tier idea for the first time that day or a few days earlier. In addition, Stankey has since rejected the concept in its entirety after being convinced by the offer of confusion to consumers. While the Stankey turnaround shows that he can listen and change gears, the public disclosure of a new ambitious plan to eliminate the entire strategy months later is not an ideal start for a new CEO.

Stankey is aware of the confusion that accompanies the transition. Every Wednesday, WarnerMedia executives publish a note called "WarnerMedia: Keeping You Informed" and explaining the changes and their causes. Stankey has also participated in nearly a dozen breakfasts in offices across the country where employees can sign up and ask him questions. Last week, Stankey answered questions about the company's future for an internal WarnerMedia podcast, according to someone close to the issue.

Nevertheless, departures and transitions have led current and past employees to question exactly what Stankey and AT & T CEO Randall Stephenson are doing. The quick elimination of leaders is what a company does when it buys a distressed or underperforming asset. AT & T paid $ 104 billion, including a debt for Time Warner, a 35% premium over Time Trading where Time Warner's business was traded when Bloomberg announced the news of the deal.

This premium, Stankey said, is precisely why AT & T is making radical changes.

"If things do not change, then why did the transaction take place?" Said Stankey. "If you pay a premium, something has to change the trajectory of the cash flow that did not pay that premium, some people say I did not sign up for it, so I signed up for it. recognize do not accept change and say: OK, we need to find someone who can engage in this business. "

Some have speculated on a cultural conflict between the tedious AT & T phone company and the lavish media company Time Warner

That's not what's happening, Stankey says.

"I believe that some media spend a lot of time between the culture that exists between AT & T and Time Warner," Stankey said. "It's not that there's no difference around that, but we're spending more and more time making sure that three very strong cultures within Time Warner are working together."

For decades, Time Warner has worked successfully in silos, said Stankey. Warner Bros., Turner and HBO all performed independently. This structure worked well because Warner Bros.'s content production activities operated separately from Turner's cable distribution contracts, which were also distinct from HBO's premium content strategy.

It does not make sense anymore, says Stankey.

"I do not really worry about large-scale content production," Stankey said. "But this incredible ability to produce content must be associated with skills different from those that a traditional media company, largely majority, has in itself."

Stankey's goal is to have HBO, Turner and Warner Brothers work together to create a streaming service that will define the new WarnerMedia. This service is expected to debut in a beta version at the end of the year and officially in the first quarter of 2020.

To achieve this, daily collaboration is needed – Warner Bros. creations. working with HBO and Turner executives, employees working on selling ads for a unified streaming product instead of individual cable networks, and technology developers focused on a common user experience for all Warner Properties users.

It has an intrinsic advantage in reaching 70 million subscribers: HBO already has 35 million US customers who have access to HBO Go, the application used by subscribers of a traditional pay TV package, or HBO Now, the cord cutter. version. Disney is also launching its own streaming product. However, we will have to start all over again.

Stankey will not require customers to switch from HBO Go or HBO Now to the company's new streaming service. But the idea of ​​creating a product as compelling as the customers should be stupid to continue using their obsolete HBO service only.

The details are still a work in progress. Although Stankey did not want to comment on the details, experts say the product will initially be launched as a subscription service for about $ 15 to $ 18 a month. This is similar to HBO Now, which is $ 14.99 per month. Instead of acquiring HBO, consumers will also (possibly) have access to Cinemax, content owned by Warner Brothers, like all movies and TV series on DC comics (Batman, Wonder Woman, Aquaman, etc.) and to popular shows from the 1990s, such as "Friends" and "ER". This is a lot of extra content for little extra money.

Ultimately, there will be a live stream portion of the service for CNN and sports content (TNT and TBS hold rights on a number of major sports, including the NBA and NCAA basketball during March Madness), said Stankey. Like Netflix, Disney +, Amazon Prime Video and others, WarnerMedia will also create new originals for the service.

The service will initially be reserved for a subscription, but will add an updated version funded by advertising, once the platform is stable and an audience has been created, the users said.

But AT & T's plan is not limited to creating a popular streaming service. If AT & T is able to scale – 70 million subscribers – WarnerMedia's streaming service would consider allowing other broadcast services to be integrated, according to people familiar with the subject.

In other words, AT & T would become an aggregator of aggregated streaming services, based on future agreements with economic agreements to be determined. This would give AT & T more weight in its fight to become one of the few streaming services considered indispensable among the tens and tens on the market.

"Customers want a wide choice," Stankey said. "I think it will take several suppliers to satisfy the customers."

In addition, AT & T plans to merge its DirecTV Now service with its WarnerMedia streaming service, providing customers with a more robust television offering than anyone else on the market, users said. A product combined with a common search interface and user interface – which, like the standalone streaming service, could also be sold at a reduced price with an AT & T wireless subscription – would give customers access to broadcast channels live on pay TV, library and Warner's originals, all. in the same ecosystem.

The combination of Warner's library, Warner's originals, direct linear channels and other aggregated streaming products may prevent customers from leaving the AT & T platform – the wish of all media. This product could also help stop the haemorrhage at DirecTV Now, which has lost nearly 20% of its subscribers in the last six months, due to rising prices and competition.

Stankey's view of the future media world is four or five streaming services that dominate the landscape. WarnerMedia must be part of it, he said. Netflix and Disney are almost certain to be two of the others, he said. The goal is not to be No. 1, but to be one of five families.

AT & T's biggest unexpected challenge with Time Warner was the DOJ's decision to sue to block the merger. AT & T announced its agreement to purchase Time Warner in 2016, but did not come into existence in February, with full and unconditional control of the company, when the DOJ lost its call to block agreement.

This delay erased what would have been a significant first-mover advantage over Disney and others in the race for 70 million streaming subscribers. Disney said in April that it estimated that Disney + would count between 60 million and 90 million subscribers by 2024.

Stankey plans to add subscribers starting with HBO and to tap more underserved demographic data. HBO is not a brand that resonates with families and young children (besides Sesame Street), he said. It also did not target young and middle-aged women.

"Our goal is to create new demographic data by adding libraries," he said. "I can go to [Warner Bros. TV head] Peter Roth and our creative team say: "I need three original series to answer this demo." You need the width of the selection. That's also why you want to be both subscribed and ad-funded. Customers still want 300 episodes of a sitcom. You probably will not get it unless you are able to do both. "

But will Warner's complete library of programs and films, along with untested originals, be enough to move the needle? Or will customers wait for Warner's other assets, such as live sports, to be added to the service?

Paying a dollar or two more for a "HBO Max" service with Warner's library and new original content is a clear benefit to subscribers who pay just $ 15 for HBO, said Rich Greenfield, a media analyst at BTIG. The question is whether television distributors, such as Comcast and Charter, will help HBO commercialize the new streaming application when it clearly competes with the traditional pay-TV package. Cable companies have long helped HBO market its products, including HBO Go, because they were available only as authenticated services – products that came with a cable subscription.

"Netflix spends $ 2.5 billion on marketing," Greenfield said. "What is AT & T ready to spend?"

One thing is certain: do not expect WarnerMedia's streaming product to be called "Warner +". It will not be a complementary service. It's a business betting mission.

Unlike Disney, which considers its streaming service at US $ 6.99 as a complementary product to traditional pay TV, Stankey approaches the world of new media from a different angle. Disney is encouraged to avoid any disruption to the traditional wiring harness as it already receives about $ 20 per household from ESPN, ABC and its other networks, he said. WarnerMedia, on the other hand, does not have ESPN and therefore needs to create a more attractive streaming service. This puts more pressure on the delivery of original programming of superior quality.

"We need to maintain a higher level of quality for the overall offering than what you might see on Netflix or Amazon and find an intermediate point between these two types of volume," Stankey said. "I think we have a good white space to go."

That's also why the loss of Plepler to HBO's CEO position was such a big blow, said Jason Hirschhorn, CEO of Redef Media.

"They should have kept it there," said Hirschhorn. "He has the greatest track record of all time – it did not happen by accident."

Stankey is not a media guy. It's a guy from a phone company. But even more than that, he is a businessman.

Those who know him describe him as extremely intelligent, excellent operator and possessing a sense of arid humor. Stankey is said to be "intellectually curious" and likes to enter the weeds of the companies that he owns and operates.

He earned a B.A. in Finance from Loyola Marymount University. He earned his MBA from UCLA and eventually joined AT & T after a series of telephone company mergers in the 1990s. At AT & T, he held positions including President and Chief Executive Officer. AT & T Business Solutions Management, President and CEO of AT & T Operations, Telecom Operations Group President, Technical Director, Chief Information Officer and Strategy Director.

"Stankey has experience in the telecommunications industry and he thinks about the complete stack of media," said Hirschhorn. "The content is only part of a media company – those who understand the technology and the content – the hybrid – will be the winners."

Stankey has made eight major consolidations at AT & T – the latest to have contributed to the acquisition of a quarter of the DirecTV acquisition by US $ 67 billion in 2015. His previous experience gives him the optimism that newcomers management positions can be up to par.

Breaking down the cultural barriers that have existed for decades will not be easy and faces many challenges. The efforts will be led by Stankey and his new assistants, former NBC Entertainment and Showtime director Robert Greenblatt, who will be responsible for WarnerMedia content and the creation of the streaming service, as well as the CNN chief, Jeff Zucker, now president of WarnerMedia News. Sports, and Gerhard Zeiler, who will oversee program and advertising sales of the subsidiaries.

Beyond Time Warner's top executives, at HBO – undoubtedly Time Warner's gem – divisional executives such as HBO's president for worldwide distribution, Bernadette Aulestia, senior vice president of digital products, Rebekka Rockafeller, executive vice president and chief digital officer and chief architect Gilman Wong, president and chief tax officer Simon Sutton, and digital director Diane Tryneski have all recently left the company. Brad Bentley, who headed WarnerMedia's consumer video group, is leaving his position just six months after taking office.

But everyone at Time Warner did not leave. Casey Bloys, president of HBO programming, is still on the job. Kevin Reilly, who directed Turner Broadcasting, is now the content manager for the new streaming service. Toby Emmerich, President of Warner Bros. Group Pictures, has been with the company since 1992. Peter Roth has been a member of Warner since 1999 and has been appointed President and Chief Content Officer of the Warner Bros. Group. in 2013.

Stankey is still looking for a new Warner Bros. leader. to replace Tsujihara and consider internal and external candidates, including people outside the film and television sector, he said.

Any sports fan can tell you that it's not typical for a team consisting of a new coach and a large number of new players to succeed immediately. The goal is to gel with time.

But Time Warner has already experienced a disastrous merger: the acquisition of AOL for $ 162 billion in 2000. This deal has been studied in business schools as one of the worst examples of M & A of all the temperature.

It will be up to Stankey to make sure the story does not repeat itself.

Disclaimer: Comcast owns NBCUniversal, the parent company of CNBC.

WATCH: John Stankey, CEO of WarnerMedia, on the growth of HBO, CNN and the company