By Drew FitzGerald and Shalini Ramachandran
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (September 13, 2018).
AT&T Inc.'s boss said the company may shift resources to HBO
from other parts of its newly acquired Time Warner business to step
up programming investments and use data on its customers' tastes
and habits to inform its content bets, part of a plan to compete
with streaming giant Netflix Inc.
Chief Executive Randall Stephenson also said the reams of data
the telecom and television giant has -- from the viewing
preferences of its DirecTV subscribers to where customers take
their phones -- will help build up an advertising analytics
business that could benefit the television industry more broadly,
helping media companies compete with Facebook Inc. and Alphabet
Inc.'s Google.
"We think we have a couple of years window to stand this up and
really make inroads," Mr. Stephenson said in a wide-ranging
interview with The Wall Street Journal. "I have yet to speak to a
[chief marketing officer] or an advertiser who says, 'I wish I
could spend more money with Google and Facebook.' That human being
doesn't exist."
The telephone industry veteran, who struck the more-than-$80
billion deal for Time Warner in 2016 and defeated a Department of
Justice antitrust lawsuit challenging the deal in June, defended
his strategy to plunge into the media business at a time when
cord-cutting is sapping cable-TV revenue and digital competitors
are disrupting the advertising business.
At an investor conference hosted by Goldman Sachs Group Inc. on
Wednesday, chief executives of other big media companies faced
questions about how they would manage consumer resistance to keep
paying for the big cable-TV bundle and chart a path forward in
streaming content directly to consumers.
Comcast Corp., which acquired NBCUniversal in 2011, highlighted
its broadband business and played down its reliance on cable-TV
services. "It's playing a bit of a more supporting role than it's
historically played," Comcast CEO Brian Roberts said.
At the conference, Mr. Stephenson said defections by AT&T's
pay-TV customer were easing despite a recent price increase at its
DirecTV Now streaming video service. He also dismissed the idea
that HBO and Netflix are direct competitors, saying Netflix was the
Walmart of streaming video services, while HBO was the
Tiffany's.
Mr. Stephenson said in the Journal interview that AT&T,
seeking to catch up to Netflix's larger customer base, might shift
resources from creating original programs for its Turner cable
networks to HBO. Those Turner channels, like TNT and TBS, could use
some freed-up program time to air HBO reruns, which could in turn
bring new viewers to HBO, he said.
"A lot of the content spend is in Turner, specifically TNT and
TBS," he said. "Is that really the highest and best use of capital?
Or is it more appropriate and best use to put it toward HBO?"
Mr. Stephenson said HBO, which spent $3.7 billion last year on
programming, is unlikely to spend anywhere close to the $11 billion
to $12 billion in cash that analysts expect Netflix will spend this
year on content, but he said that as a whole WarnerMedia, which
also includes CNN and the Warner Bros. film studio, will roughly
match Netflix.
Mr. Stephenson, who said his favorite shows include "Game of
Thrones" and "Succession," said HBO's existing lineup is "too
Sunday night-centric" and said AT&T plans to plow investment
into the channel to produce more hit shows. "You've got to get a
programming schedule that we think is a little more fulsome."
The three-decade AT&T veteran reiterated Wednesday that he
doesn't want to interfere with the creative culture of WarnerMedia
-- a change from how AT&T would previously "forklift" its
processes on top of companies it acquired. "That is the issue I'm
most guarded about," he said. "You can't be bleeding off talent.
That culture needs to remain, you need to guard that culture with
your life."
Still, Mr. Stephenson said some of the old ways of doing
business have to evolve, and it will be a "very difficult
migration."
"The business model does have to change," he said. "Everybody's
business model is changing right now."
Historically, HBO, Turner and Warner Bros. operated largely
autonomously, with limited cooperation or cross-pollination of
programming. And in Hollywood, many producers and actors remain
wary of allowing analytics to factor into programming decisions,
even though Netflix is a pioneer in that area.
"In the world of media, it is not readily acknowledged that
[using data] might be useful," Mr. Stephenson said. "Could that not
help inform your view in terms of how you would like to be
investing in content? I have to believe it should."
At the same time, WarnerMedia chief John Stankey is "not going
to force data analytics on every greenlighting decision in
WarnerMedia," Mr. Stephenson said.
As Mr. Stephenson sets out to turn AT&T into a bigger
advertising business, he says he isn't focused on the huge pool of
digital ad dollars, which is being vacuumed up by Facebook and
Google. Those tech giants together are expected to have close to
60% of the $107 billion U.S. online ad market in 2018, according to
eMarketer. In digital ads, it's "game over. Facebook and Google
won," he said.
On Wednesday, wireless rival Verizon Communications Inc. said
the architect of its online advertising business, Tim Armstrong,
was leaving at year's end. The Journal reported last week that Mr.
Armstrong was in discussions to depart after struggling to grow the
AOL and Yahoo businesses that Verizon had acquired.
Mr. Stephenson said he instead wants to update the traditional
TV advertising market -- stagnant but still a roughly $70 billion
business -- before Silicon Valley's giants muscle in. He said an
initiative in the works will help advertisers target consumers with
certain characteristics and programming tastes. He said other media
companies like 21st Century Fox could benefit from AT&T's
analytics and ad technology. AT&T recently acquired ad tech
firm AppNexus for about $1.6 billion.
The CEO said he has no plans to step down from the top of the
telecom company anytime soon. If all goes according to plan, he
said, the next head of AT&T should have the right mix of assets
for the future.
"My board expects me to see through some significant parts of
this deal, " the 58-year-old executive said. AT&T's record of
big acquisitions has left it with nearly $180 billion of net debt
that it is working to pay down.
If the company's leaders decide years from now that AT&T's
wireless, television and advertising assets would be better off
broken up, he added, "it probably didn't work."
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com and
Shalini Ramachandran at shalini.ramachandran@wsj.com
(END) Dow Jones Newswires
September 13, 2018 02:47 ET (06:47 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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