By Drew FitzGerald and Shalini Ramachandran
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 firstname.lastname@example.org and Shalini Ramachandran at email@example.com
(END) Dow Jones Newswires
September 12, 2018 19:49 ET (23:49 GMT)
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