Interesting read.


https://www-barrons-com.cdn.ampproje...ng-51582304975


An AT&T (ticker: T) lifer who joined the company in 1985, Stankey has two huge and relatively new jobs. In June 2018, with the completion of the $108 billion Time Warner acquisition, Stankey became CEO of WarnerMedia, the restructured and renamed entertainment conglomerate. With a portfolio that includes HBO, CNN, TBS, TNT, Warner Bros., and Cartoon Network, Stankey instantly became one of the world’s most powerful media executives. Last fall, he also was named AT&T’s president and chief operating officer, adding responsibility for the company’s communications and advertising businesses, and making him the clear heir apparent to CEO Randall Stephenson.

Lately, Stankey is gearing up for the May 2020 launch of HBO Max, the company’s new entry into the intensely competitive market for subscription-based streaming services—and the core of AT&T’s revamped content strategy. In his free moments, Stankey is steering Ma Bell’s fifth-generation, or 5G, wireless rollout, streamlining AT&T’s balance sheet, and prepping for his eventual promotion to the top job.
We sat down with Stankey this week for an extended discussion on 5G, HBO Max, the fate of DirecTV, and a host of other topics. The excerpts below have been edited for space and clarity.
On why 5G is going to be more important initially for businesses than for consumers:

John Stankey: With 5G, we’re going to revert to what used to be the norm in technology, when business applications came first and then flowed to consumers. In the early 2000s, that shifted, and consumer applications drove mass deployment, and then benefits would flow to enterprises. With 5G, the dynamic is going to flip back, with the first meaningful applications enterprise-led, like distributed manufacturing floors that become automated through pervasive sensors and control mechanisms driven by 5G networks.

On why he’s not that worried about the impact of the coronavirus on the 5G rollout:
I’ve seen theories where the virus doesn’t peak until April, and I’ve heard others who say the outbreak is peaking now. But the devices that will drive 5G mobile-phone adoption aren’t even in factories yet, and won’t be manufactured until weeks before they’re brought to market. Assuming this thing passes by summer, I don’t think there’s going to be much impact.

On whether AT&T—widely seen as the best-positioned U.S. carrier in terms of 5G spectrum—still needs more bandwidth:
We will continue to be spectrum acquirers. Bandwidth consumption continues to increase. Things that consumers used to do at home—because that’s where they got acceptable performance and throughput—they’re now doing on the go. All of the carriers will continue to build additional capacity, and we’ll continue to find places to add to our spectrum portfolio.

On why AT&T wants to talk about content, not the various flavors of 5G:
If you’re talking to customers about the difference between “millimeter wave” versus “sub six” 5G networks, you’ve already lost. The speed and coverage you get doesn’t matter once you’ve passed a certain threshold. I’d rather talk to consumers about something they have an emotional attachment to, rather than, I can give you 110 megabytes and they can give you 105. And that’s why having content to marry to connectivity is important, because you’re not going to be able forever to sell connectivity based on speed.

On how buying Time Warner boosts AT&T’s connectivity business:
Customers will stop distinguishing between fixed and wireless connectivity. And then they’re going to say, why else should I do business with you? I believe it will be through aggregation of entertainment-based services. We’re talking about video today, but maybe tomorrow we add music, maybe a gaming subscription service, or some combination where I can get connectivity and I get something else with it. After we acquired Time Warner, we started offering HBO on top of our wireless services. Others are giving Netflix away for free. That trend continues. We’re going to see these services reaggregate over time under a different distribution model.

On why HBO Max will be a content platform, not just a subscription streaming service:
It’s about the strength of the platform to reach most U.S. households. To the extent that the platform is flexible enough to offer both subscription-based and advertising-based content, it’s a natural place for additional services to show up. That’s why HBO Max is such an important driver for our business—it is a high-value, low-priced service that we believe most U.S. households will want. It starts with a subscription video service. But we can add ad-supported services, as well.

On the role of streamed advertising:
First of all, we absolutely agree there needs to be a premium subscription-supported product that has no advertising. That will be the foundation of our platform. But our belief is that, over time, consumers will value depth and choice. And so we’ve said next year we’ll introduce an AVOD [ad supported video on demand] component to the product. And that AVOD component will broaden the kind of content that’s available, with a different monetization scheme. AVOD is not generating huge dollars. But look at Hulu. On a per-subscriber basis, there’s quite good economics. They’re using advertising in a different way, and that’s not even the most sophisticated approach that can be achieved now with current technology and what we know about customers. So I do believe there is a place for ad-supported content moving forward.
On offering a “channel store” on HBO Max, in competition with Roku, Amazon.com, and others:

With HBO Max, we’re going to establish a platform in most U.S. households that becomes a natural aggregation point. The difference is, we want to offer attractive economics for those services to come on the platform, so they can monetize their customers, as opposed to some of these egregious models of the dominant wireless OS providers [a reference to the Apple and Google app stores] that skim off the top and make it virtually impossible for anybody to make a buck. Or Roku’s demands to take portions of ad inventory in exchange for the right to be on the platform—I don’t think that’s long term the attractive way.

On the strategy around DirecTV, which is losing large numbers of subscribers:
We didn’t buy DirecTV because we loved satellite delivery. We liked the customer base. The play was to move most satellite customers to software-driven services. But we were later than we wanted to be on that product, AT&T TV, which launches in March. It is the satellite replacement product, the software-based service that allows us to modernize and bring a feature-rich customer pay-TV experience to the base, that is no longer dependent on satellite delivery. But If I had my wish, we would have been where we are right now over 18 months ago.

On the future of basic cable networks:
We’re going to see cable networks thin out. What’s going to be left will be those that have news, sports, and unscripted content. That’s what stays in that pay-TV bundle and has longevity over time. Do I think those things will become add-on packages as part of a subscription platform? I do.

On AT&T’s own basic cable networks:
Look, we’re not Viacom with 18 channels. We’re not Disney. We’re successful in that business, but we’re targeted. The bulk of our profitability there comes from CNN, which is news, and TNT and TBS, which have sports content along with general entertainment content. Then there’s truTV, which is not a huge economic contributor. And Cartoon Network, which will end up part of HBO Max.

On the National Football League, the Sunday Ticket offering, and the future of football broadcasting:
As for what happens to NFL rights, you would have to ask the NFL. Originally, the NFL viewed Sunday Ticket as a premium offer, and chose not to make it widely available. Does the calculus change going forward? We’re in a rapidly changing environment, and quite possibly it does. My sense is that all sports leagues realize that if they’re not being more deliberate about how they distribute rights, they’re going to miss some audience. Consider the National Basketball Association, which is quite popular with people in their 20s and 30s, who overindex on not being part of the traditional TV ecosystem. The NBA has to be thinking, do I want to only have my content available over cable, or should I be allowing my partners to make it available on other platforms? Will that undermine licensing revenues? Probably not. But I do believe we’ll see alternatives as you get into renewal cycles.

On the impact on AT&T from the Sprint/T-Mobile US deal:
It really doesn’t impact us. We’re running the same plays today as we did a week ago. We’re seeing momentum return in our subscriber growth. We’re going to finish the work on 5G deployment. I understand why Sprint and T-Mobile got together. T-Mobile was looking at this transition to 5G, and they had basically no spectrum.

Now, they have to bring the two businesses together and meld their portfolios. They’re going to be in a better position once they get through it, but they’ve got work to do. We bought Time Warner because we wanted to offer consumers not just great connectivity, but also something else. That’s our play. They’re not doing that. They’re going to figure out how to integrate cell sites and close down billing systems and do whatever they need to get economic efficiency. Our play is a great network, adding value with entertainment.

On future competition from Dish:
We’ll see. I love [Dish CEO] Charlie Ergen dearly, but he’s a very mercurial individual. Sometimes, the cards that he has on the table aren’t always the cards that he ultimately ends up playing. I’m sure there’ll be some surprises and twists and turns in whatever he does.

On the company’s three-year plan in response to recent pressure from activist investor Elliott Management, which includes selling assets and reducing debt, among other things:
It’s a nonissue at this point. We said we’d be at 2˝ times debt to Ebitda [earnings before interest, taxes, depreciation, and amortization] by the end of 2019, and we delivered. AT&T often had three-year road maps but just didn’t communicate them, to give us flexibility when unexpected things popped up. Elliott asked us to tell people what our plans were, and in some cases, they’ve asked us to think a bit more critically on how we’re running the business. We’re casting a careful eye over every part of our operation, assessing how we’re positioned, thinking about whether we’re going to offer competitive pricing, with new entrants in the market like Charlie, and continued incursions from Google and Amazon. That’s a healthy process. I look at our operations and ask, are we as lean, as efficient, and as focused as we need to be? Three years from now, we will be a more-focused, more-tailored business than we are today because of portfolio rationalization, operational improvement, and product rationalization. That’s a healthy process for a business with a long, storied history.

On his future role at AT&T:
I don’t expect to occupy the WarnerMedia CEO role forever. This organization has gone through a lot of transitions over the past year. It wasn’t an easy year, but the business is so much better positioned. As great as the Warner asset was, it wasn’t configured the right way for this changing environment. Now, the business is positioned to respond to these trends. It’s hard to get an organization of this size with this much past success to do things differently. But that’s what we’ve done. Once that takes hold, it will be time for me to spend more time getting all of AT&T’s parts to work better together. The communications company, the media company, the advertising company. That moment will come, I expect sometime in 2020.


Many thanks, John.
Write to Eric J. Savitz at [email protected]


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