John Stankey WarnerMedia CEO one year profile: Departures, silos

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John Stankey

Stephen Desaulniers | CNBC

AT&T‘s WarnerMedia CEO John Stankey made a promise to his wife, Shari. He’d received episodes of the last season of “Game of Thrones” in advance. But he wouldn’t watch. Instead, he’d watch with her, in real time, at home — including the finale.

“No big party,” said Stankey last week from the 46th floor of his brand new, three-days-old Hudson Yards office in Manhattan. “I made a commitment.”

Perhaps the reason Stankey was so relaxed about watching Game of Thrones was that he’d already won the real-life version — WarnerMedia’s iron throne. And Stankey hasn’t wasted any time enacting new rules of the land or dismissing those who disagreed.

“You go in hoping for the best – hoping people will want to subscribe to the new direction and stay,” Stankey said. “It’s the nature of the M&A game.”

The “new direction” Stankey’s 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 foundation of his bet is a new streaming service that merges all three divisions of the old Time Warner — Warner Bros., Turner, and HBO. To create his vision, Stankey believes he needs to get everyone working toward a common directive — getting 70 million subscribers paying for the yet-to-be-named streaming platform.

Failing could be catastrophic. AT&T’s debt load is nearly $200 billion — making it the largest corporate debt issuer in the world. Veteran telecommunications analyst Craig Moffett calls that amount “terrifying.”

“Media has moved into an environment where scale is essential,” Stankey said, citing Disney‘s $71.9 billion deal for Fox‘s assets (and divestiture of Sky to Comcast) and CBS‘s likely upcoming merger with Viacom as other examples of media companies seeking bigger balance sheets with more assets under management. “Somebody in the legacy media space will build a platform of scale and get to 70 million to 80 million subscribers. We’d like it to be us. If you keep the cultures separate, you’ll never get the benefits the three together bring.”

The perils of change

Nearly one year ago, after a prolonged fight against the Department of Justice, AT&T and Stankey got control of a sprawling media company that’s really three major media companies in one: The legendary Warner Bros. production studio, founded in 1923; Turner Broadcasting, named for media mogul Ted Turner, which merged cable stations including 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 has been dominated by headlines of former Time Warner executives leaving their jobs. First CEO Jeff Bewkes stepped away in June, along with Turner CEO John Martin. Then, after the DOJ lost its legal challenge and AT&T was free to merge Time Warner as it saw fit, the departures accelerated. HBO CEO Richard Plepler resigned in February. Several weeks later, Warner Bros. Entertainment CEO Kevin Tsujihara exited amid an inappropriate sexual relationship with an actress.

To sum that up, those are the three CEOs of Time Warner’s major divisions and the CEO of Time Warner itself — all gone less than a year after AT&T’s acquisition.

Stankey’s leadership style has also rubbed some people the wrong way.

At least two current mid-level executives who are still at WarnerMedia haven’t met Stankey at all since he became CEO last year, according to people familiar with the matter. There’s been little internal explanation of what Stankey thinks of certain WarnerMedia divisions and their broader roles within the company and the streaming service, the people said.

Stankey has also caught employees off guard by being too public with ideas that weren’t fully baked.

Last year, Stankey unveiled a three-tiered streaming service at AT&T’s analyst day — an inexpensive movie-only service, a premium service with original programming and popular films, and a third service that bundles the first two and adds library content from WarnerMedia.

Several WarnerMedia executives said privately after the event they’d found out about the three-tiered idea for the first time either that day or just a few days earlier. Moreover, Stankey has since nixed the entire concept after being convinced by those at the company that the offering is too confusing for consumers. While Stankey’s change of heart shows he can listen and shift gears, publicly disclosing a sweeping new plan only to eliminate the entire strategy months later isn’t an ideal start for a new CEO.

Stankey is aware of the confusion that comes with transition. WarnerMedia leadership sends a memo out every Wednesday that explains changes and why they’re happening, entitled “WarnerMedia: Keeping You Informed”. Stankey has also participated in nearly a dozen breakfasts at offices around the country where employees can sign up to attend and ask him questions. Just last week, Stankey answered questions about the future of the company for an internal WarnerMedia podcast, according to a person familiar with the matter.

Still, the departures and transitions have led current and past employees to wonder about what, exactly, Stankey and AT&T CEO Randall Stephenson are doing. Rapidly eliminating leaders is what a company does when they buy a distressed or underperforming asset. AT&T paid $104 billion including debt for Time Warner — a 35 percent premium to where Time Warner was trading when Bloomberg first broke news of the deal.

That premium, said Stankey, is precisely why AT&T is making drastic changes.

“If things don’t change, then why did the transaction occur?” Stankey said. “If you pay a premium, something has to change the trajectory of the cash flows that were not paying that premium. Some people say I didn’t sign up for that, I signed up for this. It’s important to recognize when an individual hasn’t bought into the change and say, OK, we need to find someone who can commit to this.”

Breaking down silos

Some have speculated about a culture clash between stodgy telephone company AT&T and lavish media company Time Warner

That’s not what’s happening, said Stankey.

“I believe some in the media are spending a lot of time between what is the culture between AT&T and Time Warner,” said Stankey. “It’s not that there aren’t differences around that, but we spend far and away more time on getting three very strong cultures within Time Warner to work together.”

For decades, Time Warner has successfully operated in silos, Stankey said, with Warner Bros., Turner and HBO all executing independently. That structure worked because Warner Bros’ business of content production has operated separately from Turner’s cable distribution deals, which have also been separate from HBO’s premium content strategy.

That doesn’t make sense anymore, Stankey said.

“I have absolutely no concern about producing content at scale,” Stankey said. “But that incredible capability to produce content needs to be paired with some different skills than a traditional, largely wholesale media company has inherent in their business.”

Stankey’s focus has been getting HBO, Turner, and Warner Brothers to work together to create a streaming service that will define the new WarnerMedia. That service is set to debut in a beta version at the end of the year and formally in the first quarter of 2020.

To get there requires daily collaboration across the board — creatives at Warner Bros. working with HBO and Turner executives, employees working on selling ads against a unified streaming product instead of individual cable networks, and technology developers focusing on a common user experience for all Warner properties.

He has a built-in advantage to get to 70 million subscribers: HBO already has 35 million U.S. customers that have access to HBO Go — the application used by subscribers to a traditional pay-TV package — or HBO Now, the cord-cutters’ version. Disney is also launching its own streaming product. However, it will have to start from scratch.

Stankey won’t force customers to switch from HBO Go or HBO Now to the company’s new streaming service. But the idea to make a product that’s so compelling customers would have to be silly to keep using their antiquated HBO-only service.

The details are still a work in progress. While Stankey wouldn’t comment on details, people familiar with the matter say the product will initially launch as a subscription-only service for about $15 to $18 per month. That’s similar to HBO Now, which is $14.99 per month. Instead of just getting HBO, consumers will also (eventually) get access to Cinemax, Warner Brothers’ owned content, such as all of the DC comics films and TV shows (Batman, Wonder Woman, Aquaman, etc.) and popular 1990s shows like “Friends” and “ER.” That’s a lot of extra content for little extra money.

In time, there will be a live streaming aspect of the service for CNN and sports content (TNT and TBS own rights to 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 subscription-only, but will add a discounted ad-supported version once the platform is stable and an audience is built up, the people said.

But AT&T’s plan won’t stop at just making a popular streaming service. If AT&T is able to gain scale — 70 million subscribers — the WarnerMedia streaming service would then consider letting other streaming services latch on, according to people familiar with the matter.

In other words, AT&T would become an aggregator of aggregated streaming services, based on future deals with to be determined economic arrangements. This would give AT&T added heft in its fight to be one of the handful of streaming services that are seen as must-haves amid the dozens and dozens in the market.

“Customers want a broad choice,” Stankey said. “I do believe it will take multiple providers to satisfy customers.”

In addition, AT&T eventually plans to merge its DirecTV Now service with its WarnerMedia streaming service, giving customers a more robust TV offering than anything on the market, the people said. A combined product with a common search and user interface — which, like the standalone streaming service, could also come bundled at a discount with an AT&T wireless subscription — would give customers access to live pay-TV streaming channels and Warner’s library and originals, all in the same ecosystem.

The combination of Warner’s library, Warner originals, live linear channels, and other aggregated streaming products may keep customers from leaving AT&T’s platform — the desire of every media company. That product may also help stop the bleeding for DirecTV Now, which has lost nearly 20% of its subscribers in the last six months amid rising prices and rival competition.

The plan to get to 70 million

Stankey’s view of the future media world is four or five streaming services dominating the landscape. WarnerMedia needs to be one of those, he said. Netflix and Disney are almost certain to be two of the others, he said. The goal isn’t to be No. 1 — it’s just to be one of the five families.

AT&T’s biggest unforeseen challenge with Time Warner has been the DOJ’s decision to sue to block the merger. AT&T announced its agreement to buy Time Warner in 2016 but didn’t emerge with full, no-strings-attached control of the company this February, when the DOJ lost its appeal to block the deal.

That delay erased what would have been a significant first-mover advantage over Disney and others in the race to get 70 million streaming service subscribers. Disney said in April it estimated Disney+ would have 60 million to 90 million subscribers by 2024.

Stankey plans to add subscribers by starting with HBO and hit more underserved demographics. HBO isn’t a brand that resonates with families and young kids (Sesame Street aside), he said. It also hasn’t targeted young and middle-aged women.

“Our goal is to build out new demographics by adding libraries,” he said. “I can go to [Warner Bros. TV head] Peter Roth and to our creative stable and say ‘I need three original series that’s going to meet this particular demo.’ You need breadth of selection. That’s also why you want to be both subscription and ad-supported. Customers still want 300 episodes of a sitcom. You’re probably not going to get it unless you’re able to do both.”

But will Warner’s deep library of shows and movies plus 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 an “HBO Max”-like service with Warner’s library and new original content is an obvious benefit to subscribers over just paying $15 for HBO, said BTIG media analyst Rich Greenfield. The question is whether TV distributors, such as Comcast and Charter, will help HBO market the new streaming application when it’s a clear competitor to the traditional pay-TV bundle. Cable operators have long helped HBO market its products, including HBO Go, because they were only available as authenticated services — products that come with a cable subscription.

“Netflix spends $2.5 billion on marketing,” Greenfield said. “What is AT&T prepared to spend?”

One thing is for sure: Don’t expect WarnerMedia’s streaming product to be called “Warner+.” This won’t be a add-on service. It’s a bet-the-company mission.

Unlike Disney, which views its $6.99 streaming service as a companion product to traditional pay-TV, Stankey comes at the new media world from a different angle. Disney is incentivized to stay away from complete disruption of the traditional cable bundle because it already gets about $20 per household from ESPN, ABC and its other networks, he said. WarnerMedia, on the other hand, doesn’t have ESPN and thus has to build a more compelling streaming service. That puts more pressure on delivering premium original programming.

“We need to maintain a higher degree of quality for the aggregate offering than what you might see on Netflix or Amazon and find a middle spot between those two in terms of volume,” said Stankey. “I believe we have a good white space to go to.”

That’s also why losing Plepler as HBO’s CEO was such a big blow, said Jason Hirschhorn, CEO of Redef Media.

“They should have kept him there,” Hirschhorn said. “He has greatest track record ever. That didn’t happen by accident.”

The new world order

Stankey is not a media guy. He is a phone company guy. But even more than that, he is a businessman.

Those who know him describe him as extremely smart, an excellent operator and possessing a dry sense of humor. Stankey called himself “intellectually curious” and enjoys getting into the weeds of the businesses he owns and operates.

He graduated with a B.A. in finance from Loyola Marymount University. He received his MBA at UCLA and ultimately joined AT&T through a series of mergers of phone companies in the 1990s. While at AT&T, he’s held positions including president and CEO of AT&T Business Solutions, president and CEO of AT&T Operations, group president of Telecom Operations, chief technology officer, chief information officer, and chief of strategy.

“Stankey has a telco background and he’s thinking about the full media stack,” said Hirschhorn. “Content is just a part of a media company. Those that figure out the tech and the content — the hybrid — will be the winner.”

Stankey has been through eight significant consolidations at AT&T — most recently helping to quarterback AT&T’s 2015 $67 billion DirecTV acquisition. His previous experience gives him optimism that new people in leadership positions can rise to the occasion.

Knocking down cultural barriers that have existed for decades won’t be easy and is fraught with challenges. The effort will be led by Stankey and his new deputies, ex-NBC Entertainment and Showtime head Robert Greenblatt, who will be in charge of WarnerMedia’s content and building the streaming service, as well as CNN chief Jeff Zucker, now chairman of WarnerMedia News and Sports, and Gerhard Zeiler, who will oversee affiliate sales of programming and advertising.

Beyond Time Warner’s top executives, within HBO — no doubt the jewel of Time Warner — division executives such as HBO president of global distribution Bernadette Aulestia, senior VP of digital products Rebekka Rockafeller, executive vice president and senior VP of digital products and chief architect Gilman Wong, president and chief revenue officer Simon Sutton, and chief digital officer Diane Tryneski have all recently left the company. Brad Bentley, who had been leading WarnerMedia‘s direct-to-consumer streaming video group, is leaving just six months after taking the job.

But not everyone at Time Warner has departed. HBO president of programming Casey Bloys remains. Kevin Reilly, who ran Turner Broadcasting, is now the content chief for the new streaming service. Toby Emmerich, the chairman of Warner Bros. Pictures Group, has been with the company since 1992. Peter Roth has been with Warner since 1999 and was named president and chief content officer of the Warner Bros. TV Group in 2013.

Stankey is still looking for a new Warner Bros. chief to replace Tsujihara and is considering both internal and external candidates, including some people from outside of the movie and TV business, he said.

Any sports fan can tell you that it’s not typical for a team with a new coach and a lot of new players to succeed right away. The goal is to gel over time.

But Time Warner has already gone through one disastrous merger — AOL’s $162 billion acquisition in 2000. That deal has been studied in business schools as one of the worst examples of M&A of all time.

It will be up to Stankey to make sure history doesn’t repeat itself.

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

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



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