How AT&T Can Become a Winner in the Live Streaming Wars
After an upside-down week, the idea came to me during an AT&T investor call on Thursday: What if John Stankey ended up on the winning side of the livestream wars?
Netflix tumbled Tuesday with an earnings report that proved the law of gravity can’t be suspended forever. The steady rise in Netflix subscriber gains should stop at some point, and that was sometime in the first quarter of 2022.
Knockout that news of a six-digit loss in the first quarter and an expected seven-digit loss in the second quarter sent Netflix’s stock prices tumbling. It also dealt a blow to Hollywood psyche over the long-running promise of broadcasting, reminding us of how the earth was shaken in August 2015 when then-Disney CEO Bob Iger admitted that even the powerful ESPN faced “some subscriber losses”.
That was the moment when Hollywood reluctantly had to admit that cutting the umbilical cord was a real threat. Will Netflix’s big mistake eventually become enshrined as the moment the content bubble bursts? Only the time and content spent on disclosure will tell.
The relief in the AT&T CEO’s voice came crystal clear even through the webcast. The telecom giant is pleased to see WarnerMedia in the rearview mirror after closing the spin-off deal with Discovery on April 8.
AT&T’s first-quarter results message to Wall Street analysts drew inspiration from Shakers: “This is a gift to be simple.
Stankey and AT&T CFO Pascal Desroches used the words “simple” and “simplified” no fewer than eight times during the 70-minute call to describe AT&T’s new and improved balance sheet. The new focus on the company’s growth comes with easy-to-use built-in anagrams: 5G and fibre.
It’s not hard to see why Stanky seemed happy to talk about her direct stewardship of Warner Bros., HBO, and Turner Networks in the past. With streaming wars now synonymous with spending wars, AT&T just shed $55 billion in debt and a metric ton of competitive pressures and headwinds in media and entertainment. And I got a large load of cash in return, plus the majority of shares in the successor company.
The responsibility for financing HBO Max’s growth is now (mostly) off the AT&T books. If David Zaslav succeeds, the bold new leader of Warner Bros. Discovery, in getting the expanded company to operate on a global scale, the upside will flow to AT&T shareholders. And if not, Stankey, who is not an experienced dealmaker, has taken advantage of the bad situation to help ease the pain AT&T shareholders are experiencing after Telco’s runaway ride in the media.
“With the WarnerMedia transaction completed, AT&T received $40.4 billion in cash and WarnerMedia retained some outstanding debt. In addition, AT&T shareholders received 1.7 billion shares of Warner Bros. Discovery, representing 71% of the new company.” Large our balance sheet and provide us financial flexibility going forward. We now have a simplified framework for capital allocation.”
Sure, AT&T created a smoke hole in its balance sheet with just-in-time purchases of DirecTV (for $48 billion) in 2015 and Time Warner (for $84.5 billion) in 2018. There are no total lost opportunity costs for both sides of AT&T / TW’s merger of more than five years of unhappy marriage that began with its initial takeover agreement in October 2016. (AT&T’s final price tag should also include the untold millions it spent to get around an antitrust lawsuit brought by the Justice Department.)
On Thursday, Stankey presided over the disclosure of HBO Max’s subscriber numbers for the last time — and they were credible with a gain of 3 million from the fourth quarter to total 76.8 million subscribers worldwide. Hours after his speaking, David Zaslav, the new leader of Warner Bros. Discovery, is pulling the plug on specialist broadcaster CNN+ less than 30 days after it launched in the final weeks of WarnerMedia’s previous tenure. Chalk to incorporate the obsession.
HBO Max numbers looked distinctly strong compared to Netflix’s decline. So why does the AT&T president seem happier to speak in finer terms regarding AT&T’s place in telecommunications, “stream sharing” and the like? The answer seems very simple.