BUSINESS Bloomberg Businessweek October 7, 201917PHOTO
ILLUSTRATION
BY
731;
PHOTOS:
ALAMY
(3),
GETTY
IMAGES
(1).
STANKEY:
COURTESY
AT&T
deal transformed AT&T into the most-indebted
nonfinancial company in the world.
Among those are the heads of Time Warner’s
three divisions. In September activist investor
Elliott Management Corp. called the high rate of
leadership turnover “alarming” and a “particularly
troubling pattern” given AT&T’s lack of experience
in Time Warner’s business, which now represents
almost 20% of its revenue. “This lack of continuity
in leadership presents a real concern for investors
and should be a key focus for the board,” Elliott
wrote in a letter to AT&T’s board.
Historically, AT&T has focused on things such as
spreadsheets and spectrum, whereas Time Warner,
now called WarnerMedia, nurtured relationships
with celebrities and sports leagues and made
creative decisions about shows and movies. Melding
those two worlds is a daunting undertaking, espe-
cially because AT&T simultaneously knocked down
the internal ramparts between Time Warner’s HBO,
Turner, and Warner Bros. units to get the entire com-
pany working together on a new streaming service.
Elliott’s criticism has raised the question of
what’s more important to running a media com-
pany: the physical assets that AT&T has acquired or
the entertainment executives who left, taking with
them decades of institutional knowledge and cli-
ent relationships? AT&T has said its combination of
media creation and distribution assets is crucial to
its strategy of taking on Netflix Inc. and disrupting
TV advertising, while suggesting that the executives
who departed won’t hinder those efforts.
AT&T has held on to many of the creative execu-
tives at Time Warner, including Casey Bloys at HBO;
Toby Emmerich and Peter Roth at Warner Bros.;
and Sarah Aubrey, Kevin Reilly, and Jeff Zucker
at Turner. The telecom giant has also brought in
executives with entertainment experience such
as Bob Greenblatt, the former head of entertain-
ment at NBC and Showtime, and struck deals with
Hollywood talent such as filmmaker J.J. Abrams and
prolific TV producer Greg Berlanti.
Still, in addition to the three division heads at
Time Warner, several high-level executives with
Turner’s ad sales and HBO’s distribution opera-
tions have departed. Of the top 20 employees at
HBO, only a few are left. “There is no HBO any-
more,” one former executive says. “There’s only
a brand.” A company spokesman said the depar-
tures happened partly because the combination of
Time Warner’s formerly separate divisions of HBO
and Turner within AT&T created overlapping roles.
In the letter, Elliott called on AT&T to consider
divesting DirecTV, which it bought for $67 billion in- The satellite-TV company is losing subscribers
at a rapid clip. But an AT&T spokesman said DirecTV
remains an important strategic asset, particularly
because it will help distribute HBO Max, the com-
pany’s forthcoming streaming service.
DirecTV is also crucial to AT&T’s strategy to use
data from viewers within its huge base of cellular
and pay-TV customers to serve up targeted adver-
tising that can compete with Google and Facebook
Inc. That bid to basically reinvent TV advertising
has caused confusion both inside and outside the
company, according to people familiar with the
matter; one reason is that AT&T has approached
ad buyers with two separate teams. Xandr, named
after Alexander Graham Bell, the founding father of
U.S. phone service, is a new advertising and analyt-
ics division that aims to use AT&T’s customer data
to sell targeted TV advertising. And WarnerMedia’s
ad sales team continues to sell TV and digital adver-
tising on channels such as CNN, TBS, and TNT.
Until recently, Xandr Chief Executive Officer
Brian Lesser reported to AT&T CEO Randall
Stephenson, and WarnerMedia’s ad sales team
reported to WarnerMedia CEO John Stankey, mak-
ing it harder for the two units to communicate, one
person says. Xandr and WarnerMedia’s sales team
haven’t worked closely with each other, prevent-
ing AT&T from unlocking their combined poten-
tial to serve more targeted TV ads, the people say.
Donna Speciale, president of advertising sales at
WarnerMedia, left the company in July, and AT&T
hasn’t yet named a permanent replacement.
A company spokesman disputed that Xandr
and WarnerMedia don’t work closely together, say-
ing they’ve made progress in making commercials
more relevant on WarnerMedia’s cable channels
with Xandr’s data. Xandr is providing “additional
resources and insights” into WarnerMedia’s targeted
advertising and has created ad products for other
mediacompanies,thespokesmansaid.
ThenextfewmonthscouldbecriticalforAT&T.
XandrandWarnerMediawillbeunderpressure
topresenta coherentpitchduringthespring
Upfrontmarket,whereadvertisersbuythebulk
oftheirTVcommercialsfortheyear.AndAT&T
willsoonintroduceHBOMaxintoa crowded
landscapeforstreamingservices.Elliott’sletter
toAT&T’sboardhasonlyraisedthestakes.“An
alarmwentoffinsideAT&T,”saysJohnButler,an
analystatBloombergIntelligence.“Theurgency
heretogetthisstrategyinmotionandproveit has
legsis probablyhighernowthanit wasbeforethe
letter.”—Gerry Smith,withAndersMelinTHE BOTTOM LINE Time Warner was supposed to give AT&T a
stream of content to pump through its huge cellular and pay-TV
pipeline, complete with targeted ads. Investors aren’t so certain.○ Stankey