Bright promise and dashed hopes - the AT&T Media saga

seeing around corners May 09, 2022

Big, expensive unions of large and unwieldy companies almost never work out well. The sudden termination of CNN+ is but the latest casualty in a long history of things that began with a lot of confident predictions that eventually crumbled into “oh, never mind…” There are lessons to be learned in the AT&T / Time-Warner / Discovery saga.

It was 2016, just six short years ago. AT&T, in a move that delighted investment bankers, lobbyists and lawyers, (but not their own investors) dug deep into the piggy bank and announced an $84.5 billion deal to acquire Time Warner, Inc., a media and entertainment company. At the time, it was positioned as a dreamy deal that would generate not only substantial cost savings, but also growth! Take the assets of the nation’s second-largest wireless phone provider and combine these with beloved entertainment and news properties such as HBO, CNN, TBS, Cartoon Network and the Warner Bros. film and TV studio in Burbank and you could see a bright new universe of new business models and customer touch points.

Rosy assumptions and deep pockets

Randall Stephenson, the AT&T Chief, and Jeff Bewkes, the CEO of Time Warner thought at the time that there was a billion of easy synergy savings to be captured. Moreover, that the acquisition would create a stronghold in the worlds of entertainment that couldn’t be copied because of AT&T’s massive reach.

Let’s not bring up that powerhouse rival Verizon was also dabbling with the idea of turning into a media company right around the same time. They acquired AOL and Yahoo, putting them into a media subsidiary named “Oath.” Tim Armstrong, the former CEO of AOL, took on the task of creating what they thought would be “the future of brands.” A story for another day – you can read my take on the Verizon rabbit hole here.

Anyway, I was asked what I thought about this at the time and expressed skepticism. Big splashy mergers suffer from the same patterns that doom big splashy home-grown ventures.  Untested assumptions, taken as facts. Few opportunities to test the waters before making a commitment. Leaders personally associated with the success of the strategy, and unwilling to hear countervailing opinions. All the funding and staffing up-front. A sense of time pressure (often as a result of competitor behavior). And no plan “B” should the assumptions not work out.

Examples? AOLTimeWarner, at one time a poster child for the worst merger decision ever, culminating in a $99 billion writeoff in 2002, a staggering sum that shook up even the hardened reporters of the Wall Street Journal.  The total value of the stock? It fell from $226 billion to about $20 billion.

Somewhat (but not much) less worse were the mergers of Boston Scientific and Guidant, Sears and K-Mart, Quaker Oats and Snapple, Kraft and Heinz, Daimler Benz and Chrysler, Google and Motorola, Microsoft and Nokia, and Bank of America and Countrywide. Now these are not deals being perpetrated by stupid people. But it is very easy to get carried away by a narrative, which then takes on a life of its own before it becomes obvious to everybody that this just isn’t working.

So what were they thinking?

Anybody who is going to spend over $80 billion on something (or over $100 billion, if you take into account debt) must have a pretty good reason for doing so. So let’s see what they were thinking at the time.

Executives at AT&T felt they were at a competitive disadvantage in the media arena because companies such as Google, Netflix and Amazon had deep access to information about customers, which was attractive to advertisers. AT&T knew who the customers were, and where they were in many cases but could only monetize this through subscriptions. Time Warner “didn’t even know its customers’ names.” Integrating with AT&T would give Time Warner access to set-top boxes and broadband infrastructure. Integrating with Time Warner would give AT&T two revenue streams – subscribers plus advertisers. What’s not to like about that?

By joining up with AT&T, Time Warner would also be able to control more advertising minutes on its television stations. Turner media sold fourteen minutes of advertising per hour on its channels, but had to give up two of those minutes to its distribution partners. By doing its own distribution, the combined company could sell all 14 minutes, a big potential increase in sales.

Another advantage that AT&T imagined it might have, and which its broadband-based competition didn’t, was a nationwide wireless network. The kicker there was that around this time, a new generation of wireless technology, called 5G was coming on stream. Providing low latency, better battery life, denser coverage and a host of other benefits, 5G’s arrival was pretty breathlessly promoted as a major revolution in wireless communication. This in turn would give the combined company the ability to tap into increasingly mobile, untethered customers who would turn to their phones for content.

Side note: In 2018, AT&T wasn’t the only company making big assumptions about customers wanting to watch video on their phones – cue Quibi, a onetime darling of the media and investment set that went down in flames shortly after its launch, and took about $2 billion with it.

Ultimately, the goal was to create a set of “over the top” services that could compete with cable and television networks and avoid the core telecommunication offering from becoming a pure commodity.

Many twists in this merger story

Before AT&T could consummate the deal, they first had to deal with the objections of the Department of Justice. In a move that sort of suggested the merger might actually be good for the companies, the Justice Department sued to block it. At the time, there was dark speculation that then-President Trump who made no effort to hide his utter dislike for CNN, one of the Time Warner properties, was behind the DOJ action. That dragged on for two years until 2018 (can we say legal fees?) when a federal judge declared the deal to be legal, without imposing any conditions on it.  The deal officially closed in June of 2018. AT&T decided to change the name of their new partner to Warner Media.

Meanwhile, investor sentiment was, to say the least, lukewarm. Rating agencies downgraded the credit rating on AT&T stock to just two levels above junk as the deal closed. Even for a big company, $180 billion in debt, more than three times its EBITDA, is a staggering sum.

Apparently, the Time Warner executives AT&T paid so much for were equally unenthusiastic. A headline in Recode sums it up “Everyone who used to run Time Warner is out the door less than a year after AT&T paid $85 billion for the media giant.” Former Time Warner CEO Jeff Bewkes left almost immediately, later citing AT&T’s heavy-handedness in moving their own executives into positions of power. John Martin, a potential successor to Bewkes and head of the Turner TV unit left the day the deal closed. Richard Plepler, legendary head of HBO and credited with spearheading a revolution in what we watch on television, departed as well. Kevin Tsujihara, the Warner Brothers film and TV studio head was ousted in a “casting couch scandal.” John Stankey, a three decade veteran of AT&T was put in charge of the Warner Media empire.

During the long merger negotiation, AT&T’s executives had said all the right things. Of course, the Dallas-based telecommunication giant wouldn’t interfere with the creative decision-making of the Time Warner team. HBO would continue to occupy its perch as a high-quality, billions in revenue generating asset. Once the deal was consummated, however, the tune changed. As Stankey said to an unenthusiastic crowd at an HBO town hall meeting, he wanted to make fundamental changes. As the New York Times reported,

“Mr. Stankey described a future in which HBO would substantially increase its subscriber base and the number of hours that viewers spend watching its shows. To pull it off, the network will have to come up with more content, transforming itself from a boutique operation, with a focus on its signature Sunday night lineup, into something bigger and broader. “We need hours a day,” Mr. Stankey said, referring to the time viewers spend watching HBO programs. “It’s not hours a week, and it’s not hours a month. We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.”

The exodus was worrisome to observers at the time. As Peter Kafka noted in a Recode article, “…if I thought something was worth $85 billion and I didn’t have any experience in the industry it had dominated, I would want to work hard to keep the people who had helped make it worth $85 billion. And it would worry me if many of them had left soon after I wrote that whopping check.”

But none of that darkened the 2018 Business Summit

Here’s where the story gets a little personal. I was invited to participate in a glitzy flagship event sponsored by AT&T, their 2018 Business Summit.  I’d be speaking, doing some panel moderation and giving a VIP session to some of the high flyers at the event. This all took place near Dallas, roughly 100 days after the consummation of the merger.



It was a momentous event! The opening session featured people dancing with robots. John Donovan, the CEO of AT&T Communications led a fireside chat with Queen Latifa. Author Robert Tercek spoke about coming digital trends. 2,000 customers came to mingle with executives and thought leaders such as Amy Webb and Malcolm Gladwell.

But the session that stuck in my mind was a “CEO Conversation” session between CNN host Anderson Cooper and John Stankey (then the CEO of Warner Media). As the two men walked out on the stage and took their seats, Cooper asked, “why am I the only one wearing AT&T socks?” To which Stankey replied, “because the high-priced talent gets all the free stuff.”

Even then there was just a tad of tension in the air.

That light at the end of the tunnel? 

In April of 2020, Randall Stephenson, AT&T’s CEO announced his plans to retire. John Stankey would step in effective July 1st. At the time of his rise to the role, the company was struggling. Shares were down 22% from the start of that year. More importantly, analysts were approving of a strategy that involved serious cost-cutting (over $6 billion) and “protecting” AT&T’s dividend.

As a Rutgers case study observed, the end of the adventure came swiftly.

“Then came the shocker. The new CEO, John Stankey, announced that AT&T was giving up on its dream for a combined content and distribution company. AT&T had agreed to spin off its media empire that included HBO, CNN, YNT, and Warner Bros. studio to Discovery. The sale wiped out tens of billions of dollars of equity value. Stankey would no longer challenge Comcast in PayTV or draw digital advertising from Google or challenge Netflix on streaming. It would revert to being a broadband and wireless company.”

Meanwhile, the folks over at CNN were going a bit rogue, creating their own streaming service (CNN+) for CNN content, perhaps in a reaction to the success of the streaming service Fox Nation. It launched in March of 2022 and, um, didn’t make it as far as April. It seems that the company formerly known as Time Warner’s new owners were not amused by this idea. You can read my take on that story here.

With its adventure into content behind it, AT&T has returned to its playbook of running a communications business and delivering dividends to its shareholders.

Lessons learned?

This is a case in which I think the strategy actually made sense. Take a contrasting example of a company that made the combination of content and distribution, that of Comcast.   Comcast is widely regarded to have successfully navigated the merger of content and distribution businesses (not to mention theme parks). It has now positioned itself as a leading player in new streaming services, with the opportunity to potentially create international reach.

A second lesson, however, that goes with the first, is that if you have key players whose support for your strategy is essential, you need to get their hearts and minds lined up. This means practicing positive politics.  It means creating a compelling narrative, letting people ‘see’ where they are in the future story and dealing with the human side of any big transformation.

A third lesson, which comes directly from Discovery Driven Growth is to spell out as clearly as you can what would have to be true for any kind of uncertain initiative to succeed. Whose cooperation would be necessary to create a complete offering? Is there agreement on the strategic objectives? How will you be bringing key stakeholders along? With this level of clarity, you can define the “must have” elements of execution that are necessary to bring the strategy to life.

And then, please, test those assumptions!


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