How AT&T Could Find Itself a Winner in the Streaming Wars (Column)

After a topsy-turvy week, the thought occurred to me during AT&T’s investor call on Thursday: What if John Stankey wound up on the winning side of the streaming wars?

Netflix took a nosedive on Tuesday with an earnings report that proved that it could not suspend the law of gravity forever. The steady upward climb of Netflix subscriber gains had to stop sometime, and that sometime was Q1 2022.

The jolt that the news of six-figure losses in Q1 and a projected seven-figure loss for Q2 packed a wallop on Netflix stock price. It also dealt a blow to the Hollywood psyche about the long-term promise of streaming, reminiscent of how the earth quaked in August 2015 when then-Disney CEO Bob Iger acknowledged that even the mighty ESPN had faced “some subscriber losses.”

That became the moment that Hollywood begrudgingly had to acknowledge that cord-cutting was a real threat. Will Netflix’s big miss become enshrined eventually as the moment the content bubble burst? Only time and content spend disclosures will tell.

The sense of relief in the AT&T CEO’s voice came in crystal clear even through the tinny webcast audio. The telco giant is glad to be seeing WarnerMedia in the rear-view mirror after closing the spinoff transaction with Discovery on April 8.

AT&T’s Q1 results message to Wall Street analysts took inspiration from the Shakers: ‘Tis a gift to be simple.

Stankey and AT&T chief financial officer Pascal Desroches used the words “simple” and “simplified” no less than eight times during the 70-minute call to describe the new-and-improved AT&T balance sheet. The company’s new growth focus even comes with handy built-in alliteration: 5G and fiber.

It’s not hard to understand why Stankey sounded happy to be talking about its direct stewardship of Warner Bros., HBO and the Turner networks in the past tense. With the streaming wars now being synonymous with the spending wars, AT&T has just offloaded $55 billion in debt and a metric ton of competitive pressures and headwinds in media and entertainment. And it got a boatload of cash in return, plus a majority of the equity in the successor company.

The responsibility for funding HBO Max’s growth is now off of AT&T’s books (mostly). If David Zaslav, Warner Bros. Discovery’s intrepid new leader, manages to make the enlarged company work on a global scale, upside will flow to AT&T shareholders. And if not, Stankey, who is nothing if not an experienced dealmaker, made the best of a bad situation to help mitigate the pain for AT&T shareholders after the telco’s wild ride in media.

“With the completion of the WarnerMedia transaction, AT&T received $40.4 billion in cash and WarnerMedia’s retention of certain existing debt. Additionally, AT&T shareholders received 1.7 billion shares of Warner Bros. Discovery, representing 71% of the new company,” Stankey intoned. “This transaction greatly strengthens our balance sheet and provides us with financial flexibility going forward. We now have a simplified capital allocation framework.”

Surely, AT&T created a smoking crater in its balance sheet with ill-timed purchases of DirecTV (for $48 billion) in 2015 and Time Warner (for $84.5 billion) in 2018. There’s no totaling the lost opportunity costs for both sides of the AT&T/TW merger for the more than five years of unhappy marriage that began with the initial acquisition agreement in October 2016. (The final pricetag for AT&T also has to include the untold millions it spent to prevail against the Justice Department’s quixotic antitrust lawsuit.)

On Thursday, Stankey presided over the disclosure of HBO Max’s subscriber figures for the last time — and they were credible with a 3 million gain over Q4 reaching a 76.8 million total worldwide. Hours after he spoke, David Zaslav, the new leader of Warner Bros. Discovery, pulled the plug on niche streamer CNN+ less than 30 days after it was launched in the waning weeks of the previous WarnerMedia regime’s tenure. Chalk it up to merger mania.

HBO Max’s numbers looked downright strong compared to Netflix’s slump. So why did the AT&T chief sound even happier to be talking in granular terms regarding AT&T’s standing in telco and wireless “flow share” and the like? The answer seems pretty simple.

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