AT&T's Wild Week: John Stankey Takes Control Ahead of HBO Max Launch
It's been a busy week for AT&T.
On Tuesday, its WarnerMedia subsidiary revealed HBO Max will launch on May 27th; on Wednesday, it released first-quarter earnings; and on Friday, the Dallas-headquartered conglomerate shuffled its leadership with CEO-Chairman Randall Stephenson handing over power to current President-COO John Stankey. A leadership change has been in the works since 2017, according to a company statement.
Stankey, who will assume the CEO mantle on July 1st, will soon relinquish his current CEO perch atop WarnerMedia, which oversees HBO Max. He takes the reins at AT&T amid a period of corporate transition, which largely centers around the new streaming service that will fall under the direct purview of former Hulu chief Jason Kilar.
AT&T has borne its fair share of recent scorn. Activist investor Elliott Management has publicly criticized the firm, questioning the strategy behind the acquisitions of DirecTV in 2015 for $49 billion ($67.1 billion including debt) and Time Warner in 2018 for $85 billion. According to media analyst Matthew Ball, AT&T now holds more debt than at any time in its history.
The company is pinning a lot of hopes onto HBO Max, which will reportedly launch with over 10,000 hours of content at a subscription price of $14.99 per month. In addition to HBO programming, HBO Max will also include content from the vast WarnerMedia library (Warner Bros., CNN, TNT, DC Entertainment, Cartoon Network, and more), dozens of new original films and series, and a variety of licensed assets.
Making It Fit
Media analyst Bruce Leichtman told dot.LA that HBO Max is a critical piece that AT&T is trying to fit into its large puzzle of corporate business units.
The firm, Leichtman said, has recently eschewed lower-value customers on its pay-TV businesses (DirecTV, AT&T U-Verse and AT&T TV Now), resulting in a quick loss of over 4 million subscribers in 2019 (up from about 750,000 in 2018). AT&T alone accounted for over 80% of total U.S. pay-TV net losses last year. Importantly, Leichtman noted, this did not correspond to a proportional drop in income, since these were primarily lower-margin customers.
Looking forward, HBO Max will be included gratis in "select AT&T wireless, video and internet plans," AT&T has said. The hope is to entice relatively profitable customers to pony up by bundling high-margin services with the content bonanza.
"I think what we're seeing is an attempt to fit all these parts together," summarized Leichtman
Additionally, by moving into over-the-top (OTT) streaming, AT&T will have an opportunity to more aggressively leverage its HBO asset.
"They always thought," Leichtman said, "they had an undervalued asset in HBO. They looked and said, 'Why isn't HBO Netflix?'"
HBO Max presents AT&T at least two valuable opportunities to grow its corporate footprint. First, it may be able to capitalize on a public market that seems bullish on streaming.
"They are astounded, not necessarily by Netflix as a service, but more so by the valuation," Leichtman said. Whether you call it exuberance or foresight, AT&T wants a piece. And the coronavirus lockdown may help them get it.
"If anything in media stands to benefit from people being locked in their homes, OTT and pay-TV services are it," wrote Doug Creutz from Cowen & Company in a report earlier this week.
HBO Max will also give AT&T a chance to capture a younger audience, Leichtman suggested, which the company does not reach as easily through its current channels as it may with a direct-to-consumer streaming service.
The Cowen & Company report forecasted HBO Max's total U.S. paid subscribers in 2024 at 24 million. That projection places it sixth in the so-called streaming wars, behind Amazon Prime (83.4 million), Netflix (72 million), Hulu (43.8 million), Disney+ (37.2 million) and Apple TV+ (31.3 million). Given HBO Max's relatively high price, though, and its potential synergies with the rest of the company, that position may suit AT&T just fine.
Now it's on Stankey, and the newly appointed Kilar, to make it happen.
- John Stankey Takes Control of AT&T Ahead of HBO Max Launch ... ›
- HBO Max Launches, The Newest Streaming Super-Network - dot.LA ›
- WarnerMedia CEO Jason Kilar on Hulu and Disruption - dot.LA ›
- HBO Max Will Offer Cheaper Ad-Supported Streaming - dot.LA ›
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The Opportunity
Several startup founders and musicians are looking to this incipient market not just as a means of selling digital collectibles, but as a unique way to offer fans exclusive, paid experiences.
"Any new avenue of potential profit is exciting in the music industry, considering the lack thereof from streaming and [the need to rely on] touring," said Brian Spencer, one half of the L.A.-based musical duo FINKEL.
There's nothing new about creators offering fans exclusive perks. What is new is that they can now be linked to an NFT that also functions as a "key" or "passport." Many artists are hoping this linkage can stoke demand for perks, thanks to the innate human attraction to ownership.
"There's a lot of psychological evidence that owning things matters a lot to people," said Valentin Haddad, a professor at UCLA Anderson School of Management who studies how and why people make financial decisions.
He pointed to the so-called "endowment effect," which, research has suggested, makes people value things more when they own them, simply because they own them. Since NFTs are a certificate of ownership, linking them to an experience – like a backstage pass, or a producer credit – should boost the value fans see in those experiences, Haddad said.
"I think the idea of tying some experiences, tying something more special, to the object [underlying the NFT] is going to increase," he said. "We're going to see lots of creativity."
Illmind is auctioning 10 NFTs linked to audio files he created that owners can use royalty free.
Rikin Mantri's recently launched NFT-minting and -trading platform, Curio, has sold about $130,000 worth of tokens tied to graphic novel characters the company licensed, and it plans to expand soon into other IP, including music. Mantri sees the eye-popping prices capturing headlines as indicative of a bubble, but thinks NFTs have enduring potential.
"We think NFTs have a strong use case in building digital collectible collections and offering experiences around those collectibles," he said. "It's a completely new incremental revenue stream."
Kings of Leon, the Grammy-winning band, released their new album last month alongside a series of NFTs, six of which were high-end "golden ticket" versions that granted token owners lifetime front-row concert tickets. In February, 3LAU, a DJ, auctioned off a topshelf NFT that entitled one fan to creatively direct a new composition.
Rapper Post Malone is planning to sell an NFT linked to a private game of beer pong. Illmind, a Grammy-winning DJ, is auctioning 10 NFTs linked to audio files he created that owners can use royalty free. Electronic musician Aphex Twin recently turned an NFT into a digital scavenger hunt. And Logan Paul, a YouTuber, linked an NFT to the opportunity to watch him unbox rare Pokémon cards.
Other creators are taking a less experiential and more charitable approach to offering NFT products. Street-artist Shepard Fairey, best known for designing the Obama "Hope" poster, is working with East Hollywood-based Verisart to auction off a digital artwork as an NFT, and donating the proceeds to Amnesty International. Pussy Riot, a Russian feminist punk rock group led by activist Nadya Tolokonnikova, recently minted four NFTs tied to a video produced by young AR pioneer Asad Malik of La Cañada-based Jadu, some of the proceeds of which went to a shelter for domestic abuse survivors.
Meanwhile as the metaverse inches closer, the range of perks and experiences that can be tied to NFTs is growing. One sign of things to come is Decentraland, a virtual world with its own blockchain-enabled currency that has hosted digital parties that require NFT-ownership for entry.
Financial Stake
The same technology that enables these unlockable perks, whether digital or in-person, also allows artists to retain a financial stake in all future sales of the NFTs they issue. Stipulations like sending 10% of the price paid for an NFT to a specified bank account can be executed automatically: thus the term "smart contract."
Smart contracts are one element that distinguishes the Ethereum blockchain, on which most NFTs run, from the blockchain that underpins Bitcoin and many other cryptocurrencies.
They're also what could make NFTs helpful to smaller artists in particular. Since smart contracts can theoretically automate tasks like preventing fraud and scalping, they open up new opportunities.
"It's giving artists lots of access to ways to share experiences and share things that big artists could always do [but] small artists couldn't," Haddad said. "The benefits are likely to accrue to the top, but I think it will benefit everybody by creating a better way to exchange with your fans."
Artists' NFT Concerns
One downside to NFTs is the high volume of electricity they use, which can harm the environment. That's turning some artists away from them for now.
FINKEL is unlikely to pursue NFTs until the environmental concerns can be addressed, Spencer said.
One way of doing so could be a shift in how the blockchain works. Validating who owns what on a blockchain has largely relied so far on a method called "proof-of-work," which requires intensive computation that uses an immense amount of electricity. Some observers say an alternative method, called "proof-of-stake", would require less and could be less environmentally harmful. Although proof-of-stake has not been widely adopted, Ethereum has publicly stated it wants to transition to it, in part because of its environmental benefits.
Beyond environmental concerns, some artists bridle at NFT perks because of their inherent exclusivity and transactional nature.
Rebecca Arango, aka Oddnesse, thinks the tactic could perpetuate what she views as a deeper problem underlying the tenuous financial situation that many musicians find themselves in: fans have lost the human connection they once had with the artists behind the music they love.
"It's like the music just comes and goes and it'll always be there, and if one artist goes broke and gives up, there's always another one where that came from," she said.
But she concedes she may be fighting an uphill battle.
"I'm still going to advocate for the [intrinsic] value of the songwriting and the records," said Arango. "[But] if people are really into owning these digital tokens, I'll have to get with the program."
