By Joe Flint, Drew FitzGerald and Alexandra Bruell
Last month, comedian Samantha Bee used a vulgarity to describe Ivanka Trump on her TBS show. It was bleeped on air, but ran online, and set off a scramble inside Time Warner Inc., the network's parent company.
Advertisers pulled out. Ms. Bee apologized. Time Warner Chief Executive Jeff Bewkes was furious. The comedian's defenders argued that stars on sister channel HBO get to cross lines all the time, people familiar with the matter said. In the end, Ms. Bee wasn't suspended.
Congratulations, AT&T Inc., now all this is yours. The telecom giant this week defeated the government in a landmark antitrust case that all but secures its $80 billion takeover of Time Warner. That legal odyssey may soon seem like a breeze compared to what comes next -- delivering on the promise of the deal.
A major challenge will be integrating a staid phone company with an entertainment behemoth filled with larger-than-life personalities. AT&T will have to reconcile its culture, where all but nine top executives usually fly coach, with Time Warner's Hollywood lifestyle, where most vice presidents and above fly business class and airport greeters are common, according to people familiar with the companies' travel policies.
What was once Ma Bell will have to stomach huge spending on content, knowing that flops are a fact of life in Hollywood. And, as in the case of Ms. Bee, it will have to decide where to draw the line.
"AT&T will need to demonstrate it can effectively manage a media business," said Mike White, the former chief executive of DirecTV, the satellite broadcaster that AT&T acquired in 2015. "That means, in particular, retaining key talent and encouraging a culture of innovation."
The companies said they look forward to closing the deal on or before their agreed-upon June 20 deadline. The government could throw a wrench in the process by appealing federal judge Richard Leon's decision in AT&T's favor, though he warned the government against trying that tactic in an unusually blunt opinion.
AT&T has pledged to reinvent TV advertising and challenge Facebook Inc. and Google in winning marketing budgets. It has considered selling ad space on channels such as TNT and CNN in a new way, targeting different households with different ads, according to remarks by company executives at the trial.
Rather than running an ad for an arthritis drug for an entire audience, a young family might see a diaper ad, while a single man nearby might see videogame ads. AT&T would marshal the anonymized data it keeps on millions of wireless users -- including their viewing habits and locations -- to help target the ads and then see if people went somewhere or purchased something after seeing them.
There are major hurdles standing in the way of this strategy, including the possibility it could cannibalize national advertising revenue and require cooperation from rival pay-TV distributors that is unlikely to be forthcoming, people familiar with the plans say.
AT&T is also trying to gain ground in a marketplace battle to win over cord-cutters who are dropping cable and satellite services including its own DirecTV. It is planning to release a roughly $15-a-month bundle of channels, including Turner's CNN, TNT and TBS, which doesn't include sports networks. The service would come with an app preloaded on AT&T Wireless customers' smartphones. That is an aggressive price in an industry where roughly $40 is the norm for a "skinny" bundle.
The man who has been tapped to run Time Warner for AT&T is John Stankey, a 32-year company veteran. He climbed the ranks of the phone giant and ran its giant landline business before leading the company's acquisition of DirecTV in 2015.
A towering executive with a deep voice and an intimidating presence, Mr. Stankey isn't well-known in media circles. He will be dealing with high-profile and better-paid underlings at Time Warner. Mr. Stankey made $10 million in 2017, according to an AT&T securities filing, far below the compensation packages of the heads of Time Warner's HBO, Warner Bros. and Turner, according to people familiar with the matter.
Mr. Stankey, a daily presence during the antitrust trial, is expected to make the rounds in coming days with Time Warner's leadership. He is meeting with top Turner executives this week in New York, a person familiar with the situation said.
Last year at a gathering of media industry leaders hosted by the boutique investment bank Lion Tree, Mr. Stankey acknowledged "we've got one of the more complex management tasks of any organized entity sitting in front of us," according to a person in attendance.
Mr. Stankey said AT&T wouldn't be allergic to spending money on the right project. "We're not going to screw up a hundred-billion dollar transaction for want of a billion dollars of investment," he said.
Inside Time Warner, executives have expressed concern that a fast-paced creative culture could be stymied by a telephone company unfamiliar with the idiosyncrasies of making and marketing movies and television.
"There was a sense of a much more intense bureaucracy" at AT&T, said one Time Warner executive who was involved in transition planning with AT&T. "Small decisions require multiple conversations."
AT&T has already signaled it may get involved in the creative process. Executives have proposed using specific data on what kinds of viewers are watching shows, and how much time they spend doing so, to help decide what programming is worth the investment.
"Neither company today has the wherewithal to actually execute around using data analytics to help inform the creative process," Mr. Stankey testified during the trial, referring to AT&T and Time Warner. "There will be more information coming after the business is combined and the reality is that people are going to have to learn new tricks."
AT&T's takeover of DirecTV is the closest blueprint Time Warner has for what may lie ahead. After AT&T assumed control, it combed through the executive ranks and gave many people new, less-impressive titles and lower salaries.
"It's not a great morale booster or incentive," said one former DirecTV executive who took the pay and title cut. "They would tell you you're great, but they are very stingy."
The lavish perks that often go hand-in-hand with the entertainment industry -- fancy offices, multiple assistants, travel benefits -- are also expected to eventually go under the microscope.
"If you get to the airport early and get a Coke, that is on your dime," one person familiar with AT&T's travel policy said.
At Warner Bros., the expense policy is more generous and many executives get greeters when they arrive and depart from the airport to speed them through security, people who know its policies say.
The political leanings of the companies' staff also differ. AT&T employees and affiliates' political contributions totaled $11.7 million, about two-thirds of which went to GOP candidates, during the 2016 election cycle, according to OpenSecrets, part of a nonprofit research group. Time Warner's contributions reached $2.4 million, 87% of it to Democrats.
As AT&T will soon learn, running a media company comes with plenty of gut-check moments that have no rulebook.
The incident involving Ms. Bee on her show, "Full Frontal," caught top Time Warner executives by surprise. Her statement describing Ms. Trump with a vulgar term for female anatomy came as part of a monologue criticizing her father, President Donald Trump, for a policy that separated migrant children from their parents at the border.
Lawyers at Turner, the unit that oversees cable channels including TBS, suggested not using the line, but a programming executive assigned to the show said censoring it with a "bleep" would be fine, according to an executive familiar with the matter. No one took the discussion further up the food chain, the executive said.
In another high-profile decision, CNN fired comedian Kathy Griffin last year from its New Year's Eve program after she appeared in a photo holding a faux bloody severed head of President Trump.
Just before Ms. Bee's performance, AT&T's chief executive, Randall Stephenson, gave some indication of how he might respond to such incidents. He was asked at the Code Conference, a gathering of media and tech executives, about the decision of Walt Disney Co. to cancel ABCs "Roseanne" after its star made a racist tweet about a former aide to President Barack Obama. Mr. Stephenson replied, "that is a no-brainer, right?"
President Trump has consistently attacked Time Warner's CNN cable channel. During and after the 2016 presidential campaign, his aides complained privately to top Time Warner executives about negative coverage and the makeup of expert panels, The Wall Street Journal reported.
AT&T and Time Warner executives believed that one of the reasons for the government's suit to block the deal was President Trump's aversion to CNN, people close to the situation have said. Both the White House and the Department of Justice have denied any such motivation.
AT&T has said it wouldn't interfere with CNN's editorial independence. CNN President Jeff Zucker's contract was recently extended through the end of 2020 by current Turner management, a person familiar with the situation said. People close to CNN and familiar with AT&T's thinking believe Mr. Zucker is secure.
AT&T itself was embarrassed last month when news broke that it had retained Michael Cohen, a personal attorney and fixer to Mr. Trump, as a political consultant, paying him $600,000.
Mr. Stephenson said the hiring was a "big mistake" that damaged AT&T's reputation, and he forced out the head of the company's Washington, D.C., operations. That decision came after large investors called the CEO urging him to put the controversy to rest, according to a person familiar with the matter.
Mr. Stankey, the AT&T executive who will oversee Time Warner, is seen by people who have sat across the table from him as having the right temperament for the job.
"He's calm and deliberate," said David Zaslav, chief executive of cable programming giant Discovery Inc. Mr. Zaslav said he doesn't expect Mr. Stankey to weigh in on programming decisions but will instead focus on the big picture.
"He's not the guy who figures out who to cast in your drama," but will be a "creative leader" who can fuse quality content with AT&T's mobile phone operation, Mr. Zaslav said.
John Martin, the chief executive of Turner, is expected to leave the company, in part because Mr. Stankey plans to be more hands-on than Mr. Bewkes.
Write to Joe Flint at email@example.com, Drew FitzGerald at firstname.lastname@example.org and Alexandra Bruell at email@example.com
(END) Dow Jones Newswires
June 13, 2018 18:20 ET (22:20 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.