T AT&T Inc

By Joe Flint 

AT&T Inc.'s chief operating officer defended the company's strategy in the media business and said it doesn't plan to sell its DirecTV unit, viewing the satellite TV provider as central to its ambitions in streaming video.

In an interview, John Stankey said, "DirecTV is an important part of what we're going to be doing going forward."

The Wall Street Journal reported last week that AT&T was examining whether to part ways with DirecTV, and that the company had considered options such as a sale or spinoff.

Mr. Stankey said AT&T has studied its options for DirecTV as part of broader portfolio reviews. "We're constantly looking at the portfolio," he said. "That's the normal course of business and it's not unique to DirecTV."

Elliott Management Corp., an activist investment firm that disclosed a significant stake in AT&T this month, has called on the company to shed assets and reassess its plans to transform into an entertainment colossus. AT&T bought DirecTV for $49 billion in 2015 and last year purchased Time Warner Inc. in a deal valued at $81 billion. Mr. Stankey said asset reviews have been done before Elliott went public with its concerns.

Although DirecTV has hemorrhaged subscribers as consumers cancel their TV service, Mr. Stankey said it would play a significant role when the company launches a subscription video-streaming product next year that brings together content from its WarnerMedia unit, which includes HBO and Warner Bros. AT&T is looking for traditional pay-TV distributors to be involved in rolling out the online service.

He also said DirecTV is an important part of the company's advertising business, given the data it provides to allow for more targeted marketing.

Mr. Stankey, 56 years old, was elevated earlier this month to a newly created chief operating officer role at AT&T, putting him in line to succeed Chief Executive Randall Stephenson.

Mr. Stankey continues to serve as chief of the WarnerMedia division and said there are no plans for him to give up the role. "I'm not looking to find my successor right at the moment," he said.

Acquiring DirecTV instantly made AT&T the largest pay-TV distributor, but it has been ravaged by service cancellations. AT&T had 23 million U.S. pay-TV customers at the end of the second quarter, some three million fewer than at the time of the 2015 acquisition.

Mr. Stankey attributed some of DirecTV's woes to its inability to offer all subscribers service bundles that include high-speed internet access, unlike cable operators such as Comcast Corp. which offer TV, voice and internet bundles.

"Where we've built better broadband, the business is performing just fine," Mr. Stankey said.

One of Mr. Stankey's biggest priorities is HBO Max, the new streaming service that will compete with Netflix Inc. and other offerings in the works from Walt Disney Co., Comcast and Apple Inc.

Mr. Stankey declined to comment on the price of HBO Max. It is expected to be higher than $15 a month, which is what HBO costs, people familiar with the matter have said. That would be more expensive than Netflix, whose most popular plan is $13 a month. Disney's Disney+ is being sold for $6.99 a month while Apple's offering is $4.99.

"Higher quality should warrant a slightly higher price," Mr. Stankey said. HBO Max will include all of HBO's programming as well as original and library content.

Mr. Stankey said companies are setting prices according to their differing business models. Apple can set a low price, in part because it is looking to use video "to sell a lot of hardware" at a high profit margin, he said. Apple TV+ will come free for a year with the purchase of a new iPhone, iPad or iMac.

Disney likely wants to keep its price low, Mr. Stankey said, because the monthly cable bills consumers pay already reflect substantial charges for Disney's channels, including ESPN. "I think that's just natural for their business model," he said.

Representatives of Apple and Disney declined to comment.

HBO, he said, is already a "a premium discretionary product that over 30 million households say they want at $15 a month."

After AT&T's acquisition of Time Warner, Mr. Stankey combined the HBO and Turner cable units, leading to the departure of the top executives in each division. The Warner Bros. movie and television studio is now more closely aligned with the rest of the company than in the past.

"Did we have three of everything when we closed this transaction? We did. Can you be successful in media as three subscale businesses moving forward when all these companies are consolidating to get scale and play at scale? I don't think so," Mr. Stankey said.

Some of the people who left, Mr. Stankey said, could have remained if they wanted. "Sometimes you want the person to stay, but they look at it and say, 'this is not my cup of tea,'" Mr. Stankey said, or "'my sandbox has changed.'"

Mr. Stankey said his leadership team, including WarnerMedia Entertainment Chairman Robert Greenblatt and Warner Bros. Chief Executive Ann Sarnoff, "subscribes to the direction we're headed and are energized about it."

Mr. Stankey said he values input from his people, disputing criticism from some former Time Warner executives. "We got to the restructuring of this business through the input of the people who ultimately wanted to play," he said. "Now there were some people who didn't really want to play and maybe they didn't get a lot of input."

--Drew FitzGerald contributed to this article.

Write to Joe Flint at joe.flint@wsj.com

(END) Dow Jones Newswires

September 24, 2019 16:23 ET (20:23 GMT)

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