Cable TV, Streaming, Channels

By pjain      Published May 26, 2021, 3:52 a.m. in blog Business-Management   

Cable TV, Streaming, Channels Key Factors

Culture Clash vs Cooperation

In the $165b AOL-TW and $85 T-TW acqs both put two very different cultures together and in both it was not managed correctly leading to significant problems.

Netflix and Amazon Prime Video have demonstrated that you can excel on both dimensions and deliver creative content via efficient streaming platforms. But AT&T, Verizon have suffered by imposing conduit mechanisms and forcing functions on non-linear content systems.

TECH Pipe/Conduit business - VZ, T, T-mobile

Conduit is a network business, all about maintaining a physical plant such as internet TCP-IP or cable systems and making sure it doesn’t break.

This requires a mindset of not breaking things, or taking risks, and expectation to make billions of dollars of recurring revenue.

While media and content is distributed by conduits, reality is the two businesses have very little in common.

Distribution reach and technology is certainly useful in helping expand distribution, improve the streaming service and develop targeted ads.

Content company — Time Warner, AOL, Yahoo

  1. Content is a hit business - without any guarantee of any success or money flowing in tomorrow.

  2. HUMAN TALENT. Content needs little physical capital but loads of human capital — creators willing to take risks and make bets on potential hit TV shows or movies. “What you need to make a business out of Walt Disney (content) is just very different from what you need to make a business out of Comcast (conduit) - Faulhaber , Wharton prof

  3. Understand Emotions/People, Embrace and Encourage failure. Creative talent is key to making great content, even if there are no guarantees for success. "You’re going to fail. You have to accept that. You have to give creative people a wide berth to operate. You have to be willing to take risks, and at the end of the day it’s really about a leap of faith. You are going to listen to the vision of the creator of the show, listen to the programming executives, and you’re going to hold hands and you’re going to walk to the edge of the cliff and take a step and hopefully … there’s a bridge above the chasm. Sometimes that bridge is not there. That is just the nature of creative content.” - Wharton's Kessler.

  4. In pitching Game of Thrones - David Benioff its lead screenwriter and TV producer said, ‘Forget the dragon. Forget the magic. Forget everything. The show is about one thing — it’s about power. How you get it and how you keep it - enabled us to understand why this show was going to connect with people” in mainstream vs over one year delay in HBO funding it since fantasy mainly appeals to niche audiences.
  5. This track record with Warner head Plepler gone?
  6. But hard to know who is most valuable.When former HBO CEO Chris Albrecht left in 2007, there was also concern about the future since he had been in charge of programming when the cable channel developed “The Sopranos” and “Sex and the City.” But HBO did not derail. “It was an HBO programming strategy, and it was an HBO brand,”

  7. Start Small, Risk Management, Circuit Breakers. Don't Burn all the Cash.

  8. Sopranos a hit series started very small with a pilot proposal by David Chase, a staff writer for some TV shows back in the late 1990s. Starting with a very low budget it became blockbuster.
  9. Vinyl was the story of a record executive in the 1970s, and it had sex, drugs and rock and roll, with hit writer Terry Winter (of Sopranos), produced by rock star Mick Jagger, directed by Martin Scorsese and a $100 million budget. Elements looked great on paper - and cancelled within a year.

Cable OLDIES - Comcast, Charter, Cox, Roger

NBC Universal works

While media and content is distributed by conduits, reality is the two businesses have very little in common in the name of "providing entertainment or eyeball engagement".

Comcast and NBCUniversal were able to integrate well and create synergies from their combination, but they are the exception. Comcast is an unusual product and CEO Brian Roberts is a competent CEO.

Recurring Revenue - Why AT&T/AOL tried to buy Content

The cable and satellite TV business — pay TV — looked like a safe bet with its take-it-or-leave-it cable channel bundles. (AT&T’s U-verse and Verizon Fios would launch in the mid-2000s.)

Ref Cable

Streaming, Entertainment Innovations kill Cable TV

Cable Cutting - Millenials want unbundled content not Same old stuff

More competition arrived and many consumers were cutting the cord. “Distributors [such as cable, satellite and telecom-TV providers] weren’t happy about it certainly, but they acknowledged that was the future.”

Netflix 101

Netflix was just a young company renting out DVDs by mail. Fast internet was not yet widely available, and the iPhone and iPad were not yet on the market. TV shows and movies were not yet streaming to mobile devices.

2015 - high speed networks were common to the home. Netflix had assembled enough media partnerships and hooked onto tv shows as engaging.

Disney+

HBO max

--- Casual TV on Mobile

Apple came out with the iPhone and iPad that made watching video on mobile devices much easier. Amazon got into video; so did Google’s YouTube and soon Apple.

Quibi failed

Tubi failed

AT&T - Time-Warner Media M&A Fails

The stock chart of T as follows

$5-$60 WIRELINE to 2000 Great Management Sticks to Kitting - Ed Whitacre - Wireline to Wireless Rollups

WIRELINE. The chief architect of the modern-day AT&T is Edward E. Whitacre Jr., a Texas native who started his career as a facilities engineer with Southwestern Bell in 1963 before rising up the corporate chain to create what would eventually become one of the largest telecommunications providers in the country. He transformed Southwestern Bell, the smallest of the regional Bell telephone operators, into a phone behemoth by gobbling up company after company. Mr. Whitacre’s philosophy, simply, was bigger is better - but a rollup of LIKE operations, and he knew how to squeeze more profits from them, and work with PUCs to get top dollar ROI.

$23-$43 2005-2007 WIRELESS Outsmarting Verizon/Vodaphone with iPhone

Mr. Stephenson, Whitacre's successor, then transformed AT&T into a mobile giant. He secured a key deal with Apple in 2007 to become the exclusive provider of iPhone service and the company kept growing. This give them a HUGE benefit.

Vertical Integration with U-Verse

“The deals we made while I was chairman — which was a long time — was acquiring the businesses that we were familiar with, the businesses we were in,” he said in an interview. “And when I left, that changed.” - Ed Whitacre.

  1. Getting into U-Verse - But Streaming killing Cable and Satellite SUBs

  2. Rapid Rise of Netflix and Cord Cutting as GFC nesting ended. Customers began to cut their cords and cable subscriptions began their descent.

  3. Preservation of U-Verse/Direct TV

  4. Net Neutrality happened so Cannot get Netflix to Pay for 30-50% of Net Traffic

Direct TV

  1. DirectTV bought in 2014 did not workout as it bought into the pay-TV industry at its peak - linear TV peaked and after that growth reversed. Perhaps this was an attempt to get U-Verse to scale and profit from as Triple Play that Comcast grew on. Instead it has been bleeding customers for years. Eventually Feb'21, AT&T sold part of the business to the private equity firm TPG at a valuation of about $16 billion, a third of what it originally paid.

Drop to $30 TW/ Media M&A Fails - Mismanagement by Stephenson/Stankey

  • TIMELINE
  • 2018 Stephenson acquires by overpaying for Time Warner, the entertainment colossus behind HBO, CNN and the Warner Bros. studios
  • May'21 - Spins off WarnerMedia and $43b debt to Scaleup Discovery, retains 71% stake, but flattens Malone voting for future Acqs.

A. M&A Problem 1A. AT&T appeared to buy things at a premium and sell at a discount. Overpaying and loading in debt for "hot" asset as bottom fell out of media valuations. Ignoring fails by AOL. AT&T still faces a crushing debt load of nearly $170 billion, and an expensive build-out of its 5G network, as well as rival carriers who seem to have a jump on the next generation of fast mobile internet service.

B. M&A Problem 1B. The vertical integration strategy just didn’t make any sense - AT&T felt fat pipe was not good and repeatedly failed in (a) Cloud and Hosting - just could not compete with AWS and later Microsoft, (b) Business value added security, software and platform services.

C. M&A Problem 1C. Double Down on Stupidity of $67b acquisition of the satellite operator DirecTV in 2015 - Refusal to learn from Direct TV Fiasco. Stephenson was just being stubborn like a jackass - after burning tens of billions on Direct TV, he still bid top dollar for TW.

D. M&A Problem 1D. Fiddling while 5G/Wireless Business Burning. - Before 2014 AT&T tried to buyout T-Mobile early as it rolled up wireless - but blocked by DoJ. - 2015-2018? AT&T made progress getting a certified high quality network to compete with Verizon. - to 2020 TMUS did end-runs around both by out marketing and competing on "medium price for ok-2nd rate network" and acquiring Sprint base catapulting it to fight elephants and grabbing tens of millions of users from both. - 2021 Desperation on stiff competition from T-Mobile and Verizon in saturated. The big three are essentially stealing customers from one another. AT&T makes nearly all its money from wireless and will have to protect it by reducing prices and investing tens of billions to build its network faster and offer it at a better price to keep customers from defecting.

Problems of Execution in Streaming

  1. The Justice Department sued AT&T to block the "corporate misbehaving" deal, but it lost its case in court. But the two years to get merger approved - lost crucial momentum to catchup to Netflix in streaming.

  2. AT&T really dissed free-wheeling TW execs as "cowboys/baseball hit stars".

  3. Loss of TALENT. Cost cutting, Mismanagement of TW talent - 2000 laid off, replace media execs with long time wireline babus. Plepler had been at HBO for 27 years and Levy at Turner for 32. With 25-year tenure Tsujihara had been at the company for 25 years, and his exit means that all of the old Time Warner division heads will be gone.

  4. Bean Counter Mistakes. AT&T cut costs instead of talking about content deals (notable Game Of Thrones final season bombed and it lost the talent).

  5. HORRIBLE MARKETING. AT&T invested billions to introduce HBO Max, a new streaming service that together with regular HBO has over 44 million subscribers. PROBLEM is very few of these were paying customers - just bundled for "free" with Uverse, or AT&T Broadband base. Also problem was all old shitty content from HBO - most Americans had already seen all the movies.

  6. HBO changed through all this time over AOL, AT&T.

a. HBO Go had first launched in 2010 a streaming service called HBO Go, but it was only available to subscribers of pay TV. At the time, HBO and Cinemax collected $4 billion from pay TV providers, and bypassing them would jeopardize these affiliate fees. BUT if they had gone directly to consumers back then, they would have lost a lot more than they would have gained. The math simply didn’t work and these types of internal wrangling is common for traditional media.

b. HBO Now - anywhere. Because many online video services were now competing for viewers, it made sense to get in the game and launch its own service called HBO Now, which made its premium content available to anyone, even cord-cutters.

c. HBO max - leveraging U-Verse, AT&T Broadband as "subscribers". Pull back as Discovery needs to make money as separate unit.

Creative Talent Management Issues

  1. Reorgs Hurt. AT&T took steps that could be seen as breaking up the old silos within Time Warner, which it renamed WarnerMedia unified vs mutually competing Warner Bros., HBO and Turner units (TNT, TBS, Cartoon Network and other entertainment cable channels). That means entertainment content could be found under any of the three divisions, whether it is episodes of HBO’s “Game of Thrones,” the hit sitcom “Friends,” or blockbuster films such as Batman, Wonder Woman and Harry Potter. The reorganization also led to the exit of two veterans: HBO Chairman and CEO Richard Plepler and Turner President David Levy.

  2. Content by Type doesn't work to motivate Creatives.Thinking logically, AT&T execs organized by type of content. But this hurts creativity and competition.

a. Warner Bros. has the film, TV and games businesses, plus family, kids and animation content (Cartoon Network, Adult Swim, Boomerang). AT&T initially retained 25 year tenured and current Warner Bros. CEO Kevin Tsujihara, but he decided to step down this week due to revelations that he helped obtain roles for an actress with whom he was in a relationship.

b. WarnerMedia Entertainment with It placed HBO, TNT, TBS, truTV and the direct-to-consumer business (which includes streaming services). New unit's boss is Robert Greenblatt, formerly chairman of NBC Entertainment.

c. WarnerMedia News & Sports divisions with CNN, Turner Sports, Bleacher Report and the AT&T Regional Sports Networks. CNN Worldwide President Jeff Zucker will be in charge of news and sports.

Analysis of Discovery Deal, Projecting Futures

AT&T dividend of 7% likely to be cut 50% - as CEO said dividend to be scaled to sustainable free-cash flow. It could get lower depending on capex levels.

  1. Restore DISTRIBUTION of Cable Channels - Only Profitable part of WarnerMedia.
  2. WarnerMedia makes money by distributing shows and films as widely as possible and most profits are made via Cable per month recurring subscribers. In other words, it would still have to license HBO and CNN to rivals like Verizon’s television service, or to cable giants like Comcast. AT&T would have a hard time justifying keeping the content for itself. These are the ones MOST hurt by cable cutters. Comcast, Charter, Cox, etc. hated AT&T trying to use TW on top of U-Verse already, but HBOmax becoming #3 after Netflix and Disney+ was a huge emerging threat.

  3. Discovery grabbing TW has "accounting" is follows:

  4. AT&T paid -$107b for TW, +15b cash pulled out +5b sold stake in Hulu/Euro units +$43b debt or it is into at $44b invested left - but its 71% stake is worth $59b if Discovery's estimated stake is worth $24b. So on paper AT&T gets to at least NOT WRITEOFF loss but take gain of $59-44=$15b.

However since 1996 AT&T has spent tons on M&A advisory and other fees - the original TW banker fees, litigation to push acq, and costs of Discovery deal add up to billions $2b to maybe $10b+.

TW, AT&T


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