EXCLUSIVE: AT&T Entertainment Group CEO John Stankey’s days as the media industry’s most anonymous mogul are probably numbered. After years of working mostly behind the scenes helping the Dallas-based telco make deals and manage operations, the company gave him the keys to one of the nation’s biggest entertainment empires last year when it paid $47.4 billion for DirecTV.
And he’s starting to make decisions that will ripple through Hollywood, including one to double AT&T’s spending this year on content — a subject he hasn’t discussed in depth, until now.
Stankey, 53, commands a lot of firepower. AT&T’s entertainment unit generated $35.3 billion in revenues in 2015, which made it bigger than most Big Media companies including Time Warner, Fox, Viacom, and CBS. DirecTV and the U-verse wired systems collectively have 25.4 million pay TV subscribers — beating Comcast’s 22.4 million. The operation also funnels entertainment to AT&T’s nearly 55 million wireless consumers — a group in his domain — which goes up to 137 million if you include the company’s business customers.
That’s important because Stankey believes original content can help AT&T stand out from its cable and wireless rivals. He’s seen that work with DirecTV’s sports programming, including NFL Sunday Ticket. The satellite company is also establishing itself as a buyer of original scripted programming with dramas Kingdom, Full Circle, and Rogue and sitcom You Me Her.
DirecTV will introduce three nationwide streaming services around October offering TV channels and other content live and on-demand.
AT&T’s also becoming a new media power via its 43.4% stake in Otter Media, the production venture led by former Fox exec Peter Chernin. Their digital investments include Crunchyroll, Rooster Teeth, and Fullscreen — which on April 26 will launch a global, Netflix-like, ad-free subscription video on demand service for teens and young adults.
Wall Street is watching. Company shares have appreciated nearly 17% over the last 12 months as investors mostly applauded the DirecTV deal. But MoffettNathanson Research’s Craig Moffett, for one, says the company simply doubled down on a declining industry. Last week he urged clients to sell, saying that “there is simply no convincing source of growth for the company going forward.”
We caught up with Stankey this week to see what he has in mind for content. Here are his thoughts, edited for length and clarity.
DEADLINE: DirecTV has conventional scripted TV series and sports, and you have a big stake in Otter Media’s digital short-form content. What do you think you need more of?
STANKEY: It’s both. It’s not one or the other. We are in an environment that’s going to continue to fragment. At the same time we’re doing scripted work we also understand that there is a generation that wants a different type of content and we have a great platform that really enables different content. So we want to have our foot in both places.
DEADLINE: What types of scripted shows interest AT&T?
STANKEY: Our goal is not to out-Netflix Netflix. Our goal is to offer our customers a little different experience. So we’re looking to be a place where the creative community can come to try some things that maybe haven’t worked in what I’ll call mainstream media. We’re looking for good bang for the buck. We have a good track record of doing that where we can find very talented up-and-coming production talent, up-and-coming writers that have some fresh new ideas, and let them try them out on production budgets that maybe aren’t what I would call the blockbuster level. And then have them come and bring that to an audience that’s diverse in its distribution.
DEADLINE: Do you have a demographic you’re looking to attract?
STANKEY: We have two dynamics we have to work with. We’ve got a lot of high-value customers in our wireless business and in our pay-TV business. That demographic tends to skew a little bit more traditional. We are very interested in making sure we cater to that base. We also have this huge tail of millennials and Gen Xers that are members of their family’s entertainment service and their parents’ wireless plans. That’s why, for example, what we do with Otter is targeted at that space as well.
DEADLINE: Have you thought of buying a major content creator?
STANKEY: We think about things over long horizons here. In the near-term we want to integrate DirecTV. The second part is we’ve got to get the core product and the service experience right. And the third thing is, you want to take that capability – that audience and that platform – and start to move further up the content ecosystem.
I don’t think that necessarily requires you to go out and buy a big content company. But I do believe that, as we’re successful in doing those things, we will continue to move deeper and deeper in our relationships with the content community in developing capabilities that are right for AT&T and AT&T’s customer base. That will be an ever-evolving relationship and probably get deeper and deeper over time.
DEADLINE: But you’re also expanding content spending now. How much?
STANKEY: We’re not working with a Netflix kind of budget. But we’re doubling our budget on content this year. We want to make sure we get to a point where we have enough scale and people start to think: “Gee, I want to have a relationship with AT&T because I can get content that I can’t get elsewhere.” We’re not quite at that level yet, beyond NFL Sunday Ticket and our sports relationships.
DEADLINE: Were you interested in the Thursday Night Football rights?
STANKEY: As a general policy I don’t comment publicly about things that we’ve been involved with from a business development or negotiation perspective. I will tell you that we’re a big company and given our experience with the NFL and the great properties that we already have, it’s something that we obviously look at and pay attention to. We’re not ever going to say that were not interested in looking at really good content – especially content that extends our existing franchises.
DEADLINE: Any interest in producing movies or backing productions?
STANKEY: Sure. Longform has its place. If you were to think about the priorities of investing, number one would be what I would call television-form scripted. Two, you go to the fragmented side. And then, three, you go to longform. Our goal would be to be in a position where we could possibly do some collaborative work, and get some improved windowing.
DEADLINE: Improved windowing with theaters, or with premium TV channels?
DEADLINE: It sounds like this is still in the conceptual phase. You don’t have any concrete plans.
STANKEY: That’s correct. You’re always scanning and always talking. But I can’t tell you that I have a deal signed to solve a problem there.
DEADLINE: This would all be to promote your wireless and wired distribution platform, not to build a separate profit center?
DEADLINE: Some executives say that there’s a glut of original TV shows. Why do you think there’s room for more?
STANKEY: I’m not worried that we’re overinvesting in content. We’re of the mind-set that we should step it up a bit. People don’t fully appreciate that [overall spending] should be going up because the number of opportunities to distribute content are going up. The hours in the day that people can gain access to content are going up. Will it be a little more fragmented? And are we going to have to change our expectations for how much we invest in some of that? I think the answer to that is “yes.” That’s why we’re focused on our personal development [of shows] to make sure we’re getting the right bang for the buck. We’ve been pretty disciplined about that.
DEADLINE: What’s your strategy with Otter Media? Is it your entrée into Hollywood?
STANKEY: We’re trying to work with more traditional content on our own, internally, and will continue to do that. But we’ve used Otter aggressively to tap into the less developed form of content that fit more of the Gen X and millennial dynamic that we haven’t spent as much time on. That line isn’t bright. I can’t tell you that we don’t have slop-over. But that’s generally where we’re oriented right now. At the end of the day we’re just a voice at the table among many [at Otter]. We give them the autonomy to do what they need to do and try to run the business in the way they think is appropriate.
DEADLINE: Otter’s Fullscreen just announced plans for a major subscription streaming service for teens and young adults, that AT&T will back and offer. Is that a blueprint for other initiatives we’re likely to see?
STANKEY: It’s a good example of how we’re working with Otter. To the extent that we’re successful, we expect to do more. We have the Ellation [branded venture] that includes Crunchyroll and over 700,000 paid subscriptions for Japanese anime. We’re looking at what we can do to broaden the portfolio of other subscription services under the Ellation brand.
DEADLINE: What audiences are underserved right now?
STANKEY: When you get away from audiences of 20 million and you start thinking about what you can do with 1 million you get a very long list. We believe there’s some great opportunities with at-home mothers that are into a variety of things whether it be gardening, cooking, or crafts. Media and content can come together to serve them in a way that’s different than it does today. We believe that there are certain segments of the sports market that are underserved — what I would call nonmainstream sports.
DEADLINE: What nonmainstream sports are you looking at?
STANKEY: I don’t want to go any further on that. All that does is create problems for how much I’ve got to pay to get stuff.
DEADLINE: Lots of sports leagues and producers want to deal directly with consumers.
STANKEY: There’s certainly a segment of the population that’s willing to spend hours and hours and hours doing their own curation and discovery. But there’s a segment of the population that probably is not willing to do that. Our job is to be a good curator and a good aggregator, to be sure we’re bringing them really good content. And when you think about it, this content is consumed over connectivity. That connectivity doesn’t come for free. Our goal is to prefer our connectivity by tying really good content next to it.
DEADLINE: How confident are you that the new programming you’re generating won’t cannibalize your existing stuff?
STANKEY: I don’t think you ever go into new innovation and change things and don’t have some degree of cannibalization. But if we allowed cannibalization to be our guiding decision point, we would’ve never gone into the broadband business. We knew that it was going to cannibalize voice telephone service, and we went into wireless knowing that it was going to ultimately make voice telephone service in the house extinct. That’s just the nature of the beast. You can do it in a disciplined fashion. You think about how you offer products to make sure that you’re getting the right service to the right person and adding a continuum of features. We’ve used that strategy in our prepaid [wireless phone] business and wireless post-paid business. We’ll do the same thing in entertainment.
DEADLINE: But you’ve said that you don’t want to offer skinny bundles. Many other pay TV distributors say they’d like to offer fewer channels than the expanded basic bundle includes, at a lower price.
STANKEY: We don’t think skinny bundles meet many customers’ needs. It’s probably because of how the content industry wants to sell their content in a bundle. If you just get one skinny bundle then you really can’t self-construct it. If I come out with a skinny bundle of 28 or 30 networks – that might be well-suited to my wife, but if there’s no sports in it then it is probably not going to meet John Stankey’s needs very well. So the skinny bundle just doesn’t have a broad enough appeal.
DEADLINE: Would you like to see providers break up the packaging so you could buy networks individually?
STANKEY: We all have our likes. In an ideal world I’d like to have a car for free. In an ideal world I’d have 500 channels and not have to pay for it. Unfortunately we don’t live in these ideal worlds. People who develop really good content have demonstrated that they can deliver high-value because they’re able to get [networks] bundled together and sold together. Sometimes developing a new concept requires a degree of cross subsidy. That’s their business model and I don’t think it’s going to go away overnight. So we all might want to have à la carte and only watch my favorite 12. [But] newer content and the nascent stuff that doesn’t have an audience would disappear. Ultimately that would lead to an ecosystem that doesn’t have the broad choice that’s available today.
DEADLINE: Hollywood is famous for being a clubby town built on connections. You come from a different club in telecom and businesss. Do you have the background and skills to navigate the content world?
STANKEY: One of the reasons we’ve established the relationship with the Chernin Group is that we’re trying to bolster talent and capabilities in certain areas where we think we need to get better. We’ll continue to do that. I’m not going to sit here and tell you that I believe AT&T is the best programmer out there, and I’m not going to tell you that I believe we are the masters of the universe in Hollywood. It’s important for us to continue to get better and continue to build relationships.
That said, at the end of the day, people are involved, and at AT&T we know how to work with people. We’re a company that knows how to build long-term relationships and treat our partners fairly. We’ve demonstrated that we can work with folks to distribute content and make money. And I think if you can help people further their business models and get a return for their shareholders, treat them fairly, and have good human relationships that are long-term in nature, you can ultimately establish those kinds of business relationships that are healthy. I think I do know how to do that. It takes time and I think we’re making progress. But we’re not as good today as were going to be three years from today.
DEADLINE: What are your favorite movies and TV shows that don’t come from AT&T?
STANKEY: I don’t watch a lot of movies. I don’t have a lot of time to do that. Right now I’m watching Homeland – trying to get through some past seasons and get caught up on that. It’s a good show and I thoroughly enjoy it. It’s probably my one guilty pleasure right now in terms of discretionary time.