After AT&T reported mixed fourth-quarter results, CEO Randall Stephenson addressed the streaming strategy at WarnerMedia, saying its forthcoming service will use a “two-sided model” blending subscription and ad-supported elements.
Stephenson was asked about streaming during a conference call with analysts, particularly in light of NBCUniversal’s announcement about plans for an ad-supported streaming launch relying on the Comcast and Sky footprint.
“We have really high expectations for our streaming service. We don’t think there’s going to be a proliferation of these that will succeed over time,” Stephenson said.
The company’s entry into the streaming wars has generally been viewed as a pure subscription offering coming to market in close proximity to Disney’s launch of the subscription service Disney+. But the AT&T boss said the capabilities of the company’s Xandr advertising technology unit would definitely come into play. “Our model will be a two-sided model, with a heavy subscription service but some ad-supported elements as well,” he said.
WarnerMedia has said it will launch its streaming service by the end of 2019. Executives have kept many details close to the vest, though they revealed late last year that the new service will have three tiers and incorporate some HBO content.
Many industry observers and investors have wondered how the company will reconcile the overall push into streaming with support for HBO Now, the premium network’s stand-alone OTT service. In 2018, total HBO digital subscribers passed the 7 million mark, a 37% gain over 2017, with digital accounting for 20% of subscription revenue.
Stephenson didn’t offer clarity on the specific mix of AVOD and SVOD ingredients, but said the company’s deep library affords some flexibility. “We are strong believers in what [WarnerMedia chief] John Stankey likes to call ‘two-sided business models,'” Stephenson said. “Subscription, commercial-free elements like HBO and like Netflix, there’s a demand and customers have become accustomed to advertising-free subscription services. And we think HBO and a lot of the Warner Bros content, that’s really premium content, will fit into that mold.”
At the same time, he added, “There are other elements where advertising-supported models are going to be important to keep prices down, to keep costs for the consumer down and to actually fund additional content acquisition and purchasing. Xandr is a big part of making that model work.”
One key strategic question for all media companies is what to do with licensing content. AT&T surprised many on Wall Street last December when it opted to extend the license for Friends to Netflix on a non-exclusive basis, rather than locking up the rights for its own purposes.
“In terms of the decision-making as to what to do with premium content as content deals come up, there’s not going to be a ‘cookie-cutter’ approach to this,” Stephenson said. “I don’t think all content is equal.”
With Friends, he said, “That was one where we said exclusivity is probably not that critical on that type of content. But it’s critical to have on our platform. So we did license it to Netflix on a non-exclusive basis.”
The 90-plus-year heritage of Warner Bros “is a really important thing,” Stephenson emphasized. “When you look out at the landscape in terms of what is being consumed on a lot of the other aggregators of streaming products, you’d be surprised how much of that is Warner Bros intellectual property. So we’re going to be making some decisions over the next two to three years in terms of which properties to bring in and which to license on a non-exclusive basis.”