Can HBO retain its throne under new parent AT&T?
Turbulent and hostile changing of the guard
Welcome to the beginning of the end,” a voiceover echoed through Radio City Music Hall in New York, as a live organist performed the
Game of Thrones theme song. Holding court amid the media executives and socialites gathered to celebrate the final run of the most popular TV show in history was Richard Plepler, the HBO CEO who transformed the flagging cable channel into a powerhouse that ushered in a golden age of television.
The final season of Game of
Thrones has invoked a global fixation rarely seen in an era where streaming has fragmented viewing choices. The frenzy validates the bet Plepler made more than a decade ago, when he approved the most expensive pilot in HBO’s history for an out-of-thebox idea: a show about dragons, an army of the dead and incestuous love affairs.
But beneath the glitz typical of an HBO premiere, the atmosphere evoked the end times. The evening marked Plepler’s last appearance as the leader of the network. In late February he abruptly quit after months of disagreements with HBO’s new owner, AT&T, in the first big shake-up since the latter’s blockbuster purchase of Time Warner.
Nearly three years after AT&T made an $80bn bet that its future was in Hollywood —a bid that faced countless regulatory battles and was only completed last June the telecoms operator is finally pushing forward with its plans. The deal is part of a wave of
consolidation as media groups look for ways to compete against Netflix.
Also in the audience for the premiere was John Stankey, a 30-year AT&T veteran who is now running the rebranded Warner Media, and Bob Greenblatt, the outsider who AT&T brought in to build a rival streaming service.
Interviews with a dozen current and former employees in Warner Media and AT&T reveal a turbulent and at times hostile changing of the guard. These executives, many of whom spoke on condition of anonymity because of exit agreements or fear of retaliation, described a cultural clash between the Texas telecoms group and New York media company.
At the premiere the creators of Game of Thrones made no secret of their allegiance, making nostalgic speeches at their grand finale. “The core of our show rests in the hands of one man, and that man was Richard Plepler,” pronounced co-creator David Benioff, as the crowd roared. They did not mention AT&T.
The tug of war over HBO’s identity has raised fundamental questions about the media business, and whether a niche company such as HBO can thrive in an environment dominated by deep-pocketed streamers such as Netflix.
Time Warner gave HBO autonomy as long as the company hit its profit numbers. But AT&T has taken a tighter grip, with Stankey last summer warning HBO employees that the network needs to make more content. The demand ruffled feathers at HBO, which has clung to its identity as a producer of high-quality, cutting-edge programming.
Is “the idea that you can data test this stuff and predict that people will like shows with dragons? Ten years ago, people did not like shows with dragons,” says a senior HBO executive who worked closely with Plepler. “If you’re going to create the culture then you can’t rely on data, which is historical. You’re going to end up making things that already exist.”
AT&T’s rocky start with Time Warner has also raised questions about the value of megamergers. One result of such a large deal is that AT&T is now focused on cutting its $164bn of debt. In May it sold the WarnerMedia headquarters for $2.2bn and its stake in streaming service Hulu for $1.4bn.
The emphasis on debt reduction “may be coming at the expense of the long-term business”, says Jonathan Chaplin, an analyst at New Street Research.
Jamyn Edis, who was vicepresident of innovation at HBO from 2007 to 2012, expects that AT&T “is going to process an organisation like HBO in the same way a body processes a kidney stone it will be slow and painful and a bloody mess”.
In April AT&T consolidated its media businesses, which had largely operated as independent fiefdoms a move that some analysts cheered as necessary to centralise decision-making.
But the overhaul led to the departure of Plepler and other top executives. “You have to tread lightly, lest you create a talent exodus that destroys the asset you bought,” says Craig Moffett, a media analyst at MoffettNathanson.
Plepler is the epitome of the way Hollywood used to operate
throwing legendary parties and hobnobbing with talent, trusting his instinct over datacrunching. Stankey, who has ruffled feathers during the transition for his no-nonsense demeanour, has worked in telecoms his entire career, much of that time in Texas. Plepler is a longtime Democrat; Stankey in 2018 donated to Republican senator Marsha Blackburn, a close ally of President Donald Trump who is a vocal opponent of abortion and same-sex marriage.
AT&T “has a command and control culture”, says one senior HBO executive in New York. “You can’t question or contradict your superior in a meeting, which is completely antithetical to an HBO that thrived on collaborating and dissent.”
Another source of frustration is that senior AT&T executives seemed focused on the US, at the expense of international businesses. According to five current and former executives at AT&T and WarnerMedia, the telecoms company internally floated the idea of selling HBO Europe, which is a standalone streaming business in parts of eastern Europe, Scandinavia and Spain.
Such an idea, which Stankey says is inaccurate, enraged many at HBO as well as the AT&T executives who work on the international business. “It’s probably not going to happen but the fact that this was even discussed internally as an option is illogical and stupid,” says an HBO executive.
Some bankers point to what they say is AT&T’s mixed record with dealmaking, particularly its acquisition of DirecTV. DirecTV and its subsidiary U-Verse have shed millions of pay-TV customers since the merger.
“The record of media M&A is highly uneven,” says Jonathan Knee, a professor at Columbia Business School. “It is difficult to separate what the source of failure is. Culture is a big part, but so is execution and strategy. All of those frequently interact with each other.”