With executive exodus, a new sex scandal, and new challenges on the mobile front with 5G, should AT&T regret its biggest acquisition? Center director Jeffrey Cole explains.
By Jeffrey Cole
It’s exciting to own a movie studio. You get to go to the best parties (especially after the Oscars), hang out with the biggest stars, and host major premieres.
It is all very glamorous. Only a few get the perks, since there are only five studios left in Hollywood. You can make movies that earn over a billion dollars. And you can make movies that change the world. If you’re lucky, it can be the same movie that does both.
Owning a studio has appealed to the likes of soft drink companies, alcohol manufacturers, Australian newspaper tycoons, real estate developers, oil wildcatters, shopping mall owners, Japanese electronics manufacturers (two of them), and others.
Most recently, the appeal of being in the movie business has attracted one of the world’s largest telcos.
Last week, AT&T, which recently purchased Time Warner (Warner Bros., HBO and Turner, including CNN) for $85 billion, quickly learned that it’s not all glitz and glamour in the entertainment business.
AT&T, coming from one of the most conservative states (Texas) and conservative industries (telco), with low-profile executives, inherited its first, official, certified, genuine Hollywood sex scandal.
The Tsujihara problem
The Hollywood Reporter obtained texts between Kevin Tsujihara, the Warner Bros. chairman, and an aspiring British actress in which the actress complained that motel sex with the Warner head had not produced the film parts she was seeking. Drawn into the scandal was Australian billionaire James Packer, who had introduced the actress to Tsujihara and his former partner, Brett Ratner, in the production company RatPac Entertainment. Ratner has previously been accused of sexual assault.
The accusations came days after John Stankey, the new head of Warner Media (the name for the unit overseeing Warner, HBO and Turner), promoted Tsujihara by adding significantly to his considerable Warner responsibilities.
Now the conservative telco has to sort this all out.
What has AT&T really accomplished? Sure, the business units were acting separately, but they were doing so with enormous success. HBO and Turner were at their heights. Warner Bros. has been a consistent performer. AT&T broke down the silos, lost great leaders, and hurt morale at their newly acquired media units. Did they really accomplish anything more than the ego satisfaction of putting the three entertainment units “in their place”?
Unless the text messages turn out to be fabricated, it seems unlikely that Tsujihara will survive. There have been rumors about his behavior well over a year ago as the #MeToo movement began with accusations against Harvey Weinstein, Kevin Spacey, and many others.
If Tsujihara falls, then he will be the first head of a movie studio to lose his job, joining Leslie Moonves, the head of CBS, as the highest Hollywood executives to be brought down.
More pain for AT&T: executive departures
In addition to the accusations against Tsujihara, AT&T has lost (some say forced out) the heads of the two other divisions of Warner Media. If Tsujihara goes, all three heads will be gone since AT&T took over the company.
Last week, about the time the accusations against Tsujihara surfaced, long-time HBO Chairman Richard Plepler decided to leave the company after 28 years. He didn’t even try to put a good face on it, claim that it was time to start his own production company or to spend more time with his family. Instead, he simply said of his leaving, “It is the right time for me to do so.”
Turner’s John Martin was the first to go, leaving shortly after AT&T took over. David Levy, after 33 years, followed him out the Turner door at the same time Plepler left HBO.
Warner Media CEO John Stankey received a lot of negative press when he made his first visit to the newly acquired HBO. The cable/OTT company has always been a Hollywood favorite, attracting the best talent and winning more Emmys than any other company (this year, it tied with Netflix).
HBO pioneered cable television by being the first channel to go on satellite, and it also pioneered original cable programming, with The Sopranos, and more recently with what is the most popular program in the world, Game of Thrones.
AT&T bought a corporate gem, running at full creative and financial speed. Rather than treating HBO as the jewel in the Warner Media crown, Stankey alienated HBO’s team by pushing them to be more like Netflix and warning of unpleasant times ahead. It’s no surprise Plepler left as soon as he did.
Although less reported, my friends at Turner say AT&T did the same to them.
Time Warner was famous for dividing its company into individual silos with little or no communication among them. At one point (over ten years ago), Time Warner had the best array of assets of any media company. In addition to HBO, Turner and Warner Bros., it had Time, Inc. (the great publisher), AOL, and Time Warner Cable. The individual units rarely cooperated or did anything for each other. This was the biggest problem during the tenure of former Time Warner CEO Jeff Bewkes, who came from HBO.
Stankey was committed to breaking down the silos and putting himself at the center of the media business. With two of the three CEOs gone and Tsujihara next, the silos are now broken. Robert Greenblatt, who has run Showtime and NBC, will be the new head reporting to Stankey.
Broken-down silos and lost leadership
But, what has AT&T really accomplished? Sure, the business units were acting separately, but they were doing so with enormous success. HBO and Turner were at their heights. Warner Bros. (the most successful studio over the past 30 years, although not now) has been a consistent performer.
AT&T broke down the silos, lost great leaders, and hurt morale at their newly acquired media units. Did they really accomplish anything more than the ego satisfaction of putting the three entertainment units “in their place”?
Just about now, AT&T CEO Randall Stephenson and his executive team must be asking themselves whether buying a Hollywood studio was a good idea. So far, they have had to deal with what they view as prima donna Hollywood types (I would say talented leaders). Now, they also have a sex scandal on their hands.
AT&T felt it needed content to distinguish its mobile service from Verizon and T-Mobile and to compete by creating exclusive programming in the future only for its own channels. As much as they might want to, they will never be able to make HBO or Warner available only to AT&T customers.
About a year ago I asked one of my friends who was the CEO of a global telco, how much of Stephenson’s decision to buy Time Warner was ego. Without hesitating, he replied “about 90 percent.” That sounds about right.
The 5G challenge
In addition to the inherent problems of owning a studio, AT&T now faces another problem.
The future of wireless communication is 5G. Many think that means just another service, this time faster than 4G. In fact, 5G is a revolutionary technology that will change medicine, entertainment, might be a cable television killer, and much more.
The CEO of AT&T’s biggest rival, Verizon, is betting the future of the company on 5G. He estimates that it will cost $100 billion to convert to the new system.
Verizon has the money. AT&T does not. The purchase of Time Warner for $85 billion, several years after buying DirecTV for $50 billion, has raised AT&T’s debt to a massive $180 billion.
In addition to producing problems and costs of their own, AT&T’s acquisitions may keep the giant telco from competing effectively in the contest that really matters: the race for 5G.
Just when it most needs to be nimble and redesign its legacy systems, AT&T may have tied its hands behind its back.
Jeffrey Cole is the founder and director of The Center for the Digital Future at USC Annenberg.
See all columns from the center.
March 13, 2019