Did the AT&T executive in charge of HBO announce, days after buying the company, that he planned to radically change HBO’s business plan, so that it could compete with Netflix and other tech giants?

Yes. And also no.

It’s true that John Stankey, the AT&T exec now running all of the media empire formerly known as Time Warner, told HBO employees he wanted “more” from them.

But Stankey didn’t say he expected HBO to become a content mill, or that it should try to match the volume of video competitors like Netflix have started to pump out. And he went out of his way to tell HBO employees that they’d be given more resources to accomplish their task, and a large degree of autonomy to get it done.

Some of that context has gone missing in the discussion about Stankey’s June 19 conversation with HBO head Richard Plepler, first reported Sunday in the New York Times. That’s reasonable, since the Times report — based on an audio tape of the Stankey-Plepler talk — was most people’s only reference point.

That story, titled “HBO Must Get Bigger and Broader, Says Its New Overseer,” summarized Stankey’s message this way: “Mr. Stankey described a future in which HBO would substantially increase its subscriber base and the number of hours that viewers spend watching its shows. To pull it off, the network will have to come up with more content, transforming itself from a boutique operation, with a focus on its signature Sunday night lineup, into something bigger and broader.”

That understandably alarmed amateur and professional TV watchers, who feared that the giant phone company was about to crush a beloved TV brand with unrealistic expectations.

lol this seems like it's gonna go great https://t.co/AkoI8QFU5F — Andy Greenwald (@andygreenwald) July 9, 2018

And, to be fair, that could certainly happen! AT&T executives have explained, convincingly, that they don’t know anything about running a media business like Time Warner. And in Stankey’s conversation with Plepler, he suggested that HBO’s brand is strong enough that it could be the “front end” of a bigger subscription business, which could include different programming than it offers now, like sports. (Of note: While Stankey never mentioned Netflix during his hour-long talk, he did call out Facebook — several times — as well as Amazon.)

But AT&T has also made a point, repeatedly, of saying it wanted Time Warner’s businesses to run themselves with autonomy, which is the point Stankey made over and over at this conversation with Plepler. He also made a point of telling Plepler and his employees that they would give HBO more resources to grow — a major concern for HBO employees prior to their acquisition this summer.

I know this because I’ve also gotten my hands on audio from the event. And after listening to it, my take on it is that the conversation between Plepler and Stankey may have been less fraught than my counterparts at the Times suggested. Some people I’ve talked to who attended the event last month told me they came away from it relieved that Stankey sounded like an HBO booster.

Make no mistake: Stankey certainly expects HBO — and all of Time Warner — to run differently now than it has in the past. “You’re not going to just keep running it exactly the same. If you did, you wouldn’t have gone in and paid a premium for it,” he said. And yes, he really did say that people working at HBO over the next year would undergo pain similar to giving birth, a wince-inducing metaphor you can’t explain away.

Then again, context does matter for some of this stuff: That much-repeated scene where Stankey told Plepler HBO didn’t make enough profits?

Here, a telling exchange between HBO’s new owner, AT&T exec John Stankey, and HBO chief exec Richard Plepler:



Mr. Stankey: “We’ve got to make money at the end of the day, right?”



“We do that,” Mr. Plepler responded.



Yes, you do,” Mr. Stankey said. “Just not enough.” https://t.co/KJ1vyZX32h — Edmund Lee (@edmundlee) July 8, 2018

Totally happened. But what the Times doesn’t report is that Stankey followed it up with a big laugh, echoed by the hundred-plus people in the room.

True, it might have been nervous laughter. But it played as a joke regardless.

The best way for you to assess all of this would be to listen to the audio for yourself. I’m going to deliver the next-best option: Providing you with long excerpts from Stankey’s comments. Enjoy.

What kind of autonomy will HBO employees have now that they’re AT&T employees?

John Stankey: You will have a lot of autonomy. You’ll be asked to do more of what you already do very well ... I don’t think it’s status quo. We need more. And in order for you to do more, you’re going to have to have the latitude, the freedom and the resources to be able to go about doing what you all do very well.

Richard Plepler: Excellent answer. [Laughter from audience] Excellent answer. Very good.

What kind of resources will HBO get under AT&T?

Plepler: You said to me [earlier], if you could do anything differently over the last two, three years, what would that be? And I said, that’s very easy, we’d invest a lot more in content and a lot more in marketing because, as you well know, we’re under-investing in both ... I’ve said more is not better, only better is better at one point, only because that was the hand that we had. I’ve switched that now that you’re here to more isn’t better, only better is better, but we need a lot more to be even better. [Laughter]

Stankey: A lot more better.

I think the goal in aggregate — not just for HBO — the goal in aggregate is I want to see more investment in product and platform, and that’s a really important thing for us to do. And I think we’re at a moment where there’s a tremendous amount of inflection and change going on in the industry. In order to keep pace for the next five years and be in the right position, we need to invest in product. And in this case, I mean content and platform, ways of being able to distribute and deliver that content into people’s hands in a far more aggressive way than any company was probably doing on its own. I mean, that’s why we did a $100 billion transaction.

Why does HBO need to get bigger? And how much bigger does it have to get?

Stankey: The other thing I think that’s really important, and how I think about success — and Richard and I have had these conversations — I think the definition of success is how many hours a day are we getting engagement from a customer moving forward. And you’re a key part of that, but you’re not the only part of that.

We need hours a day. It’s not hours a week, and it’s not hours a month. We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.

This dynamic about people being addicted to certain applications, it’s not far from that. We know through studies that there’s endorphins released when people are getting vibrations and “Likes” from Facebook, and if that becomes the first place people check to figure out where they should go in the rest of their life, what they should consume, what they want to do, that’s not good for any of us in this room. And we need to think about, as an aggregate relationship with our customers, how many hours a day of engagement are we getting?

So why do I want to invest more? I want more hours of engagement. Why do we need other properties, have interesting ways for customers to navigate and get to them easily? Because I want more hours of engagement. Why are more hours of engagement important? Because you get more data and information about a customer that then allows you to do things like monetize through alternate models of advertising as well as subscription, which I think is very important to play in tomorrow’s world.

You ... have to be well aware of what your marginal cost structure is. What is it, for each hour of content you produce, what’s your relative cost of doing that versus the person you’re competing with. If the person you’re competing with gets to do high-quality content and amortize it over a base of 300 million customers, the content might not be any better, [but] the marginal cost of doing it is dramatically lower than if you only have 100 million customers. It’s a third less.

And they get superior economics, and that’s what creates this flywheel of when they go on and say they’re going to overpay a little bit more, they don’t really care. They’re monetizing it over 300, 400 million customers. And the marginal cost of overpaying is infinitesimal relative to that base.

So how is HBO going to get bigger, exactly?

Stankey: You have done such a good job over the years of demonstrating that you can curate and bring quality to individuals. You’ve earned the dynamic amongst your customer base that when you put a new piece of content out there, people will try it just because they trust that you’re going to be putting something in front of them that they want to see or might like. And I think that’s the quality dynamic that’s there, and you’ve earned that right to do that.

The challenge is not 100 percent of the customers expose themselves to the HBO brand. And so in this world of what I just talked about — marginal cost structures, direct to consumer, the virtuous cycle of having information about consumers and data — we’ve got to move beyond 35 and 45 penetration to have this become a much more common product, where everybody can understand, “I know I’m going to find good quality, curated content here, and this is where I’m going to go try it.”

So I think the brand is there, the position is there. We need to figure out how we expand the aperture of it without losing the quality.

That’s partly the number of people who engage. But, as I also step back and think about what’s unique about the brand and where it needs to go, there’s got to be a little bit more depth to it, there’s got to be that more frequent engagement. It’s not once a week. It’s got to be an hour a day. And we’ve got to think about how, over time, we start to build that brand so that it’s broad enough to make that happen. I think that’s our challenge in front of us, and that’s the journey we’re going to get on here.

Plepler: We don’t disagree with any of that ... One of the great blessings of this brand is — and I’ve said this to investors and distributors — if there were a shortage at our door of talent wanting to work here, I would be concerned. But there’s a surfeit of talent at the door that wants to work here. And the unfortunate thing for us — and just respond to this for a minute — is we’ve said before we never want to be in a position that we have to say no to what we want to say yes to. And we have had to say no to what we want to say yes to. And the textbook example of that unfortunate constraint is a show like “House of Cards,” which was in this company.

Let’s keep going on this, because I think it’s important. If when we talk about expanding the aperture, just speak a little more specifically about what you mean by that. Is it us having the ability to continue to curate ever-broader content, or is it reaching beyond our core definition of success, in your judgment, for other kinds of content?

Stankey: I’m not going to answer a question I don’t think we know the exact answer to. [But] a broad theme that I believe is occurring in the industry is there aren’t going to be an unlimited number of platforms that have direct-to-consumer relationships. There will be a select number of platforms that have direct-to-consumer relationships. It’s not going to be 10, it probably won’t be two. Now, is it going to be eight, six or four? I don’t know, but if it’s four we need to be one of the four. If it’s six, we need to be one of the six.

So I expect that as this matures over time, if we decide that the brand we’re going to ride is the HBO brand as kind of the front end of that direct-to-consumer relationship or one of the key drivers around it, we’re going to have to provide the ability for customers to navigate out of that brand into other types of content that might not be germane to what you have in your business today.

Look, live sports is probably still going to have a role in people’s consumption habits moving forward. And I don’t know that there’s going to be yet one standalone platform for live sports distribution and one standalone platform for on-demand premium scripted content. I think over time those start to come together, and there’s only going to be a few platforms distributing them.

Now, are there unique brands within that one platform under an umbrella? Does the customer navigate through them in different ways? Do each of them have different monetization models? It’s entirely possible. But I don’t think there are going to be 15 apps sitting in somebody’s phone or in their environment or on their TV set at home that they’re just going to navigate around over the long haul. I’m talking five years from now.

What’s AT&T’s cost-cutting plan for HBO? Will there be layoffs?

Stankey: [Time Warner was] a full-blown corporate entity, and they will not be a year from now. They will be a small support organization to me. We’re not running a public company anymore, and as a result of that, there’s going to be a fair amount of displacement for your colleagues that work up at [Time Warner corporate headquarters in] Columbus Circle. And they understand that. I think we’ve been fairly transparent around that.

Now, the good news for many of you who work in this organization and are part of an operating, customer-facing brand and build product and content, is that it’s not Fox or Disney sitting up here on this stage right now. There is virtually no duplication to AT&T and what you do. And that’s a good thing.

I suspect if we’re in a situation we’re going to be investing heavier, that means that there’s going to be more work for all of you to do, and you’re going to be working a little bit harder. And I don’t joke. I’m pretty serious about it: The year following a transaction, when you’re starting to charter these new strategies and directions — it’s like working a dog year.

You will work very hard this next year. It will feel like nothing — my wife hates it when I say this — it feels like childbirth. You’ll look back on it and be very fond of it, but it’s not going to feel great while you’re in the middle of it. She says, “What do you know about this?” [Some laughter]. So I just observe it; honey, we love our kids.

It’s going to be a tough year. I mean, it’s going to be a lot of work to kind of alter and change direction a little bit, but I think you’re going to feel really good about it. It’s going to be a year of incredible growth.

Okay, but where will the savings come from?

Stankey: Are there going to be some other efficiencies that come in? Look, both companies — if you knew how much we all spent on advertising, it’s a lot of money. You know, what we spend marketing wireless products, what you do on first-release movies, what you do on brand-building. Do we think we can get a couple hundred million bucks out of that? Yeah, we do. It’s not doing less, we’re just going to pay less for what we’re doing.

And that’s where other efficiencies come in. That’s not a job thing for you. It’s going to hurt some of the [ad] agencies, but it will be an efficiency thing that allows us to put what? More money into product. That’s what we want to do.

Where can HBO employees find Stankey now that he’s their boss’s boss?

Stankey: [New York] will be the nucleus of my time, right here, just as the business was run prior to my arrival out of New York. I’ll be spending a significant amount of my time up here.

The corporation still runs out of Dallas. I probably wouldn’t be doing any of us a good service if I didn’t manage to at least make my presence known there every once in a while, to figure out who’s doing what to who and where they’re going with money and all those things that you all want and that I’d like to make sure that we have resources on. And so every week or every other week, I’ll spend a day or something like that in Dallas trying to keep everybody comfortable there, mostly so they will leave you alone.

Plepler: God bless you.

Does Stankey plan to “incentivize more collaboration “ between Time Warner’s famously synergy-free operating units?

Stankey: Yes, I do. With what I said earlier, I don’t think you can be one of those select number of platforms that have a relationship with a customer without taking full use of your arsenal and capabilities. And so, collectively, as we think about how that relationship with the customer manifests itself, how we bring our intellectual properties and capabilities together, not just among those three brands but the capabilities within the AT&T company, when we go out five years from now, if we’re not effectively doing that in a unified fashion, then we don’t stand a chance against the Facebooks of the world and the Amazons of the world. I start from that position.

Now, does that mean there’s no brand identity at HBO, there’s nothing unique about HBO, there’s nothing unique about your processes and how you go about things here? No, it doesn’t mean that. It means that we’re going to have to sit down and understand where those intersections make sense, and how do we bring the best of each of the brands and each of the libraries and each of the distribution platforms into something that’s meaningful for our customers that leverages it up.

And it’s not going to be John Stankey making that decision. It will be the leadership team sitting down, deciding what’s best for our customers and best for our shareholders, and navigating through that process in the years to come.

I don’t think it is a path that is exactly the same as the last five years. [Former Time Warner CEO Jeff Bewkes] and I have these conversations frequently. And I’m very pragmatic. I’m very direct, I’m very open. The business is in a different moment today than it was five years ago. Your management team — and I was very sincere about this in my letter that I sent out — you did an impeccable job of managing the assets for that moment in time, in that they had to get to this moment, in a way that was incredibly beneficial to your shareholders, the brands and the position.

How will AT&T think about long-term versus short-term investments?

Stankey: I’m not going to sit here and tell you that the tension of earnings and performance of the market is going to go away ... [ But] you’re now nestled within a larger business. ... When you’re working under that other umbrella, sometimes it gives you an opportunity to have little bit longer view of how you invest and how you make these pivots and changes.

And we understand we’re in a moment of a pivot and a change, and we try to find that discipline to say let’s make the commitment to stepped-up investment, we understand longer-term cycles in our business.

A network doesn’t get built in a day. You think it takes a long time to write a script, film it, edit it, distribute it, bring it out? It takes even longer to build a wireless network.

So we get this idea that sometimes you have to put money in for a couple years to build a franchise and get it out there. That’s not foreign in our DNA. We try to be patient about that in the big bets that we make. We’re going to make some big bets here, and we’re going to try to make sure that those bets have an adequate time to pay off and make the difference.

Now, we all have to deliver on those commitments, but I think you’re going to see where we chose to surgically come in and try to drive that. And then my job is to provide you the insulation from that 90-day cycle that we all have to live in.

What’s all this talk about 5G wireless networks, and why should we care?

[With 5G] the wireless network will behave more like the LAN inside of the office. Everything will be instantaneous. There won’t be these round-trip delays. What does that do? It does things like it opens up the ability for autonomous vehicles, vehicles that are self-driving. Why do you care about vehicles that are self-driving? If you’re not driving yourself to and from work to and from Los Angeles anymore, you can sit in the back seat and let the vehicle take you, what do you get? You get another hour or two hours to consume great content that you build every day.

So now you start to think about why am I bullish on building more content? Well, I think that the average number of hours that an individual consumes in a given day might actually increase somewhere in the range of an hour to an hour and a half over the course of the next four years because of that shift. I want to build product that fills that space. We need to get our share of that space. We don’t want them just putting “Likes” on Facebook.

So 5G starts to open up those capabilities that allow for some fundamental shifts in how people can live their lives, autonomous vehicles, you start to get to total ubiquitous bandwidth that allows for two-way transmission of content.

Things like VR and AR that open up new formats that drive higher levels of engagement, higher levels of engagement. If you do that right, [it] should be good for people like you who build creative content, that can use those higher levels of engagement.

What about international growth?

I think you probably picked up from my previous comment, I don’t believe having a 100 million customer base is sustainable in terms of scale over the long haul. You need to be at multiples of that. And again, I’m talking about over a five-, six-, seven-year horizon. And by the very nature of that, if that’s the case, you can’t just be a domestic-oriented business in terms of your relationships. And so this is a key element of the long haul.

Send us out on a high note, please.

I’m incredibly optimistic. If it didn’t come through in my commentary, I’m very excited to be here. I don’t take for granted — you heard me say this — that I’m sitting in a very unique chair at a very unique moment. Not many people get the opportunity to do this. I certainly don’t want to mess it up. I’ve always been happiest in my career when I’m doing things, building things, making a difference, bringing new product out. That’s what I get energy out of. I really want to go do some pretty exciting, neat things together on product, and do something that matters.

BONUS CONTENT!

One of the perks of running an entertainment company is that you can get your best-known entertainers to create content to spice up your corporate events. That’s what Plepler did here, with a short intro video featuring HBO talent addressing Stankey, scored with “Curb Your Enthusiasm” theme music. Here are a couple of the highlights:

Bill Hader: Hello, John. It is fantastic to be part of the AT&T family. Really. It’s every actor’s dream to work for the phone company.

Bill Maher: Hi, John, now that you figured out how to get the merger past the Justice Department, the next time Donald Trump sues me, I can use your lawyers, right? Because I think we all know there will be a next time.

“Game of Thrones” actor Kit Harrington: Do you have any plans to change our insurance package? I mean, nobody lives forever.

Danny McBride: Hello, Mr. Stankey. Danny McBride here. My question to you is this: AT&T and HBO both have cultures of risk-taking, innovation and resilience. I’m just curious how you validated the synergistic value of the two companies and if long-tail growth is directly or inversely proportional to the rise of what the pundits are calling “peak television”? And as a follow-up, given current market trends, do you perceive any probabilistic growth spikes in subscribers to follow a more classical Friedrich Hayek approach to expanding the consumer base?

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