The "Tough Year" Ahead: Why Top Hollywood Execs Are So Spooked

In a desperate attempt to compete with Netflix (and each other), moguls like AT&T's John Stankey are talking big, flying blind and generally giving their staffs a bad case of angst.

"Just another day in purgatory." That's how one Fox executive responded recently when asked how his day was going. It's a comment that could be made by many in the industry — even those who are not facing the immediate uncertainty of those at Fox, which presumably is being bought by Disney. (Or is there still a chance it could be Comcast?)

An executive at Disney says insiders there are jittery, too, as they ponder what changes will come with swallowing and digesting the Fox whale: "Everyone is confused. No one knows anything." Nothing feels settled in this superheated Hollywood summer.

Even the deal that was supposed to be done is being challenged: Four weeks after AT&T completed its $85 billion acquisition of Time Warner, the Department of Justice says it's going to take another swing at unraveling it. (And after WarnerMedia chief John Stankey's lead-balloon talk at a July 14 HBO town hall, some at the company formerly known as Time Warner might actually be rooting for the feds to prevail.)

Industry insiders have been anticipating this moment of disruption for a long time, but now it's really here. Chris Smith, a professor at USC's Annenberg School, says this is "a top-to-bottom transformation of the landscape," adding, "We're changing out of a 20th century media paradigm, and that's what's got everyone's heads spinning."

In this anxious environment, the vision of Stankey telling HBO employees that they were going to face a "tough year" — one that he analogized to the pain of childbirth (despite his wife's wise admonishment not to talk like that, but who listens to women?) — rattled people who have never worked for or even done a lick of business at the premium channel. "I'm old enough to remember when a meeting like that was to make people feel good," says one such executive, a broadcast-network veteran. "The whole thing was a disaster."

Why was Stankey's talk so toxic even to observers on the outside? Because HBO has long been known as the crown jewel of the Time Warner empire. Because HBO is very profitable (pulling in $516 million in profit on $1.6 billion in revenue in just the first quarter of 2018) and CEO Richard Plepler actually has the gigantic breakout show that Amazon's Jeff Bezos lusts after: Game of Thrones. Because HBO boasts more than 140 million worldwide subscribers, including 5 million from its digital-only platforms. Because HBO makes prestige shows, the best of which (The Sopranos, The Wire, Veep) show the industry is capable of doing good and sometimes important work.

All that and Stankey clamored for "more hours of engagement." Why? "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." Spock-worthy logic but not language that would inspire the most ambitious creators to trust their babies to AT&T's HBO.

It sounded like Stankey was urging HBO to be more like Netflix, which will spend some $8 billion this year and take on even more massive debt (currently about $6.5 billion) to throw an overwhelming amount of programming spaghetti at the wall. But former Time Warner chairman Jeff Bewkes focused on selling rather than growing his company, so HBO has been working with about a quarter of the Netflix budget. And while Stankey signaled his Netflix envy clearly, he was not specific about how much more money the new management intends to spend as it tries to ramp up those hours of engagement.

So HBO took what one showrunner with ties to the network calls "an ass whuppin' " and then in one of those cruel twists of the knife, it failed for the first time in 18 years to lead the pack in terms of Emmy nominations, with 108 to Netflix's 112. It's almost as if the Television Academy was aiding and abetting Stankey.

But the crucial point is that Stankey's warning of a year ahead that's "not going to feel great" struck people as a tone-deaf way to motivate employees in what is, was and will always be a creative business. As one film executive who is pondering an uncertain future puts it, "The culture that is most friendly to talent is going to prevail, regardless of scale and technology. Nobody is focused on that."

And on top of that, the Stankey message simply seemed deeply unfair. Why, the town seems to ask, is the industry at a place where good, even exceptional work gets rewarded with what feels like a slap in the face? Why is HBO of all places being warned of hard times? Why is CBS chairman Leslie Moonves being forced to fend off majority shareholder Shari Redstone? Why are people who have spent years working to make Fox a success now wondering whether they're about to be shown the door even as they are mourning the death of a legacy studio?

It all feels like a betrayal, even in an industry that has never given insiders much of a sense of security. As one Fox veteran puts it, watching the price of his company getting bid up in the battle between Disney and Comcast: "Who knew we were so valuable? And if we're so valuable, why the fuck are you selling us?"

This story first appeared in the July 18 issue of The Hollywood Reporter magazine. To receive the magazine, click here to subscribe.