WarnerMedia CEO John Stankey on the launch of HBO Max

CNBC Exclusive: CNBC Transcript: WarnerMedia CEO John Stankey Speaks with CNBC’s David Faber Today

WarnerMedia CEO John Stankey

Image source: CNBC Video Screenshot

WHEN: Today, Wednesday, October 30, 2019

WHERE: CNBC’s “Squawk on the Street

The following is the unofficial transcript of a CNBC EXCLUSIVE interview with WarnerMedia President, COO and CEO, and AT&T President and COO John Stankey and CNBC’s David Faber on CNBC’s “Squawk on the Street” (M-F 9AM – 11AM) today Wednesday, October 30th. The following is a link to video of the interview on CNBC.com:

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WarnerMedia CEO John Stankey on the launch of HBO Max

All references must be sourced to CNBC.

DAVID FABER: Thanks, Scott. Yeah, we are on the Warner Brothers lot, of course. And I am joined by John Stankey. He’s the President and CEO of At&T. He also runs WarnerMedia, as well, as the company’s CEO. Thanks for having us, and thanks for joining us this morning.

JOHN STANKEY: We really appreciate you coming and joining us yesterday for the announcement. Thanks for being here.

DAVID FABER: Yeah, I was there for all of it. And of course, we want to start there, given that’s the news of the morning, HBO Max being introduced. You are going to introduce the service itself in May of next year. How important is it to the future overall of WarnerMedia?

JOHN STANKEY: Well, as we discussed yesterday, it’s extremely important. Not just to WarnerMedia but to AT&T. There’s no question if you’re going to produce general entertainment content, you need a new way of getting it out to customers, which is On Demand and on these kinds of platforms.

And from an AT&T perspective, with our incredible number of customer connections, having content, something that’s emotional and sticky to attach to those products, is really important for the health of that business and the health of our advertising business to have that level of interaction with customers to be able to continue to support an ad model.

DAVID FABER: And what was the – you know, a lot of participants yesterday, including you when you took the stage initially, we’re all in. A lot of people kept saying sort of that same theme, we’re all in. What does that actually mean?

JOHN STANKEY: I think the team is incredibly committed to what we’re doing here. It’s a hard pivot. And you know, candidly, at the close of the transaction, we’ve restructured this business. We’ve asked people to work in a different way and we’ve asked people to work beyond what used to be their typical divisional silos so that we could bring the strength of all the former Time Warner companies together. And that requires behavioral change, it requires people to get past what used to be their P&L or their own domain and work together.

And the fact that I think everyone said they’re “all in” is reflective of the reality that they believe this is necessary for the future of their business and what they’re responsible for.

DAVID FABER: Have you managed to get that level of cooperation? Is that the way we should look at yesterday’s announcement? And what is the bringing together of all this content under the HBO Max umbrella that you’ve succeeded in the -- whatever it’s been, year or so, that you’ve been running this organization and getting these silos to work together?

JOHN STANKEY: That’s a broad – you know, we’ve succeeded when we actually get customers that want to buy a great product and we’re effective in the market. That’s where success comes in. And I think the team understands that. Any time you do an M&A transaction, there’s a certain period of disruption that following it. And I think you go through a cycle over – it’s not of six months, and it’s not a year, you go through a cycle of kind of recalibrating and resetting the business.

We’ve made great progress. It’s been moments of disruption and displacement and anxiety that have occurred. But we’re in a much better place right now than we were at the date of the transaction close. It was a challenging situation given the delay, getting this thing approved. You know, human nature is that folks don’t like uncertainty, it creates anxiety. And so, while you’re going through a court case and waiting, anxiety rises.

But we’re in such a much better place right now. I think you saw that by the crispness of the team. They did a wonderful job yesterday. I’m really proud of the HBO Max team and what they’ve done. But we’ve still got more to do to get this place in the right position and get our culture reset and do all the things a good, healthy business does.

DAVID FABER: Well, you managed to get them to wrap the water tower in HBO Max. It’s not insignificant, is it, in a way?

JOHN STANKEY: It’s not insignificant. It might be the first time that the three letters—HBO—have adorned the Warner Brothers lot. Yes.

DAVID FABER: This is Hollywood. You know, I mean, sure, there’s always disruption in any business that does a large M&A transaction. But Hollywood’s different. I mean, creative people—they like to sort of focus on what they like to do. They don’t want to be disturbed. You’ve been portrayed by some, who have left the company or are still here, as sort of ‘the bad guy,’ that’s coming in and knocking heads and not listening necessarily. Is it a long road to sort of get that cooperation? And do you risk something on the creative side, in terms of breaking down these silos?

JOHN STANKEY: Well, first of all, I think I would stress that, as you saw yesterday, the creative side of this business is still 100% in tact to the day we closed this transaction. I mean, we walked you through an incredible number of people who have been here for a long time and do fantastic work, and they are still committed to this effort and they’re still here.

And the creative engine of the businesses that we acquired and that we’ve brought in here, that’s most important. I think we have done a really good job of ensuring those folks have had free rein to do what they want to do, and, in fact, increased investment levels and give them an opportunity to do something like HBO Max.

And I think you saw yesterday, not just the creatives that work for WarnerMedia company but those that are our great partners, whether J.J. Abrams, Greg Berlanti, and a variety of others that you saw come through the session yesterday that say, ‘This is a good place for us to work. We’re excited about the future. We’re excited about the options that are available in this business.’

DAVID FABER: I want to get to the product itself, specific to the price. Because that was certainly something that many in the investment community were waiting for yesterday. $14.99. There are 34 million subscribers right now at HBO who are, more or less, paying a very similar price to their cable distributor, or if they’re getting it digitally directly. I understand why they might certainly want to move. What gives you the confidence that at that price level you’re going to be able to attract the 16 million incremental subscribers you believe you will over the next five years?

JOHN STANKEY: Well, first of all, you know, twice the content for the same price. I’ve had much more difficult marketing propositions to sell on the market than that. And I this I this is an incredible value. I think you saw yesterday that there’s some really good product in there. And as you saw Bob walk through, and he did a remarkable job showing how the team is thinking about expanding the traditional HBO demo and that we focused a lot of incremental investment in the product to make sure we broaden that aperture of the market that we can address.

So, I have a great deal of confidence that there’s probably people who look and that and say, ‘There’s enough in there now for me that I want to get into that,’ plus, you know, where ‘I maybe wasn’t interested in $15 for HBO before, there are some things in there that I would see if I could get more with it.’ And so, I think we’re in a really good position in that regard. And then you come behind the reality of the strength of our distribution on the AT&T companies, where we talk to a lot of customers every day.

That distribution engine is incredibly strong. And the purpose of the AVOD offer down the road is to get people to sample. As they sample and they work around things, they have an opportunity to make a full commitment to come into the product. And I think we’ll do very well, in that regard.

DAVID FABER: Yeah, you mention AVOD, of course Ad-supported Video-On-Demand. But you didn’t really give us any details yesterday, nor about international. Why not have a little bit more there for people, in terms of what will be important components conceivably over time in this service?

JOHN STANKEY: Well, as we shared yesterday, some of this is coming out in time. And this is our road map and where we’re going. The team has had a lot of work to do. We got clearance from the court in March of this year, and that allowed us to start doing some of the things structurally to actually execute on HBO Max. So, the team has been incredibly focused on getting the domestic product out there. And just to do it quickly and do it effectively. And so now we’re doing second iterations on release two and release three.

The AVOD product right now is actually going through the development phase and the specking of it. So, when we’re ready and we’re comfortable that we have the right price and we have the right structure of it, we’ll communicate it. I think we’ve been a little criticized over the course of the last year as we’ve gone through those iterations and development cycles. People don’t think we’ve been really crisp in our messaging. I don’t think I want to make that mistake again.

DAVID FABER: Back to price, though. I understand, 34, but --you know, why you think it can resonate in the marketplace. At the same time, HBO has been around for a long time. It’s a premium product that certainly we enjoy at my household, I know many others do. But 34 million domestic subs, after all those years on the marketplace at that price level?

I guess I just come back to this idea that incrementally, while there will be a good amount of more content, why you feel there are going to be more people who are willing to pay – you know, Disney is $6.99. Netflix is a bit less in the marketplace. Why are the willing to pay that number?

JOHN STANKEY: Well, first of all, they’re not the same product. Okay. The Disney product, in terms of tonnage, the coverage of the kind of content it provides, it’s not the same product. So, we have a product option here where we can go in with a much broader demo and a much broader slate of content -- I think you saw that there’s some pretty impressive and unique content in there. I would tell you, secondly, as we go forward on this, people aren’t going to just buy content for content sake.

They’re going to buy content because it associated with other products and services. Whether it’s Amazon, who chooses to offer marketplace incentives to have video, or it’s AT&T that chooses to put great value with pay TV or connectivity or broadband associated with it.

That’s are other reasons for people to come into the product as well. Look, I think -- I have no question that this creative team can put the right mix content out there and hit the right aperture. Bob’s come in, he’s got a great history, your former company.

He knows how to hit the middle of the fairway on broadening that aperture. He’s a professional in that regard. I think he’s going to lead the team with Kevin and Sarah and others to do a great job.

DAVID FABER: Does actually offering video on your platform in some way lower churn in the wireless business?

JOHN STANKEY: Unequivocally. We already know what we’ve done in time, HBO, with our best wireless subscribers, that it drives up engagement and it lowers the churn characteristic for that particular group of customers that we’ve offered it to. So, we’re going to continue to drive that forward. And I think this product is even better. Because right now, with the size of the content offering of HBO, it’s limited in terms of the number of minutes per day that somebody might engage on it. By broadening and doubling the amount of the content, we’ll increase the time of engagement. The more time somebody spends with it on a daily basis, the better that churn characteristic is going to be.

DAVID FABER: To think that, financially, given the importance that you seem to be placing on this, as you said, not just for Warner but for AT&T, would seem to go to that metric as much as any other. Because looking out to 2025, you’re going to be profitable. But you’re talking, what, maybe $1 billion on EBIDTA for this thing, in a company that generates $16 billion in free cash flow. I mean, the $30 billion in free cash. I mean, the numbers don’t seem to be that great given all the emphasis on the product itself.

JOHN STANKEY: Well, as I said earlier, I think that’s the dynamic of how content helps other products moving forward. And if you think about a basis point of churn driving about $100 million of revenue in our wireless business, there’s a huge incentive for us to make sure that we use it in the right way. And we think there’s great value in the content on a standalone basis, but we also think it’s going to help that business to generate such a massive amount of the cash for the AT&T company.

DAVID FABER: You started the presentation, John, by saying ‘You should have,’ speaking to the investing audience, I think, or the analysts, ‘You should have great confidence in your management team.’ It struck me because there are a lot of investors who don’t have great confidence in the management team or at least look at the recent history and say we’re not so sure. Including Eliot, which is now supportive but as little as six weeks ago, was certainly fairly critical. Why should investors have great confidence in your management team?

JOHN STANKEY: I think if you look back at the history, not only of AT&T but of Time Warner and WarnerMedia, these businesses have been through a lot of transitions. You know, if I think about the WarnerMedia company having the foresight to move away from just theatrical production and get deep into television, and you think about how well they’ve done that about how significant that’s been.

When I started in this company and worked for AT&T, we thought call waiting was a pretty enough and innovative and important feature what was going to come out. Now you think about all of the transitions that have occurred from, you know, fixed-line voice to wireless to broadband.

This is a business who understands how to get through these transitions and manage subscriber bases through these transitions. And I believe that at the end of the day, these plays that you run have a lot of repetition and similarity and I believe will do very well in that regard.

DAVID FABER: Despite what many people have been a misstep with DirecTV, given the sub losses when you at that company since you acquired it a number of years ago for $67 billion.

JOHN STANKEY: Well, look. I think we probably have some things, that as we said, we would like to have seen differently. I think the erosion in the pay TV bundle has maybe been a little bit faster than we had expected. But we said when we bought this business that we weren’t buying it because we loved the satellite business, we loved the customer base. Pulled a lot of cash out of that business in the time that we’ve had it.

And that’s the most important part in terms of what we needed to do. We always said this was going to be a transition from satellite subscribers to software subscribers. HBO Max and what we’re doing with AT&T-TV, the enough software-base product, is part of that transition. I would say if there’s something we’re a little bit disappointed in is that we’re not further along in that regard over the last two years.

We’ve been a little bit slow on that transition. But I think this is going to pick up the pace now and we’re going to do better. And you’ve probably seen the peak of losses in this last quarter and we’re going to incrementally get better as we move forward here.

DAVID FABER: Yeah. Randall Stephenson, the CEO said similar things. Why do you feel like this is the peak right now in terms of losses at DirecTV – sub-losses?

JOHN STANKEY: First of all, you – I just mentioned one thing, which is we’re ready to moving out with a different product that allows us to offer the kind of features that are important. Back when I left the DirecTV business in the middle of 2017, one of the things that I thought was very important to sustain that base was to give customers more on-demand general entertainment content so that they could stay on a platform and not have to go somewhere else to get it. Well, HBO Max is a great pairing with this now.

Because we can within the family of our companies not only offer a pay TV bundle but offer a place for our best and most profitable pay TV subscribers to go where they can get on-demand general entertainment content. And it hits the broad aperture of the demographics that you and I just discussed and I think that gives the pay TV product more life over time, as well.

DAVID FABER: Yeah, DirecTV Now, which now is AT&T Now, the OTT product. How should we be viewing that in light of HBO Max, and/or paired with it?

JOHN STANKEY: Well, you should think about them as two coming together over time. And so, you know, we’ll start with synthetic bundling where can buy both products at an attractive price. Or if you’re a great pay TV customer, you’ll get HBO Max included with it. We talked about that yesterday. Second, we’ll start to get the integration at the software level, where the platform allows for the customer to do more integrated search and more integrated discovery, where it doesn’t feel like they’re working through two separate environments. And then, look, third, I believe these platforms that are being built right now are the new distribution platforms.

They’re the replacement of what started out as the big broadcast networks, moved to cable infrastructure that aggregated and sold content. We now have new streaming platforms that will be the place where most content aggregates and gets sent out to a customer. We want HBO Max to be one of those platforms. Live will come into it over time. I believe that will be the direction that we’ll--

DAVID FABER: You said that yesterday as well. Now, that’s a number of years out, but I would assume live, news, sports, all -- what that it usually, means with live.

JOHN STANKEY: Yep – the distribution platforms that over time, I think that’s the reality of what’s going to happen. And that will become the new distribution for the next ten years.

DAVID FABER: Right. Or more, one would expect. I mean, we’ve had the current distribution system for -- and it has been great. It’s been incredibly profitable.

JOHN STANKEY: It’s been very good for you, hasn’t it?

DAVID FABER: Yes, it has. You know, I hit it right in my career.

JOHN STANKEY: Yes, you did.

DAVID FABER: But it’s kind of --

JOHN STANKEY: Not so lucky.

DAVID FABER: Well, you have got a few more years ahead of you here. But how should you view that? I mean, how many – you know, what is your expectation of the average household in terms of how many of these products they are going to be willing to subscribe to?

JOHN STANKEY: I wish I could tell you. I thought it was going to be another ten years. I think we’re in such a state of change in the industry, I don’t think that anyone of us can definitively say this set of investments and how it’s done today is going to last as long as the old model did and I just don’t believe that to be the case.

DAVID FABER: Will it be – it won’t be as profitable, either. Will it?

JOHN STANKEY: Well, you know, I think scale is different. Right. So, it was more profitable to serve 25% of the market in the old days if you were a distributor. Now, you may serve 100 million, instead of 25 million subscribers. Margins are probably going to be more compressed per subscriber basis, as you think about it moving forward.

DAVID FABER: How do you think about your -- what’s ahead of you moving forward. You know, Randall Stephenson, the company’s CEO recently has been quoted as saying, ‘You’ve got to be successful at running this play.’ Meaning, Stankey’s got to be if you want to become the CEO. Do you want to become the CEO and do you feel the pressure to actually perform over this next period of period of time in terms of what we’re talking about here in order to potentially ascend to that job?

JOHN STANKEY: You know I’ve been working for 34 years and I think in virtually every job that I’ve taken I’ve always felt a pressure to perform and actually add value back to the business. I don’t think that changes or I feel any different about that. I’ve got a lot in front of me to do right now. This introduction to this product is incredibly important. Every job I’ve come into, it’s always been what needs to change, what’s something that can add value to the business and how do you focus on doing it well?

That’s what I’m going to do right now and that’s all I’m concerned about right now. What comes from it comes from it. The beauty I have is, I have this luxury wonderful luxury in my life where I don’t have to work. I work because I want to work. And that’s a blessing for me. And I’m here because I want to do this and I want to do what’s in front of me right now.

DAVID FABER: Right. It’s not as though you don’t get some criticism. I wonder, does it hit hard when you see an Elliott letter and part of it seems to be focused on you, in saying, ‘Well, we’re not really sure we want Stankey to be the person running this company,’ or some of the anonymous quotes in the press about you -- of either previous or current employees who sort of take shots at you. Do you care?

JOHN STANKEY: Well, of course I care. I care about my reputation. But, you know, I think at the end of the day I get paid a lot of money to put up with a lot of different things. And I understand that. What I don’t like about it is I think sometimes it’s distracting to the people around me, the people who have to do work the people who we are depending on to bring important product out to the market. That part of bothers me a bit. It’s not that it bothers me that they’re saying things about me, it’s that I want the organization to perform well and be focused.

DAVID FABER: Is there a lot of hostility out there? Do you sense it amongst the people around us here in this incredibly creative spot? Or do you feel like you really do have the level of cooperation you’re going to need to achieve what are significant goals?

JOHN STANKEY: You know, I’ve been through a lot in my career. I’ve had a lot of great opportunities and been through a lot of interesting moments, I think probably eight major M&A transactions in my career. Putting businesses together isn’t the easiest thing in the world. Oftentimes, you buy a company, you pay a premium, you can’t run it the same. You have to make changes to get value out of it. Those changes require hard decisions.

DAVID FABER: Well, particularly at a pivotal moment as you have said this is for the business.

JOHN STANKEY: And this is an example right now but there have been many before. And sometimes when you make those hard decisions, you know, there are people who come out on the other side of that decision that aren’t happy about it. Sometimes when you change the direction of a business after you acquire it, there are people who believe it should have gone in a different direction and they don’t agree with your perspective.

I’m sure there’s a fairly long trail of individuals that fall into that category over the course of my career, that maybe don’t have the greatest things to say about me. I try to work with the people I work with every day who are committed to the new direction we’re setting, I try to include them and work with them in a constructive fashion.

By a large, on most days, I think I accomplish that. But I’m not perfect and we all can do better from time to time.

JOHN STANKEY: John, I do want to come back in my final question just to the product itself because a number of the analysts this morning in their reports were positive. Quite a few of them.

JOHN STANKEY: You sound surprised.

DAVID FABER: No, I’m not surprised. I was there. Listen, it’s an impressive breadth, depth, you’re focused in terms of some of the demographics HBO doesn’t hit, the interface, all those things. But there was one thing that kept coming up, and I would love to get an answer to, which is you are going after sort of a younger demographic to a certain extent, that many of them have grown up not paying for this stuff. And there’s a concern that they’re never going to pay for it.

How can you be confident given that focus that you’re going to, again, be able to get those 16 million incremental subscribers and obviously the 70 and 90 million around the world you’re targeting by 2025.

JOHN STANKEY: Yeah, I think, I think maybe the demo gets a little bit of a bad reputation on their willingness to pay. I think their willingness to pay is directly correlated to their discretionary and disposable income. I think they get incredibly creative in getting content for free when they don’t have discretionary and disposable income.

My belief is those individuals move through their life cycle and they earn money. If you put something of value out in front of them, they will pay for it. And so, maybe when they’re on a college campus and they’re 20-something years old, they might be a little bit more aggressive around going and trying to find something without having to pay for it. I think our job is frankly to give them ways to belong and be part of the product.

We’ve done really well with family plans in wireless.  I don’t see any reason why we can’t think about HBO Max being an extension of how a family actually pays us for something and engages in it. And as they move through a life cycle and eventually, you may graduate from your parents’ wireless account, you have your own as your life circumstances change. That’s natural.

DAVID FABER: Right. Favorite HBO show right now?

JOHN STANKEY: No question, it’s got to be "Succession.”

DAVID FABER: You and I agree on that.

JOHN STANKEY: That’s good.

DAVID FABER: John, thank you for taking the time. Appreciate it. And thanks for having us here, of course, on the unveiling of HBO Max. John Stankey is President, COO and CEO of WarnerMedia. President and COO of AT&T. Thanks again.

JOHN STANKEY: Thanks for coming down, David.



About the Author

Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver