AT&T just made its first huge changes to HBO and the rest of WarnerMedia

This morning, fresh off of a court victory that sealed its acquisition of Time Warner Inc. once and for all, AT&T announced wide-reaching changes to the structure of that company, now known as WarnerMedia. Robert Greenblatt, a former chairman at NBC Entertainment, has been brought on to run WarnerMedia Entertainment, a brand-new unit that folds Home Box Office, Inc. and Turner Broadcasting into one entity. Greenblatt will oversee HBO, TBS, TNT, and truTV. Equally as important, he’s also been tasked with heading up WarnerMedia’s direct-to-consumer business and the upcoming streaming service that AT&T hopes will prove a worthy foe to Netflix and kick off a new era of distribution for its robust breadth of content.

“This change will provide the company with the agility and flexibility needed to build WarnerMedia’s brands across a variety of evolving distribution models with a more coordinated approach to the company’s original programming,” WarnerMedia announced in a press release. In the company’s view, it’s breaking down walls and a siloed way of doing things that had stretched on for too long.

This is AT&T’s biggest flex of power yet

But it’s also the biggest flex of power AT&T has shown since its $85.4 billion acquisition of Time Warner was finalized. The US Department of Justice ended its quest to reverse that merger last week after a panel of judges sided with AT&T, concluding that the DOJ failed to demonstrate how it would stifle competition. US President Donald Trump had reportedly wanted the deal blocked, as well. With that obstacle now out of the way, AT&T is free to reshape storied media brands and shuffle management to such a degree that some of the very people who built those brands are leaving.

Today’s shake-up comes days after HBO chairman and CEO Richard Plepler announced he would be stepping down from the network of which he had become the public face. Plepler gave the green light to hits like Game of Thrones and Veep, and was widely respected across the entertainment industry for his stewardship of HBO and its prestigious originals. But after 27 years, Plepler decided to bow out, with reports pointing to HBO’s reduced freedom and autonomy under WarnerMedia as the culprit. David Levy, Turner Broadcasting’s president, announced his exit last week as well after a similarly long tenure with the company. Their departures make it easier for AT&T to focus on consolidation.

WarnerMedia wants more original programming from HBO

With Netflix constantly churning out too many original shows and movies for viewers to even keep track of, WarnerMedia wants HBO to ramp things up. Last June, WarnerMedia boss John Stankey made headlines (and reportedly frustrated some HBO workers) by pressuring employees to increase output substantially. “We need hours a day. It’s not hours a week, and it’s not hours a month,” he said. “We need hours a day. You are competing with devices that sit in people’s hands that capture their attention every 15 minutes.”

The new WarnerMedia

Under AT&T’s new organizational changes, WarnerMedia’s networks, live programming, and content production businesses are now consolidated as follows:

WarnerMedia Entertainment: HBO, TBS, TNT, truTV, and direct-to-consumer streaming services. Led by Robert Greenblatt.

WarnerMedia News and Sports: CNN, Bleacher Report, HLN, Turner Sports, and AT&T regional sports networks (RSNs). Led by Jeff Zucker.

Warner Bros. Global Kids and Young Adults: Adult Swim, Boomerang, Cartoon Network, Otter Media, Turner Classic Movies, and “all activities around licensed consumer products.” Led by Kevin Tsujihara.

AT&T might also push HBO to create shorter, bite-sized content intended for those same mobile devices. CEO Randall Stephenson has suggested more curation for mobile might be necessary, saying “in a mobile environment, a 60-minute episode might not be the best experience. Maybe you want a 20-minute episode.” (This isn’t a new idea or even AT&T’s idea; back when HBO first announced HBO Now, it said that shorter-form programming might be a good fit for the service.)

HBO is already a hugely successful business and produces billions in profit each year, but it’s “not enough,” Stankey said in June. Still, he acknowledged that the network risks taking a hit to its reputation if quality takes a dive in the name of quantity. “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 you’re going to be putting something in front of them that they might like,” Stankey said at the June town hall. “We now need to figure out how to expand the aperture of it without losing the quality.”

To that end, HBO plans 150 hours of original programming this year — a 50 percent jump from 2018. That’s enough to warrant airing some shows on Monday evenings since there’s no room on HBO’s signature Sunday slate. Casey Bloys, the network’s president of programming, told Variety “there’s no difference in type or quality of programming we’re doing” and “all of this programming is programming that we would’ve done two years ago, five years ago.” In other words, he’s saying it’s still content that’s worthy of HBO.

AT&T is also taking the scalpel to other Turner properties. Turner Sports will now fall under WarnerMedia News and Sports — to be led by Jeff Zucker, who is expanding his duties beyond helming CNN — and Turner’s Adult Swim and Cartoon Network are being integrated with Warner Bros.’ newly created Global Kids and Young Adults segment.

The streaming service is WarnerMedia’s most important bet

There’s a lot riding on the direct-to-consumer service. In an interview with Variety today, Greenblatt made clear that AT&T has high expectations. “They are looking at the unique set of assets that they have and want to bring them together in a streaming service,” he said. “They want to be aggressive in this new world order. He wants me to pull it all together.” The “he” refers to Stankey, a longtime AT&T executive who is the driving force behind all this restructuring. When pressed for more details on the service, Greenblatt went on to say:

It’s really early days. I don’t have a great and comprehensive answer for you yet. I would just say that the goal here is to put all of these assets that this company has — from the movie studio to HBO and Turner and the vast library — and build a platform that is robust and a great value to the consumer. There’ s a million questions to answer about where we’re already selling content now, should we continue to do that, how exclusive should we be? There are a million questions that have to be answered. We all need to roll up our sleeves as one company to pull that together.

WarnerMedia aims to launch the service in beta by the end of 2019, with Greenblatt acknowledging “the longer you wait, the harder it will be.” He’s right: by then, Disney will have shown off its Disney+ service to investors, if not the public. Apple is also rumored to be preparing its video service for a debut sometime over the next couple months.

As is, AT&T already operates DirecTV Now, an internet TV service positioned as a cable alternative, plus a smaller bundle of channels packaged into a service that the company calls WatchTV. The latter is offered for free to customers on select AT&T unlimited data plans. But eventually, the new WarnerMedia service could be an even more powerful draw for wireless customers — and help prevent existing subscribers from switching.

According to The Wall Street Journal, this tighter operating structure will result in “significant” layoffs. Greenblatt tried to get across that any job reductions won’t hamper WarnerMedia’s creative efforts, but there will no doubt be redundancies with all of those networks now linked closer together in the name of greater efficiency and streamlined operations. AT&T has over $170 billion in debt, but has suggested it will be able to pay off a good chunk of that with its usual profits, by cutting costs, and by offloading assets like WarnerMedia’s 10 percent stake in Hulu.

“At a time when we must shift our investment focus to develop more content for specific and demanding audiences on emerging platforms, we can’t sustain a model where we invest one dollar more than necessary in the administrative aspects of running our business,” Stankey said in a staff memo addressing the restructuring.