Was This $100 Billion Deal the Worst Merger Ever?

[Leroy N. Soetoro]

https://www.nytimes.com/2022/11/19/business/media/att-time-warner-
deal.html

Soon after a sweeping courtroom victory in 2018 cleared the way for AT&T’s
$100 billion takeover of Time Warner, John Stankey, AT&T’s chief operating
officer and the newly anointed chief executive of Warner Media, summoned
his top Warner Media executives to a meeting at the Time Warner Center off
Columbus Circle.

They included Kevin Tsujihara, the head of the Warner Bros. movie studio;
Richard Plepler, the head of HBO; and Jeff Zucker, CNN’s chief executive.
Mr. Stankey handed them a typed document titled “Operating Cadence and
Style,” and sat there while they read it. The memo was two pages, single-
spaced, and the silence stretched for what seemed an excruciating length.

The document, which was reviewed by The New York Times, told them how to
approach and interact with their new boss. Accustomed as they were to
emailing, texting or calling Time Warner’s previous chief executive, Jeff
Bewkes, pretty much any time of the day or night, such a directive had
never proved necessary. Now their dismay mounted.

Among Mr. Stankey’s dictates: 30 minutes was the “default” length for
meetings, Saturdays were reserved for “quality time” with his family, and
he expected to be home for dinner by 6:30 or 7. “My routine is important
to me,” Mr. Stankey wrote.

Although “I really, really don’t like formal presentations and PowerPoint,
I do like brief bullet outlines and references to working documents,” he
elaborated. “I prefer to reserve more formal slide decks for moments of
seminal importance. I will invest to get messages right and articulated
when it counts and has the opportunity to move an issue of significance.”

Few details were overlooked: “Digital documents are preferred,” Mr.
Stankey wrote, “with PDF format the minimum standard.”

Curiously, given their presence in a 12th-floor conference room, he added:
“I’m not a big fan of meetings. A good meeting is purposeful, has a small
number of responsible participants and closes with decisions being made.”

When everyone finished reading, Mr. Stankey asked if he had made himself
clear. No one said anything. But afterward, there was a flurry of
profanity-laced texts.

Less than four years later, all three Warner executives had been replaced.

And then Mr. Stankey bailed.

How badly could it go?
When AT&T’s bold megadeal to buy Time Warner was announced in October
2016, combining AT&T’s broadband and wireless networks with Time Warner
content, many analysts and investors cheered. They loved the promise of
cutting out the cable middleman and delivering entertainment directly to
people’s TVs, laptops and phones.

With Hillary Clinton seemingly poised to be the next president, the
regulatory landscape looked favorable. While the AT&T executives
acknowledged that they knew next to nothing about Hollywood, they had
proven entertainment executives running Time Warner’s divisions. They
thought they could bring AT&T’s vast storehouse of consumer data — even
artificial intelligence — to the notoriously uncertain task of
greenlighting movies and TV shows.

AT&T and its chief executive, Randall Stephenson, were widely admired as
masters of consolidation. AT&T itself was the product of many successful
takeovers, starting with the regional Bell telephone companies.

As Gary Ginsberg, Time Warner’s head of communications, recently recalled:
“This was AT&T! How badly could they screw it up?”

Less than four years after the merger, AT&T abandoned its grand
initiative. It spun off its Warner Media assets and ceded management
control to Discovery. The new company, Warner Bros. Discovery, took on $43
billion of AT&T’s debt, and AT&T shareholders kept 71 percent of the
company, a stake worth less than $20 billion. That amounts to a loss of
about $47 billion for AT&T shareholders, based on AT&T’s $109 billion
valuation of the deal at the time it was announced.

An AT&T spokesman, Fletcher Cook, took issue with that calculation. He
said that the value of the deal at closing was $100.3 billion, and that
The Times’s analysis failed to account for the sale of Warner assets and
cash flows generated while AT&T owned Warner Media. “Under any informed
measure, our ownership of Warner Media was accretive,” he said.

AT&T’s acquisition of Time Warner is hardly the first deal to have gone
disastrously awry — Time Warner’s own merger with AOL in 2000 led to $160
billion in write-offs. But few corporate mergers have stirred up the
passions, seething resentments and finger-pointing as AT&T’s short-lived
ownership of Time Warner did.

In the eyes of former Time Warner executives, a vibrant culture of
creative energy and success nurtured over decades was destroyed in months.
The recent cancellations of the ambitious news streaming platform CNN+,
the nearly finished $90 million film “Batgirl” and the critically
acclaimed HBO series “Westworld” have left Hollywood reeling — and suggest
how far Warner management under AT&T had run off the rails.

Mr. Cook said Mr. Stankey, now the chief executive of AT&T, and others at
the company had no interest in revisiting this subject and declined to be
interviewed. But I was able to interview more than two dozen people
involved in the merger and its aftermath, some on many occasions and over
many hours, including both former chief executives, Mr. Bewkes of Time
Warner and Mr. Stephenson of AT&T.

While many spoke on background, quite a few agreed to be quoted, offering
a rare look inside the aftermath of a once-celebrated merger. I discovered
that passions still run strong on both sides of the AT&T/Time Warner — and
now Discovery — divide.

In a statement to The Times, AT&T acknowledged the ill will it had left
behind. “A fundamental and dramatic repositioning of an entrenched
corporate culture — multiple corporate cultures actually — will certainly
leave broken glass, disenfranchised individuals and disagreements on the
difficult path to reinvention,” Mr. Cook said.

AT&T’s path to reinvention is continuing. Months before it sold Warner
Media to Discovery, it spun off the satellite broadcaster DirecTV, another
prong in AT&T’s media strategy, with a loss to shareholders of about $49
billion.

By The Times’s calculation, between the Time Warner and DirecTV deals AT&T
has squandered close to $100 billion.

Now it may be Discovery’s turn. After several quarters of weak financial
results, Warner Bros. Discovery’s market capitalization was less than $27
billion this past week — a stunning loss of nearly $23 billion since the
new company began trading in April.

Discovery in part blamed AT&T’s mismanagement for the grim results and, in
the latest twist, investigated allegations that AT&T engaged in
questionable accounting tactics to inflate the projections on which the
value of the Warner assets was based.

Mr. Cook, the AT&T spokesman, strenuously denied any wrongdoing. But after
Warner Bros. Discovery’s chief executive, David Zaslav, pressed the issue
this summer with his counterpart, Mr. Stankey, AT&T agreed to pay Warner
Bros. Discovery $1.2 billion by the end of August. AT&T also agreed to
resume providing the HBO Max streaming service to its wireless customers,
a “soft” deal that could be worth hundreds of millions of dollars to
Warner.

On June 14, 2018, when the AT&T-Time Warner deal closed, AT&T stock was at
$24.56. This past week it was just under $19, a decline of 23 percent,
even as the S&P 500 gained more than 40 percent over the same period.

How could so much shareholder value have evaporated in so short a time?

‘Are you sitting down?’
Allen & Company’s Sun Valley media conference, the annual “billionaires’
summer camp,” has a long history of spawning media deals, from Disney’s
acquisition of ABC to Jeff Bezos’ purchase of The Washington Post. And
during the summer of 2015, Mr. Bewkes approached Mr. Stephenson there
about a possible AT&T bid for Time Warner.

Mr. Stephenson had made his reputation in large part on his deal-making
acumen. Unlike other newcomers to Hollywood, he had no interest in red
carpet events and never attended any, preferring to spend time at his
Wyoming ranch. An Oklahoma native who had worked for AT&T and its
predecessors since 1982, he’d been AT&T’s chief executive since 2007.

Since then, AT&T’s stock price had gone nowhere, barely recovering from
the Great Recession as fierce competition in wireless squeezed profit
margins. Mr. Stephenson and Mr. Stankey saw media as a much-needed path to
growth.

Time Warner’s Mr. Bewkes had heard all of this and had his doubts about
AT&T’s ambitions, but that was not his concern. A Yale graduate with a
Stanford M.B.A., Mr. Bewkes had risen through the ranks of HBO, where as
president of the cable network he helped bring the world “The Sopranos.”
He became chief executive of Time Warner in 2008 as the financial crisis
was brewing, and over the next 10 years Time Warner stock skyrocketed.

But Mr. Bewkes saw enormous threats on the horizon. Cord-cutting
undermined the lucrative cable model and with it the Turner Broadcasting
cable channels, including CNN and the Cartoon Network, which accounted for
more than half of Time Warner’s revenue and earnings. The rise of Netflix
and Amazon Prime Video, and the accompanying multibillion-dollar spending
race on content delivered via the internet directly to consumers, were a
threat to HBO and the Warner studio. HBO had already lost bidding wars for
the hit series “House of Cards” and “The Crown” to Netflix.

A sale of Time Warner, valuing it at over $100 a share, would be a
windfall for Mr. Bewkes and his shareholders. Still, he wanted Time
Warner’s properties and employees, many of them his friends, to wind up in
good hands.

Rupert Murdoch’s 21st Century Fox had approached Mr. Bewkes and Time
Warner with an $80 billion offer in 2014, which Time Warner rejected as
too low. But Mr. Bewkes could see the writing on the wall.

When the two executives spoke in 2015, Mr. Stephenson recalled recently,
he told Mr. Bewkes that he was too wrapped up in closing a deal to acquire
DirecTV but that Mr. Bewkes should come back later — AT&T might be
interested.

A year later, in the summer of 2016, Mr. Ginsberg, Time Warner’s head of
communications, had breakfast with Peter Chernin, his former boss at News
Corp. and a trusted adviser to Mr. Stephenson, at a cafe in Menemsha on
Martha’s Vineyard. Mr. Chernin asked Mr. Ginsberg what he thought Time
Warner’s price might be. “We’d need $105 to $115 a share,” Mr. Ginsberg
suggested, pretty much off the top of his head. Mr. Chernin didn’t blanch.

As soon as breakfast was over, Mr. Ginsberg called Mr. Bewkes. “Are you
sitting down?” he asked. “Because I’ve got some incredible news that will
stun you.”

‘They don’t own the company yet’
The two companies announced their deal on Oct. 22, 2016. Neither AT&T nor
Time Warner management was worried about antitrust or other regulatory
issues since vertical combinations — mergers of buyers and suppliers,
rather than competitors — were almost never challenged on antitrust
grounds. No such case had been litigated in 40 years.

They had failed to reckon with the populist skepticism about big mergers
or Donald J. Trump’s hostility to established media, especially CNN, which
he repeatedly denounced as “fake news.” Mr. Trump’s ire was especially
intense toward CNN’s chief executive, Jeff Zucker, ignoring (or
forgetting) that it was Mr. Zucker, as head of NBC Entertainment, who put
“The Apprentice” into NBC’s prime-time lineup and made Mr. Trump a TV
star.

The proposed megadeal was one of the few issues — perhaps the only issue —
to instantly unite the political right and left, with Mr. Trump, the
Republican nominee for president, and the liberal senators Bernie Sanders
and Elizabeth Warren unlikely allies in opposing it.

With the unexpected election of Mr. Trump in November, AT&T realized it
had a problem. In January 2017, the company hired the president-elect’s
personal lawyer, Michael Cohen, paying him $50,000 a month to advise it
on, among other topics, the Time Warner merger, even though Mr. Cohen had
no known antitrust expertise.

The move appeared to yield immediate results. (Mr. Cohen did not respond
to a request for comment.)

Just days after Mr. Cohen was hired, Mr. Stephenson invited Mr. Bewkes to
join him for a Trump Tower meeting with Mr. Trump, along with Mr. Trump’s
son-in-law, Jared Kushner, and adviser Stephen K. Bannon. Mr. Bewkes
declined.

“I wasn’t going to talk about our coverage or oversight of any of our
companies, and sure as hell not with a politician,” Mr. Bewkes recalled.
“We covered these people.”

Mr. Stephenson visited Trump Tower on Jan. 12. Mr. Stephenson recalled
that Mr. Trump had brought up the subject of CNN and attacked Mr. Zucker
before stopping himself with the realization that he shouldn’t be talking
about CNN. Mr. Stephenson said he had offered no response.

Mr. Trump kept up his Twitter diatribe against CNN and Mr. Zucker. But on
June 22, Mr. Stephenson visited the White House along with other chief
executives, and Mr. Trump was surprisingly effusive in his praise for the
AT&T chairman, saying publicly that he had done “really a top job.”

Mr. Stephenson’s warm presidential reception was shortly followed by a
visit to Time Warner by Larry Solomon, the head of corporate
communications for AT&T. Mr. Solomon told Mr. Ginsberg that he was there
to give him a “heads up” that “we’re going to fire Jeff Zucker,” Mr.
Ginsberg recalled.

“Why?” Mr. Ginsberg asked. CNN was thriving, generating more than $1
billion in annual profit for Time Warner.

Mr. Solomon responded that MSNBC had overtaken CNN in the ratings.

Mr. Ginsberg didn’t buy that. “What does that matter?” he asked. CNN had
never been driven primarily by ratings.

As soon as Mr. Solomon left, Mr. Ginsberg got Mr. Bewkes on the phone, Mr.
Ginsberg recalled. “You’re not going to believe this,” he said. “They want
to fire Zucker.”

“Stop right there,” Mr. Bewkes responded. “They don’t own the company yet,
and they may never own the company.”

Mr. Solomon, now retired from AT&T, denied having any such exchange with
Mr. Ginsberg and called the account a fabrication. Mr. Stephenson also
said he had never suggested that Mr. Zucker be fired and rebutted the idea
that AT&T had made any promises to Mr. Trump.

“Anyone who says otherwise is categorically wrong or making it up,” Mr.
Stephenson said.

On June 27, just five days after Mr. Stephenson’s White House visit, Mr.
Trump tweeted, after CNN retracted a story on Mr. Trump and Russia, that
CNN was “looking at big management changes” and that its ratings were “way
down!” — pretty much the same message Mr. Ginsberg had heard from Mr.
Solomon.

Mr. Ginsberg was stunned. He confronted Mr. Solomon: “How did Trump know
this?” Mr. Ginsberg thought the answer was obvious, but Mr. Solomon
insisted that Mr. Stephenson hadn’t promised the president anything in
return for Mr. Trump’s support of the merger.

“Of course they weren’t so stupid as to say, ‘Trump wants this, and if you
do it he’ll do what we want,’” Mr. Bewkes recalled. What AT&T wanted at
the time was for the administration to approve the merger. “But Randall
was always probing me. ‘What do you think of our coverage?’ ‘Were our
reporters being too hard on the White House and Trump?’ ‘Should Zucker be
replaced?’ It was nothing explicit, but I got the drift.”

Mr. Stephenson acknowledged that he had discussed the anti-Trump tenor of
CNN’s reporting with Mr. Bewkes. “If you ask me personally, would I have
liked to have seen CNN’s coverage be more moderate? Yes, that would have
been helpful,” Mr. Stephenson said.

Mr. Bewkes was adamant that the news division was independent, and that
he’d do nothing to interfere with its coverage. He would not fire Mr.
Zucker. If he did, “all your journalists will resign,” he warned Mr.
Stephenson. “They’ll tell everyone to write stories about what you’re
doing. Nobody will bring you a script in Hollywood if you become part of
the dark empire.”

In a recent interview, Mr. Zucker said he, too, had been aware of
discussions about getting rid of him to appease Mr. Trump.

Mr. Bewkes was so concerned that he took the issue to Time Warner’s board.
He explained what was happening and said he wouldn’t replace Mr. Zucker.
But Mr. Bewkes said he had realized that a $100 billion-plus merger might
be hanging in the balance. If the board disagreed, it could fire him and
find someone who would carry out what appeared to be AT&T’s — and by
extension Mr. Trump’s — wishes.

The board (which included Mr. Trump’s future attorney general William P.
Barr) gave him its unanimous backing. Mr. Zucker kept his job.

Once Makan Delrahim was installed as the administration’s antitrust chief
in 2017, he offered Mr. Stephenson and AT&T a path forward: Divest either
Turner Broadcasting or DirecTV or both in return for Justice Department
approval of the merger.

Mr. Bewkes urged Mr. Stephenson to jump at that opportunity. The Justice
Department’s offer provided cover for AT&T to get out of acquiring two
troubled and declining assets. Mr. Stephenson said he had offered to
divest a minority stake in Turner, but otherwise AT&T remained wedded to
its vision of a vertically integrated media colossus. The Justice
Department rejected Mr. Stephenson’s proposed compromise.

Any efforts to appease Mr. Trump went nowhere. AT&T later acknowledged
that its payments to Mr. Cohen had reached $600,000. By the time Mr. Cohen
came under criminal investigation for payments to the pornographic film
actress Stormy Daniels, and the AT&T payments were revealed, Mr.
Stephenson said hiring Mr. Cohen had been a “big mistake.”

At that point, Mr. Zucker probably had more job security than anyone at
Time Warner.

‘Mr. Chairman’

Mr. Ginsberg’s and Mr. Bewkes’s accounts of AT&T efforts to appease Mr.
Trump spread throughout Time Warner. That hardened suspicions within the
ranks that AT&T’s executives — and their future bosses, assuming the deal
was eventually approved — couldn’t be trusted. The contrast in the
companies’ cultures was already evident: AT&T was formal and hierarchical,
Time Warner freewheeling.

In one small but telling detail, almost everyone at AT&T referred to Mr.
Stephenson not by his first or last name but as “the chairman.” At Warner,
Mr. Bewkes was simply “Jeff.”

“I guess we should start calling you Mr. Chairman,” Olaf Olafsson, Time
Warner’s strategy chief, had told Mr. Bewkes.

On May 16, 2017, while the deal was still undergoing regulatory scrutiny,
Mr. Stephenson was in New York to receive the Steven J. Ross Humanitarian
Award from the UJA-Federation of New York, a Jewish philanthropy. The
award, named for the Warner Communications chairman who had built the
company into an entertainment colossus, was a measure of Mr. Stephenson’s
new stature. The venue, Cipriani’s, was packed with media and
entertainment figures, and Time Warner executives took six tables. The
event raised a record $2.5 million.

That the award went to a non-Jew from Texas did not go unnoticed. Mr.
Chernin, who played a prominent role in the ceremony, called the event as
Mr. Stephenson’s “honorary bar mitzvah,” adding, “Not since Menachem Begin
shook hands with Anwar Sadat have Jews reached so far into a different
culture to embrace the greater good.”

When it was Mr. Stephenson’s turn to speak, he alluded to the coming
merger, saying his wife, who was in the audience, was getting jealous. “I
spend more time with Jeff Bewkes than I do with her,” he maintained.

There was polite laughter — even though making his wife the brunt of a
joke seemed like a throwback to “The Dick Van Dyke Show” — but at the Time
Warner tables, there were raised eyebrows and a general rolling of eyes.
For in fact, Mr. Stephenson had spent little time with Mr. Bewkes.

“It was a blatant lie,” Mr. Ginsberg recalled. This was corroborated by
several other Time Warner executives who attended.

Mr. Stephenson said he didn’t recall the remark about his wife, but
“obviously it was a joke.” Nonetheless, the remark prompted increased
skepticism toward AT&T among members of Time Warner management.

A running team vs. a passing team
That summer, Mr. Bewkes accepted Mr. Stephenson’s invitation to address
the AT&T board in Dallas. He ended up speaking for two hours, twice his
allotted time. For sports-obsessed Texans, he chose a football analogy:
AT&T is “a running team. You move slowly down the field, three yards and a
cloud of dust. You depend on obedient execution.” By contrast, “we’re a
passing team. We may miss two or three times. But when we complete a pass,
we’re 50 yards down the line.”

He elaborated that AT&T employed hundreds of thousands of essentially
fungible workers. Time Warner was different, with a relatively small
number of executives given a high degree of discretion.

“We’re like a platoon fighting a guerrilla war in the jungle,” Mr. Bewkes
recalled telling the board. “If you try to replace our team with a
regimented army, you’re going to ruin all our network and studio
businesses.”

More fundamentally, he warned that AT&T’s main strategy for competing with
Netflix and Amazon was flawed: It wanted to funnel as much Warner content
as possible to HBO Max.

On the contrary, he believed Time Warner’s strength was it was “like
Switzerland,” selling to the highest and most appropriate bidder, both
domestically and internationally, Mr. Bewkes contended. That’s why its
television studio was so successful. Premium drama could go to HBO. But
shows with mass market appeal, like “Friends” and “The Big Bang Theory”
were better off at the ad-supported broadcast networks. Hollywood talent
was attracted to Time Warner’s neutrality.

What AT&T brought to the mix was data from its DirecTV and cellular
customers. Data could arguably help it compete for advertising dollars
with Google and Facebook. Mr. Bewkes argued that AT&T should sell that
data to all comers, including competitors like Comcast, Fox and Disney,
expanding Time Warner’s longstanding strategy.

As Mr. Bewkes recalled the exchange, one director said AT&T would never
share data with Comcast. “We hate them,” he said.

“Do you think I love them?” Mr. Bewkes responded. “This is not about who
you like.”

“They looked at me like I was from another planet,” Mr. Bewkes said.

Mr. Stephenson said he had listened carefully to what Mr. Bewkes had to
say, but concluded Warner Media had to go all-in on streaming. Mr. Bewkes
was “too cautious,” he said.

A ‘herculean’ trial ends
After AT&T refused to divest either DirecTV or Turner, the Justice
Department followed through with its threat to block the merger in
November 2017.

“It might have been smart to walk away from the deal then,” Mr. Stephenson
said, because the lawsuit meant extensive delays, management distractions
and enormous litigation costs. “But I’d made a commitment to Jeff Bewkes,
and I intended to honor that.” He also was opposed to any settlement that
suggested he was willing to compromise CNN’s editorial independence, he
said.

The Justice Department argued that the combination would be an
anticompetitive juggernaut that would use its enormous power “as a weapon
to hinder competition.”

Mr. Delrahim, at the Justice Department, stated repeatedly that the
decision to file the suit had nothing to do with Mr. Trump’s hostility to
CNN, but few at AT&T or Time Warner believed that.

After a federal trial that the judge, Richard J. Leon, called “historic,”
“epic” and “herculean,” he issued an opinion on June 12, 2018, rejecting
all the government’s arguments.

About a month later, about 50 AT&T executives, lawyers and bankers
gathered in a private room at Midtown Manhattan’s Peninsula Hotel to
celebrate.

A handful of Time Warner executives and their wives were also on hand,
seated at a table together. Two were the newly departed chief executive,
Mr. Bewkes, and strategy chief, Mr. Olafsson. Still with the company were
the heads of its three divisions: Warner Bros., HBO and Turner
Broadcasting.

AT&T’s general counsel, David McAtee, presented “awards,” or “mementos” —
courtroom artist renderings of witnesses at the antitrust trial. Mr.
Stephenson and Mr. Stankey each got one, as did Mr. Bewkes and various
lawyers.

The executives’ appearances on the witness stand — indeed, the entire
antitrust proceeding — were pretty much the last thing Time Warner leaders
wanted to be reminded of.

Far from being welcomed into the fold at that dinner, the three Warner
division heads were largely ignored. While they recognized that Mr. McAtee
and his colleagues were trying to be gracious, from the Warner vantage
point they were just another corporate conquest in a long line of deals.

After he got home that night, Mr. Plepler called Mr. Bewkes. “Could you
believe that?” he asked.

“I know,” Mr. Bewkes said, recalling their conversation in a recent
interview. “I’m sorry, but that’s who they are.”

As Mr. Olafsson later put it, “No one who was there that night could
possibly believe we had ended up in the right hands.”

‘Oil and water’

Probably no two people better embodied the stark cultural differences
between AT&T and Time Warner, now renamed Warner Media, than Mr. Plepler,
HBO’s chief executive, and his new boss, Mr. Stankey. Mr. Plepler told
friends that he and Mr. Stankey were “oil and water.”

A 28-year veteran of Time Warner and HBO, Mr. Plepler, then 59, had
started in public relations, knew just about everyone in journalism and
Hollywood, and loved schmoozing with producers, writers, actors and
journalists.

He was out on the town in New York or Hollywood or hosting dinner parties
at his Upper East Side townhouse nearly every night. During his tenure,
HBO had amassed 160 Emmy Awards and launched the ratings juggernaut “Game
of Thrones.” He was perpetually tan and rarely wore a tie, preferring navy
blazers and open-collar white shirts.

One of Mr. Plepler’s favorite sayings was “Culture eats strategy for
breakfast,” a quote from the management guru Peter Drucker, meaning that
the best-laid plans will run aground without the support of an
enthusiastic work force.

Mr. Stankey had spent three decades moving up the ranks at AT&T after
graduating with a degree in finance and getting an M.B.A. at the
University of California, Los Angeles. Imposingly tall, with a square jaw
and deep voice, he looked the part of a DC Comics superhero in civilian
garb. He wasn’t a natural conversationalist and didn’t seem comfortable
mingling at the Hollywood events where he was now expected to appear.

Basic differences between Mr. Stankey and Mr. Plepler were on display at
an HBO forum on June 19, 2018, to introduce Mr. Stankey to HBO’s roughly
1,500 employees. Mr. Plepler kicked off the session with a video welcoming
their new boss, featuring lighthearted greetings from HBO stars Larry
David, Bill Maher and Julia Louis-Dreyfus. (John Oliver, host of HBO’s
“Last Week Tonight,” had flatly refused to participate, saying no good
would come from AT&T’s takeover, according to HBO’s longtime
communications head, Quentin Schaffer, who helped put the video together.)

The charm offensive had minimal apparent effect. Mr. Stankey wasted little
time praising HBO’s past success. He said HBO needed to significantly
expand its content production to achieve his and AT&T’s strategic vision.

“We need hours a day” from viewers, Mr. Stankey said, according to a
transcript of the meeting. “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.”

At another point, he invoked his spouse: “You will work very hard, and
this next year will — my wife hates it when I say this — feel 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.”

While trying to be a congenial host, Mr. Plepler pushed back, repeating
his mantra that when it came to content, “more isn’t better — only better
is better.” In a concession to his new boss, he added, “But we need a lot
more to be even better.”

Many HBO employees, who had been watching the proceedings on video, were
shocked by Mr. Stankey’s blunt remarks and conspicuous lack of warmth
toward Mr. Plepler.

When they expressed their dismay to Mr. Plepler, he counseled patience
and, quoting the former Israeli prime minister Shimon Peres, described
himself as an “unsatisfied optimist.” Once the new owners saw how good HBO
was at what it did, he suggested, maybe they would back off.

Not in ‘Switzerland’ anymore
While Mr. Stankey never mentioned Netflix or Amazon during the employee
meeting, his emphasis on “scale” in streaming made it clear that they were
his models.

He made that explicit in a conversation with Mr. Schaffer. The two men
spoke soon after Mr. Schaffer and Mr. Plepler had dinner at Nobu in Palo
Alto, Calif., with Reed Hastings, the Netflix co-chief executive. During
the dinner Mr. Hastings had mused that Netflix and HBO made an ideal
streaming combination.

Afterward, Mr. Schaffer said, he asked Mr. Stankey what he thought of the
idea.

Mr. Stankey replied that Netflix was the “enemy” and Warner would “crush”
it.

As Mr. Schaffer recalled, “He shot the idea down in one second.”

(The AT&T spokesman denied that Mr. Stankey had said he wanted to “crush”
Netflix but confirmed that he had dismissed any notion of working with a
competitor. In other public contexts, Mr. Stankey elaborated that there
were likely to be only a few large streaming survivors, and that he wanted
HBO Max to be one of them.)

Mr. Stankey was also determined to promote Warner’s streaming content
exclusively through AT&T’s streaming service. HBO subscriptions would no
longer be sold through Amazon, Hulu and Apple.

Warner movies would be available only on HBO Max rather than other
distributors. Hit Warner-produced television shows like “Friends” and “The
Big Bang Theory” would be withdrawn from Netflix.

In other words, Mr. Stankey rejected virtually every component of Mr.
Bewkes’s advice to AT&T’s board. Warner would no longer be “Switzerland.”

Mr. Plepler warned Mr. Stankey that expanding production while limiting
streaming distribution to HBO Max would be enormously expensive — billions
of dollars in reduced revenue from sales to other outlets and an enormous
increase in expenses.

In accord with Mr. Stankey’s stated penchant for slide shows at moments of
“seminal importance,” Mr. Plepler created an eight-point presentation and
delivered it in September 2018, according to someone present at the
meeting. It called for merging HBO and Cinemax, HBO’s companion network
that focused on theatrically released films and documentaries; investing
more in high-quality programming; and expanding distribution.
Significantly, it did not propose making the HBO Max streaming service
available only through AT&T, which HBO estimated would put $7 billion in
revenue at risk.

Mr. Plepler wasn’t against a streaming-first strategy, but he wanted it to
be evolutionary.

At one point, Mr. Stankey asked Stephen Boulton-Wallace, head of research
and program strategy for HBO, to model the effect of removing “Friends”
from Netflix and making it available exclusively on HBO Max. Mr. Boulton-
Wallace told him that he didn’t need to model anything. Given Netflix’s
lucrative payments for the show, the number of new subscribers needed was
so huge that common sense dictated that it couldn’t be done.

Mr. Stankey also asked him to model the increase in production budgets to
reach the scale necessary to compete with Netflix and Amazon. AT&T had
projections that HBO Max would reach 100 million customers and achieve 59
percent household penetration. That was a formidable task. At the time,
Netflix had access to about 40,000 hours of programming and Amazon 60,000.
HBO had far less. Moreover, with its sophisticated, premium content, HBO
had never reached more than a third of U.S. households, even with its most
popular hits.

To reach its goals, AT&T would have to not only drastically ramp up
production but also broaden its appeal far beyond the upscale demographic
of the existing HBO audience. HBO’s longstanding strategy was to deliver a
boutique product, not aim for the masses.

Mr. Boulton-Wallace estimated that HBO would need to more than double its
production budget, to more than $9 billion a year, far less than Netflix
was spending. His model projected that HBO would move in short order from
30 percent profit margins to a loss.

Mr. Boulton-Wallace warned Mr. Stankey that he’d never meet his ambitious
customer targets.

Mr. Stankey dismissed Mr. Boulton-Wallace’s concerns and data out of hand.
He said it was impossible to model a “paradigm shift.”

(The AT&T spokesman said AT&T had modeled “hundreds” of possibilities in
addition to Mr. Boulton-Wallace’s work.)

It was increasingly apparent to some Warner employees that AT&T executives
didn’t welcome dissent. The level of paranoia was so high at Warner Bros.,
according to people there at the time, that one Warner executive referred
to Dallas executives as “the Stasi,” a reference to the East German secret
police.

A ‘great cultural fit’
Mr. Plepler, by nature an optimist, kept hoping things would work out.
With “Game of Thrones” on its way to its eighth and final season, HBO had
never been more profitable. But toward the end of 2018, he realized it was
time to leave.

In fact, Mr. Stankey was already meeting with Robert Greenblatt, who had
just stepped down after a successful run as chairman of NBC Entertainment,
where he reported to Steve Burke, the Comcast executive who ran its
NBCUniversal subsidiary.

Early in 2019, Mr. Plepler called Mr. Stankey in Dallas. He told him that
Mr. Stankey was entitled to run HBO as he saw fit, and that he should have
someone at the helm who was as passionate about Mr. Stankey’s vision as
Mr. Plepler was about his.

Mr. Plepler said he could be gone in a week.

Mr. Stankey later offered him a dinner or going-away party, but Mr.
Plepler declined. His departure was formally announced in February.

A week after Mr. Plepler’s exit, Mr. Stankey named Mr. Greenblatt as
chairman of Warner Media entertainment, where he’d oversee HBO, some of
the Turner assets and, critically, the launch of HBO Max. Mr. Stankey said
he wanted to see the flagship streaming service up and running in just
nine months. Disney was rolling out Disney+ — seen as a looming threat —
in November.

In contrast to his dealings with Mr. Plepler, Mr. Stankey seemed to have
struck up a warm relationship with Mr. Tsujihara, the first Asian American
man to run a major studio and a popular fixture in Hollywood.

Mr. Tsujihara sat next to Mr. Stankey at the Academy Awards in February,
and when he reorganized the Turner brands, Mr. Stankey gave Mr. Tsujihara
added responsibility for the Cartoon Network and Turner Classic Movies.

Mr. Stankey was aware that Time Warner had twice investigated Mr.
Tsujihara after he embarked on a brief sexual relationship with a British
actress, Charlotte Kirk. Ms. Kirk had never lodged a complaint with Time
Warner, and issued a public statement saying she had no complaints about
his behavior. The company concluded that the relationship was consensual.

Two days after Warner Media announced Mr. Tsujihara’s new
responsibilities, The Hollywood Reporter published a series of graphic
text messages between Ms. Kirk and Mr. Tsujihara in which the actress
pleaded for his help landing auditions and roles and the executive offered
to look into opportunities for her.

Though none clearly established any wrongdoing, there was an uproar in the
wake of the Harvey Weinstein revelations, and Warner Media performed
another investigation focused on whether Mr. Tsujihara had used his
influence to get Ms. Kirk roles. (She had small parts in two Warner
films.) Still, Mr. Stankey kept Mr. Tsujihara in his post.

Mr. Stankey had failed to reckon with the depth of outrage fueled by the
#MeToo movement. Warner was in negotiations with J.J. Abrams, the
filmmaker responsible for such hits as “Star Trek,” several “Star Wars”
sequels and “Mission Impossible III,” along with his wife, Katie McGrath,
who ran Bad Robot, their production company.

Ms. McGrath had emerged as an outspoken champion of the #MeToo movement
and was a co-founder of Time’s Up, a Hollywood initiative to fight sexual
harassment. She told Mr. Stankey that it wasn’t her place to tell him how
to run his company, but that Bad Robot couldn’t be associated with a
studio run by Mr. Tsujihara.

Mr. Stankey announced Mr. Tsujihara’s departure two weeks later. “Kevin
has acknowledged that his mistakes are inconsistent with the company’s
leadership expectations and could impact the company’s ability to execute
going forward,” Mr. Stankey wrote in a memo to employees.

Warner Media reached a five-year deal with Mr. Abrams and Ms. McGrath,
agreeing to pay $250 million to keep Bad Robot producing under the Warner
Media umbrella.

Mr. Stankey appeared to anguish over the decision to force out Mr.
Tsujihara. He insisted on giving Mr. Tsujihara two going-away parties, one
in Hollywood on a Warner soundstage, the other in New York at the Mandarin
Oriental hotel. Under the circumstances, both were awkward affairs.

To replace Mr. Tsujihara, Mr. Stankey passed over a couple of internal
candidates, Toby Emmerich, chairman of the movie studio, and Peter Roth,
in charge of television, both well known and respected in Hollywood, and
named Ann Sarnoff, the first woman to run the studio.

While the added diversity at the homogeneous, male-dominated AT&T (not to
mention Warner) was widely applauded, Ms. Sarnoff’s résumé left many
industry participants scratching their heads: Her previous duties were at
BBC Worldwide North America; Dow Jones (publisher of The Wall Street
Journal), where she oversaw the conference business; and the Women’s
National Basketball Association.

Mr. Stankey seemed impressed with her successful launch of BritBox, a BBC
streaming channel, and praised her as a “great cultural fit” for Warner
Media.

No joint ventures
One way to reduce costs while expanding a viable streaming service was to
enter into joint ventures. Mr. Stankey met with David Zaslav, the chief
executive of Discovery, which owned a portfolio of nonfiction and reality
cable channels.

He also met with Comcast’s chairman, Brian Roberts, and NBCUniversal’s Mr.
Burke. Together, NBCUniversal and Warner television had 14 of the top
comedies of all time, including NBCUniversal’s “30 Rock,” “The Office” and
“Cheers” and Warner’s “Friends” and “Seinfeld.”

Neither encounter led to any deal. Mr. Stankey told people that he didn’t
believe in joint ventures and would never co-run a business.

AT&T’s costly, go-it-alone strategy and the management upheavals at Warner
Media attracted the attention of Paul Singer, the activist investor and
hedge fund manager known for his libertarian politics and large
contributions to Republican candidates. In September 2019, his investment
firm, Elliott Investment Management, disclosed a $3.2 billion stake in
AT&T and called for management changes.

The firm was especially critical of the Time Warner deal, writing in a
letter to the board that more than a year later, AT&T had “yet to
articulate a clear strategic rationale” for the combination. The letter
added, “There is still confusion over strategy and a growing sense that
AT&T doesn’t have a plan.”

Elliott backed off and sold a portion of its stake in October 2020 after
AT&T pledged not to make any other major acquisitions.

AT&T’s stock was trading at just over $24, $8 below where it was when
Elliott announced its stake. Casey Friedman, a spokeswoman for Elliott,
said its overall investment in AT&T has been profitable.

Leading ‘AT&T into the future’
The financial implications of AT&T’s strategy were unmistakable by the end
of 2019 — the first full year AT&T had owned Warner Media — and the first
quarter of 2020, even before the pandemic upended Americans’ lives and the
entertainment business. That quarter, AT&T reported that Warner Media’s
revenue had declined a billion dollars from the year before, and earnings
dropped 22.8 percent.

AT&T didn’t offer much of an explanation but cited lower revenue from the
licensing deals it had terminated in anticipation of the launch of HBO
Max, scheduled for May.

The day the results were announced, AT&T said Mr. Stankey would replace
Mr. Stephenson as chief executive.

Mr. Stephenson, who had recommended Mr. Stankey to the board, noted that
there were many candidates to run a telecommunications company and many to
run a media company — but virtually none with experience running both. As
he departed, Mr. Stephenson hailed Mr. Stankey as “the right person to
lead AT&T into the future.”

That opened up the top job at Warner Media less than two years after Mr.
Stankey had taken it. One candidate seemed to be right in front of him:
Jeff Zucker, who had overseen the creation of Hulu while at NBCUniversal
and was much admired within Warner Media for his profitable stewardship of
CNN.

Mr. Stankey did consider Mr. Zucker for the job. But that April, he
announced that Jason Kilar — who had once worked for Mr. Zucker — would be
the next chief executive of Warner Media.

The news surprised Mr. Zucker. Although he was well aware of Mr. Kilar’s
strengths and weaknesses, Mr. Stankey had never asked his opinion about
him.

Like Ms. Sarnoff, Mr. Kilar had a more unconventional résumé by Hollywood
standards. With a Harvard M.B.A., he had spent nine years at Amazon’s
software division before joining Hulu. While the experience made him a
streaming pioneer, Mr. Kilar hadn’t been at Hulu for several years.
Moreover, Hulu was relatively small (2,400 employees in 2019) while Warner
Media had nearly 30,000 employees.

HBO Max debuted in May 2020 with 10,000 hours of programming, including
“Game of Thrones,” “Friends” and the Harry Potter movies. But it lacked a
major original new series like the Disney+ streaming hit “The
Mandalorian.” It also carried a premium price by streaming standards,
locked in by HBO’s monthly fee of $14.99.

A month later, Mr. Stankey announced that HBO Max had attracted four
million subscribers, which he said was ahead of projection. Mr. Kilar
fired Mr. Greenblatt soon after, as he consolidated HBO, HBO Max and the
Warner Bros. studio into one administrative unit.

By December 2020, HBO Max had attracted only 12.6 million subscribers. In
contrast, Disney+ had signed up 10 million on its first day. That
December, Disney was at 87 million subscribers. HBO Max’s archrival,
Netflix, stood at 195 million.

From a ‘win, win, win’ to a loss
Mr. Kilar embraced the promise of streaming with almost religious fervor.
He told Mr. Zucker that he wanted CNN to start a stand-alone streaming
news service of its own, later named CNN+, Mr. Zucker recalled.

Mr. Kilar told him that he believed AT&T intended to spin off Warner Media
and, given Wall Street’s infatuation with streaming, a stand-alone news
service alongside HBO Max would add value.

Mr. Zucker thought a separate news streaming service would make sense
someday, but not yet. He thought he might be able to “slow walk” the idea,
he recalled. But Mr. Kilar insisted. Mr. Zucker dutifully got on board,
but without any great enthusiasm. (In a recent interview, Mr. Kilar said
Mr. Zucker had never communicated any hesitation about CNN+ to him.)

To many in Hollywood, Mr. Kilar’s (and Mr. Stankey’s) lack of experience
was on display that December when Mr. Kilar announced that all of Warner’s
films slated for 2021, including big-budget tent poles like “Dune” and
“Matrix 4,” would be released simultaneously in theaters and on HBO Max,
upending the long tradition of exclusive release to movie theaters.

While prompted in large part by the collapse of the traditional box office
during the pandemic, it also reflected the importance of HBO Max to AT&T’s
overall strategy.

The move generated a storm of criticism, which Mr. Kilar described as
“painful” in an interview with The Times. Mr. Stankey staunchly defended
him, publicly calling the move a “win, win, win.”

But the recurring public relations headaches and financial pressures
appeared to be weighing on Mr. Stankey. He was ready to wash his hands of
the entire media enterprise. At the time, AT&T was faced with a $5 billion
or more capital investment to deploy 5G spectrum. That cost, on top of the
added billions being consumed by HBO Max, meant AT&T began unraveling its
ambitious foray into media.

In February it announced that it would spin off DirecTV to a private
equity group, TPG, though AT&T would still own 70 percent. In a rare
concession, AT&T acknowledged that “some aspects” of the acquisition
“hadn’t worked out as expected.”

Warner Media was next on the chopping block. Mr. Stankey consulted few
people about his plans to combine the Warner assets with Discovery and put
Discovery’s Mr. Zaslav in charge — the very person he had earlier rejected
as a joint venture partner. That left no place for Mr. Kilar, who said he
had been kept in the dark until Mr. Stankey told him about it shortly
before it was announced.

Mr. Kilar believed this was a big mistake. Discovery’s popular but down-
market unscripted programming — like “Gold Rush” and “Naked and Afraid” —
added little of value to Warner’s premium assets. If AT&T was so desperate
for capital, it could spin off Warner Media as a stand-alone company,
unloading some of its debt. But Mr. Stankey’s mind was made up.

Mr. Stankey also called Mr. Stephenson just before the deal was made
public. “I had zero input,” Mr. Stephenson said. “Had I still been
chairman, I would not have advocated taking the business apart.”

But Mr. Stephenson didn’t convey his disagreement to Mr. Stankey. “You’re
sitting in the chair,” Mr. Stephenson recalled telling him.

AT&T announced the deal with Discovery on May 17, 2021, and what was, in
effect, its exit from the media and entertainment business. It was hardly
a clean break: AT&T would still name a majority of the new company’s
board, and AT&T shareholders would own 71 percent of the shares.

AT&T’s 2021 results, released last January, showed the relentless pressure
on earnings from the soaring costs of producing movies and TV shows. Even
though revenue at Warner Media jumped by a billion dollars as the pandemic
eased, its adjusted earnings dropped 36 percent. Operating expenses rose
38 percent but, even at $8.3 billion, weren’t even half of what Netflix
and Amazon were spending.

After the results were announced, AT&T shares dropped more than 8 percent
to just over $19, less than they were at the depths of the pandemic, even
as the broad market was soaring to new highs. A month later, AT&T cut its
dividend in half.

At a J.P. Morgan conference in May, an analyst, Phil Cusick, pointed out
that Mr. Stankey had “reversed six years of strategic change at AT&T in
three months.”

Mr. Stankey responded that HBO Max “would not be where it is today”
without AT&T and that owning Warner Media had “lowered churn” at AT&T,
without offering any data to back that up.

“We got a long way down that path” toward the deal’s strategic objectives,
he maintained, but complained that AT&T had never gotten any credit on
Wall Street.

Though lame ducks, Mr. Stankey and Mr. Kilar were still in charge while
the deal underwent regulatory review. Plans for CNN+ continued apace, with
Mr. Kilar insisting that once it was up and running, it would be
impossible for Discovery to kill it, according to Mr. Zucker. There was
talk that CNN’s Mr. Zucker would get a big promotion once the deal closed;
he and Mr. Zaslav were close friends from their days working together at
NBCUniversal.

Mr. Zaslav had no authority to tell Mr. Kilar what to do, but in a series
of conversations he made it clear that he wished Mr. Kilar would delay the
debut of CNN+, according to a person familiar with the discussions.
Perhaps he was too subtle. That is not the message Mr. Kilar got, and in
any event, he was determined to press forward, according to another person
involved in the discussions.

In June, Mr. Zucker made a presentation in Dallas to AT&T’s board, asking
to approve the CNN+ launch and for $350 million to spend on it, which he
got. He hired an array of expensive talent like the Fox News anchor Chris
Wallace and the “Desperate Housewives” star Eva Longoria.

But that $350 million didn’t show up in the CNN budget or projections and
wasn’t disclosed to Discovery, something AT&T’s Mr. Cook acknowledged. Mr.
Zucker said he had warned Mr. Kilar that the money had to be accounted for
and disclosed.

That issue was still unresolved in February, when Mr. Zucker acknowledged
that he had failed to report a consensual romantic relationship with his
top lieutenant, Allison Gollust. At the behest of Mr. Kilar, backed by Mr.
Stankey, both were forced to resign. A media firestorm ensued, with
renewed questions about how the AT&T executives had handled the crisis.
Mr. Trump seized the opportunity to call Mr. Zucker a “world-class
sleazebag.”

CNN+ debuted as scheduled on March 29. After a week, it had only 100,000
subscribers, even at a steeply discounted rate of $2.99 per month. CNBC
reported that fewer than 10,000 people a day were watching the streaming
service. Nearly 800,000 watched CNN on cable.

The end of CNN+
Shares in Warner Bros. Discovery began trading on April 11 with a market
capitalization of nearly $50 billion. Mr. Kilar and Ms. Sarnoff both
resigned. When Discovery executives gained access to the company’s
financial records after the closing (which finally reflected the $350
million at CNN+), it would be hard to overstate Mr. Zaslav’s dismay at
what AT&T had left behind.

Just 10 days later, Mr. Zaslav pulled the plug on CNN+.

It took some time longer to discover that quality control appeared to have
gone off the rails at the movie studio. Mr. Zaslav took the rare step of
canceling the much-anticipated and nearly complete “Batgirl,” which had
cost upward of $90 million; a Scooby-Doo sequel; and six other films
destined for HBO Max that Discovery managers deemed all but unwatchable.

In a recent interview, Ms. Sarnoff defended her track record at Warner.
She mentioned achieving “record financial results in 2021,” “breaking
corporate internal silos,” “fueling the growth of HBO Max” and creating
hits like “Ted Lasso” and “Abbott Elementary” despite a pandemic and the
pending spinoff of the company.

Mr. Kilar, too, praised Warner’s achievements during his tenure and said
he was proud of what Ms. Sarnoff and his team had accomplished.

At a conference this week, Mr. Zaslav described conditions at Warner as
“messier” and “much worse than we thought.”

Mr. Zaslav reversed nearly every strategic decision made by AT&T: Feature
films would again debut at movie theaters before moving to streaming; HBO
Max would not try to “crush” or outspend Netflix and Amazon; Warner would
again sell its streaming content to other distributors; and it promptly
struck a renewed deal to distribute HBO Max through Amazon. It was pretty
much the strategy that Mr. Bewkes had advocated during his appearance
before AT&T’s board, except that four years and billions in market
capitalization had disappeared in the interim.

Mr. Zaslav was especially upset at what he saw as projections that had
overstated the value of Warner Media. Teams of lawyers examined the
figures and questioned Warner Media’s internal finance officers.

Gunnar Wiedenfels, Warner’s new chief financial officer, alluded to the
issue during Warner’s earnings call on Aug. 4. “Certain legacy Warner
Media budget projections that were made available to us before closing
varied from what we now view as legacy Warner Media’s budget baseline
post-closing,” Mr. Wiedenfels said, putting the discrepancy at “roughly $2
billion.”

A Warner Bros. Discovery spokesman, Nathaniel Brown, declined to identify
what Discovery had taken issue with. Others said it included the $350
million budgeted for CNN+ and accounting tactics that Discovery believed
overstated revenue and understated costs at the studio.

Asked about these issues and Mr. Wiedenfels’s statement, the AT&T
spokesman, Mr. Cook, said Discovery and the three law firms that advised
it had full access to all of Warner Media’s audited financial statements
through Dec. 31, 2021. The merger agreement also stated that Discovery
could not rely on projections or budgets beyond that date.

AT&T acknowledged that it hadn’t disclosed spending at CNN+ or at the
Warner studio, or its post-Dec. 31 margins at HBO, deeming that to be
highly competitive information. Sharing it before closing, the company
said, could have been seen as an antitrust violation. And AT&T stressed
that Warner had subsequently filed its own audited financial statements
that failed to note any accounting issues.

In conversations with other media figures, Mr. Zaslav stopped short of
accusing AT&T of fraud, but did express anger, three people familiar with
the conversations said.

Mr. Zaslav had to tread carefully, given that AT&T appointed seven of
Warner Bros. Discovery’s 13 board members. Mr. Brown denied that Mr.
Zaslav ever discussed taking the issues to AT&T’s board unless AT&T
offered substantial compensation to Warner Bros. Discovery.

AT&T did agree to pay the $1.2 billion in cash and to again offer HBO Max
to its wireless customers. It disclosed the payment in an Aug. 4 filing
with the Securities and Exchange Commission.

Mr. Brown wouldn’t say how those concessions had come about but said all
disputes with AT&T had been resolved satisfactorily. Mr. Zaslav declined
to be interviewed.

AT&T’s Mr. Cook wouldn’t comment on any communications between Mr. Zaslav,
Mr. Stankey and AT&T’s board. A so-called purchase price adjustment clause
was part of the merger agreement, and he said the HBO Max-AT&T wireless
deal had been renegotiated in the normal course of business.

Also on Aug. 4, Warner Bros. Discovery reported a $3.4 billion adjusted
quarterly loss, $1 billion of it related to merger costs. The results were
far worse than expected. Its new direct-to-consumer unit, which includes
HBO Max, lost $560 million during the quarter, and costs soared 33 percent
to $2.7 billion.

Warner reported its latest earnings on Nov. 3. Even with HBO’s successful
launch of “House of the Dragon,” the direct-to-consumer operation lost
$634 million. Overall revenues declined 7 percent, missing Wall Street
estimates, and the company reported a $2.3 billion operating loss. The
next day, the company’s stock dropped 13 percent, hitting a new low.

Mr. Zaslav said this week that HBO’s earnings had dropped $3 billion in a
short period of time, from $2.5 billion in profit in 2019.

No regrets

In fairness to Mr. Stephenson and Mr. Stankey, the principal architects of
AT&T’s ill-fated foray into media and entertainment, their efforts were
handicapped by events beyond their control. The government’s antitrust
suit cost them two years, leaving them even further behind their rivals.
It was their misfortune to make a multibillion-dollar bet on streaming
just as investors’ infatuation with the model started to fade.

On the creative front, Warner Media could point to many successes. In
September, it won 40 Emmys, the most of any company. Thirty-four went to
HBO and four to HBO Max. Warner Bros. led the 2022 Academy Awards with
seven wins.

But for sheer strategic miscalculation and poor execution, AT&T’s
management of Warner Media may have no rival in recent corporate history.

Yet there has been no accountability on the part of the AT&T board or
shareholders. Mr. Stankey remains chief executive and has been hailed for
his bold decisions to unload DirectTV and Warner Media, even though he was
in large part responsible for buying them.

Last year, Mr. Stankey earned $24.8 million at AT&T. Mr. Stephenson left
with a pension valued at $64 million and $27.4 million in deferred
compensation.

Mr. Stephenson said in our recent interview that serious cultural issues
had hindered the merger. Some of the “media people never really gave us a
chance,” he said. “They were resentful from the beginning that a big phone
company from Texas was buying them.” (Mr. Bewkes acknowledged that there
was some truth to that.)

And Mr. Stephenson said that had he known Mr. Trump would win the
presidency, he probably wouldn’t have done the deal in light of Mr.
Trump’s open hostility.

“I wouldn’t have put my employees or Time Warner’s employees through
that,” he said, referring to the antitrust case. “It was a terrible time.”

But “put that aside,” he said, and he would have done the deal again. He
noted that HBO had doubled its digital subscriptions under AT&T’s
ownership. “HBO had been a stagnant business for 10 years,” he said. “We
made it an exciting and dynamic business again.”

(Former Time Warner executives took strong issue with that. Mr. Bewkes
said that HBO had record revenue, profits and subscriber growth at the
time the AT&T deal was announced.)

In response to questions about the merger, AT&T issued this statement:

“The Time Warner that AT&T acquired enjoyed world-class assets and talent
but had no discernible path to building a global direct-to-consumer
business. By contrast, when AT&T sold WarnerMedia to Discovery, the same
business was growing and competing globally in ways it never could have
prior to our acquisition.”

Mr. Bewkes said he had no regrets about selling Time Warner when he did,
and his shareholders have every reason to be grateful. But it has been
“heartbreaking,” he said, to watch the fate of the Warner properties — and
the talented people — he once managed.

“The level of malpractice is something I would never have believed
possible,” he said of AT&T’s stewardship. “The value destruction has been
monumental.”

A correction was made on Nov. 19, 2022: An earlier version of this article
misstated the size of HBO’s loss in earnings, based on public comments by
the chief executive of Warner Bros. Discovery, David Zaslav. Its earnings
dropped $3 billion, from $2.5 billion in profit in 2019. It did not lose
$3 billion. The figure was later clarified by the company’s chief
financial officer, Gunnar Wiedenfels.
The earlier version also misstated the given name of an activist investor
and hedge fund manager. He is Paul Singer, not Peter.

The earlier version also described incorrectly Elliott Investment
Management’s sale of its stake in AT&T. It sold a portion of its stake,
not all of it. And its overall investment in AT&T has been profitable. It
did not lose money.

The earlier version also misstated the historic nature of Ann Sarnoff’s
appointment at Warner Bros. She was the first woman to head that studio,
not the first woman to head a major Hollywood studio.



--
"LOCKDOWN", left-wing COVID fearmongering. 95% of COVID infections
recover with no after effects.

No collusion - Special Counsel Robert Swan Mueller III, March 2019.
Officially made Nancy Pelosi a two-time impeachment loser.

Donald J. Trump, cheated out of a second term by fraudulent "mail-in"
ballots. Report voter fraud: sf.n...@mail.house.gov

Thank you for cleaning up the disaster of the 2008-2017 Obama / Biden
fiasco, President Trump.

Under Barack Obama's leadership, the United States of America became the
The World According To Garp. Obama sold out heterosexuals for Hollywood
queer liberal democrat donors.

President Trump boosted the economy, reduced illegal invasions, appointed
dozens of judges and three SCOTUS justices.