LOS ANGELES -- On a sunny Saturday earlier this summer, AT&T Senior Executive Vice President John Stankey came face to face with Hollywood's lingering perception of the phone company in the person of Kate Hudson.
"When I started, if I would have ended up in an AT&T commercial -- it would have been the kiss of death," the actress said, drawing howls of laughter from the crowd gathered in a Warner Bros. theater outside Los Angeles for an AT&T-sponsored panel discussion on changes in media.
Stankey chortled, but Hudson's candid remark underscored serious challenges he could encounter after AT&T completes its $85.4 billion acquisition of media company Time Warner Inc. Stankey has been tapped to run the Time Warner businesses, which include some of the most storied brands in entertainment -- the Warner Bros. movie and TV studio and such prominent cable channels as HBO, CNN, TBS, TNT, Cartoon Network and Turner Classic Movies.
A green light from the government is expected this month, according to people close to the process who were not authorized to discuss it. The U.S. Department of Justice is in the final stages of its merger review, these people said.
Buying Time Warner would transform the Dallas phone company into the largest and, perhaps, most powerful entertainment company in the world. But the success of the merger will hinge on Stankey's skills in stitching together two starkly different enterprises at a time of upheaval in media. He's a relative newcomer to Hollywood who has spent his career in the bureaucratic telecommunications business.
"It's going to be very tough, a daunting challenge," said Jennifer Chatman, a management professor at the Haas School of Business at the University of California at Berkeley.
AT&T, which was founded in 1876 by telephone inventor Alexander Graham Bell, lays fiber lines, builds cellphone networks and manages satellite TV and complex software systems that compress and send data so that millions of customers can make calls, receive messages, listen to music and watch video on their phones.
Time Warner, by contrast, prides itself on creating best-in-class movies and TV shows. Over the years, its Warner Bros. studio has created movies Casablanca, the Harry Potter franchise and Wonder Woman and TV's The Big Bang Theory. Premium channel HBO created big-budget original programming, including The Sopranos and Game of Thrones. And then there is CNN, the pioneering 24-hour news channel, which is now watched around the world.
Executives say the Time Warner businesses should benefit from AT&T's connections to more than 100 million mobile-phone customers. AT&T also hopes that owning the content produced by HBO, Warner Bros., TNT and CNN will give it an edge. Already nearly 70 percent of the data consumed on smartphones is spent listening to music and watching videos and other entertainment. AT&T will be able to push Time Warner programming to its mobile customers and reap revenue from advertisers who want their messages displayed in that content.
Much is at stake for AT&T. Its stock is down more than 10 percent this year as investors fret over a slowdown in the telecom market and as discounted prices cut into corporate profits. Meanwhile, AT&T's television unit, DirecTV -- which Stankey managed until early August -- has struggled to keep subscribers paying for its premium service because of the rise of online streaming and smaller pay-TV bundles.
However, if history is a guide, a clash of cultures is inevitable, experts say. Only about a third of mergers and takeovers in North America benefited shareholders, while nearly 70 percent resulted in lower or flat stock prices, according to consulting firm KPMG. Mergers failed for various reasons, including incompatible business objectives, the loss of key executives and an inability to "get two corporate cultures to work in unison," KPMG said.
"Cultural conflicts can make or break the value of this merger," Chatman said. "With AT&T at the helm, it is going to trend toward more hierarchical, less innovative and more bottom-line oriented. ... The Time Warner side will feel frustrated and restrained if AT&T tries to integrate too much."
It remains to be seen how the missions and the expertise of the two companies will mesh.
"AT&T is very good at finding efficiencies. They have engineering prowess, advanced technology, and they deliver bandwidth to millions of customers," said John Boudreau, research director at the Center for Effective Organizations at the USC Marshall School of Business. "AT&T management could go after what they see as cost inefficiencies, but at Time Warner, the slack in the system could be what allows the creativity."
Business on 09/14/2017