Opinion | AT&T’s Sorry Retreat From Digital Media

On Monday, the wireless-telephone behemoth AT&T gave up the ghost in its pricey and ambitious plans to transform itself into a media giant by announcing that it was spinning off WarnerMedia into a merger with Discovery.

It was a complete about-face from its once-touted strategy to take on Big Tech and dominate the next phase of the information age. AT&T’s top executive tried mightily this week to make the deal look like a win for his company by painting a picture of vast sums of money well spent. It was anything but that.

What AT&T is getting back in the deal is well below the more than $85 billion that AT&T paid only three years ago to purchase Time Warner, which included media gems like CNN and HBO. That’s why some analysts have made a persuasive case that the AT&T chief executive, John Stankey — who spearheaded the 2018 deal, as well as AT&T’s disastrous acquisition of DirecTV three years before that — is the worst media strategist in recent memory.

I agree with that analysis. But considering the wider context is more important than dragging down a phone company guy for being, well, a phone company guy. The AT&T news underscored how the newer Big Tech firms — unlike older telecom companies — play by their own rules. And every other industry is now exposed to Big Tech’s growing power.

Companies like AT&T mostly have a cautious investor pool that demands sure things with few downsides. Big Tech companies, however, have an aggressive investor base that tolerate big swings for the fences and allow for pricey misses. Guess which one will own the future?

It’s a question I put to the former Verizon executive Tim Armstrong, who left that big phone company a few years ago after trying to get it to build digital platforms that could compete with Big Tech. Verizon also recently unspooled its once-exuberant efforts to do that by unloading Verizon Media — an awkward mash-up of AOL and Yahoo — to a private equity company for half the $10 billion it had spent to build it.

Mr. Armstrong was not surprised at the AT&T news. The “investor sign” outside telecom companies says “‘Dividend Here’ and the investor sign outside any internet company says ‘Growth Here,’” he said.

You could practically hear Mr. Armstrong’s tired shrug through the phone when we talked about telecom companies’ missed opportunities. “All of the assets you needed to combine to be successful were there,” he said.

It’s an if-only dream that many share, but it might never come to fruition, given the financial elements that point to only one outcome: an eventual win by Big Tech.

Consider that AT&T shares were around $38 when the company announced the deal to buy Time Warner in May of 2017. As of Thursday, the stock was around $29, and the company’s market cap was $211.3 billion. Verizon’s stock has done a little better in that time period, going from $45 to $57 a share, and a $235.4 billion valuation.

In the same period, Netflix’s share price went from $160 to $502 ($222.7 billion valuation), Amazon’s from $996 to $3,248 ($1.64 trillion), Apple’s from $38 to $127 ($2.2 trillion) and Google’s from $955 to $2,303 ($1.56 trillion).

You can see where this is going,

Big Tech companies cannot make huge acquisitions of creative-content companies nowadays because of a political climate that is increasingly skeptical of their monopolistic power. But they only have to sit and wait to bleed out what are now much smaller and less powerful media companies by simply plowing more investment into content and talent.

“Like all monopolies going back to oil or trains,” the tech companies will “just slowly starve” the competition, a top media executive said to me, also noting that Mr. Stankey did not have the support or fortitude to keep going. “I guess it’s good that he stopped banging his head against the wall,” the executive said.

Or maybe not, given his problematic choice of Discovery as a partner. It’s simply too small, even with a multibillion-dollar war chest to make content. That’s why I would not be surprised to see another, larger bidder for Time Warner emerge soon — perhaps Comcast, which already owns NBCUniversal. While some people denounce the consolidation of media companies, there are few choices for media firms when they are facing down the tech companies.

Tech giants have more of everything. They are much more flexible with creators. They have more platforms to offer. They control all the key user data and are getting better at all kinds of media making. More important, they do not have the need to make a profit in media, since they all have other ways to make money, and they have an investor base highly tolerant of investing in growth.

In fact, Big Tech’s investors encourage this strategy. They love the breaking of norms.

Not at AT&T, apparently. One part of the new deal was the cloddish sidelining of the WarnerMedia chief executive Jason Kilar, who had been the pioneering chief executive of Hulu and an Amazon executive. Mr. Stankey picked the old-school media mogul David Zaslav of Discovery to lead the new company over Mr. Kilar.

Mr. Zaslav is a talented and charming executive who is well liked in Hollywood. And Mr. Kilar, who has all the digital experience, is now persona non grata among that crowd, after making an important decision related to the digital future of the entertainment industry: He put WarnerMedia’s 2020 movie slate on its streaming platforms at the same time the films were released in theaters.

It was a pandemic necessity — people weren’t going to theaters — yet the entertainment industry leaders lost their collective minds, probably because they realized, correctly, that what is coming will require a wholesale restructuring of their once-cushy world.

In their overwrought reaction to Mr. Kilar’s move, I heard echoes of the downfall of the old music industry, which tried mightily to pretend that digital music was not inevitable. And there were those who once thought that landline phones were not headed for the trash heap of history when mobile phones first appeared.

Mr. Stankey and AT&T should be thankful for those mobile phones. Of his shift back to being just a phone guy again, he said on an investor call this week, “For AT&T shareholders, this is an opportunity to unlock value and be one of the best capitalized broadband companies, focused on investing in 5G and fiber to meet substantial, long-term demand for connectivity.”

Even if he’s still a failed digital-media strategist, at least he’s got that one right.

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