“Welcome to the beginning of the end,” a voiceover echoed through Radio City Music Hall in New York, as a live organist performed the Game of Thrones theme song.
Holding court amid the media executives and socialites gathered this month to celebrate the final run of the most popular television show in history was Richard Plepler, the HBO chief who transformed the flagging cable channel into a powerhouse that ushered in a golden age of television.
Game of Thrones’ final season has invoked a global fixation rarely seen in an era where streaming has fragmented viewing choices. The frenzy validates the bet Mr Plepler made over a decade ago, when he approved the most expensive pilot in HBO’s history for an out-of-the-box idea: a show about dragons, an army of the dead and incestuous love affairs.
But beneath the glitz typical of an HBO premiere, the atmosphere evoked the end times. The evening marked Mr Plepler’s last appearance as the leader of the network. Just a month earlier he had abruptly quit after months of disagreements with HBO’s new owners, AT&T, in the first big shake-up since the latter’s blockbuster purchase of Time Warner.
Nearly three years after AT&T made an $80bn bet that its future was in Hollywood — a bid that faced countless regulatory battles and was only completed last June — the telecoms operator is finally pushing forward with its plans. The deal is part of a wave of consolidation as media groups look for ways to compete against Netflix, the streaming service which has transformed the way content is both created and viewed.
Also in the audience for the premiere was John Stankey, a 30-year AT&T veteran who is now running the rebranded WarnerMedia, and Bob Greenblatt, the outsider who AT&T had brought in to build a rival streaming service.
Interviews with a dozen current and former employees within WarnerMedia and AT&T revealed a turbulent and at times hostile changing of the guard. These executives, many of whom spoke on condition of anonymity because of exit agreements or fear of retaliation, described a culture clash between the Texas telecoms group and New York media company.
At the premiere the creators of Game of Thrones made no secret of their allegiance, making nostalgic speeches at their grand finale. “The core of our show rests in the hands of one man, and that man was Richard Plepler,” pronounced co-creator David Benioff, as the crowd roared. They did not mention AT&T.
The tug of war over HBO’s identity has raised fundamental questions about the media business, and whether a niche company like HBO can thrive in an environment dominated by deep-pocketed streamers such as Netflix that are flooding the market with new shows.
Time Warner gave HBO autonomy as long as the company hit its profit numbers. But AT&T has taken a tighter grip, with Mr Stankey last summer warning HBO employees that the network needs to make more content. The demand ruffled feathers at HBO, which has clung to its identity as a producer of high-quality, cutting-edge programming.
“The idea that you can data test this stuff and predict that people will like shows with dragons? Ten years ago, people did not like shows with dragons,” says a senior HBO executive who worked closely with Mr Plepler. “If you’re going to create the culture then you can’t rely on data, which is historic. You’re only going to end up making things that already exist.”
AT&T’s rocky start with Time Warner has also raised questions about the value of megamergers. One result of such a large deal is that AT&T is now focused on cutting its $164bn of debt. This month it has sold both the WarnerMedia headquarters for $2.2bn and its stake in streaming service Hulu for $1.4bn. The emphasis on debt reduction “may be coming at the expense of the long-term business”, says Jonathan Chaplin, an analyst at New Street Research.
Jamyn Edis, who was vice-president of innovation at HBO from 2007 to 2012, expects that AT&T “is going to process an organisation like HBO in the same way a body processes a kidney stone . . . It will be slow and painful and a bloody mess.”
Last month AT&T consolidated its media businesses, which had largely operated as independent fiefdoms — a move which some analysts cheered as necessary to centralise decision-making. But the overhaul led to the departure of Mr Plepler and other top executives. “You have to tread lightly, lest you create a talent exodus that destroys the asset you bought,” says Craig Moffett, a media analyst at Moffett-Nathanson.
Mr Plepler is the epitome of the way Hollywood used to operate — throwing legendary parties and hobnobbing with talent, trusting his instinct over data-crunching. Mr Stankey, who has ruffled feathers during the transition for his no-nonsense demeanour, has worked in telecoms his entire career, much of that time in Texas. Mr Plepler sits on the board of the Council on Foreign Relations think-tank and is a longtime Democrat; Mr Stankey last year donated to Republican senator Marsha Blackburn, a close ally of President Donald Trump who is a vocal opponent of abortion and same-sex marriage.
“[AT&T] has a command and control culture,” says one senior HBO executive in New York. “You can’t question or contradict your superior in a meeting, which is completely antithetical to an HBO that thrived on collaborating and dissent.”
After almost three decades with HBO, Mr Plepler realised he would no longer have the same independence under his AT&T bosses, according to two people close to him. “He initially took a ‘wait-and-see’ approach to the deal, but over time his outlook deteriorated. He would go to these meetings and come back and say: ‘Well, you know, they’re not communicative,’” says one person familiar with the decision.
Another source of frustration for many AT&T and WarnerMedia employees is that senior executives seemed focused on the US, at the expense of international businesses. According to five current and former executives at AT&T and WarnerMedia, the telecoms company had internally floated the idea of selling HBO Europe, which is a standalone streaming business in parts of eastern Europe, Scandinavia and Spain.
Such an idea, which Mr Stankey says is inaccurate, enraged many at HBO as well as the AT&T executives that work on the international business. “It’s probably not going to happen after the FT reported the story they were considering a sale [of HBO Europe] but the fact that this was even discussed internally as an option is illogical and stupid,” says a current HBO executive, who asked not to be named.
Some bankers also point to what they say is AT&T’s mixed record with dealmaking, particularly its acquisition of DirecTV. When AT&T acquired the satellite operator for $48.5bn in 2014, AT&T chief Randall Stephenson said the deal was “a unique opportunity that will redefine the video entertainment industry”. But DirecTV and its subsidiary U-Verse have shed millions of pay TV customers since the merger.
“The record of media M&A is highly uneven,” says Jonathan Knee, a professor at Columbia Business School. “It is difficult to separate what the source of failure is. Culture is a big part, but so is execution and strategy.”
“All of those — culture, execution and strategy — frequently interact with each other. So you can get the culture right and the execution right but the deal can still fall apart because you have the wrong strategy,” Mr Knee adds, while stressing that he was not talking specifically about AT&T’s deal.
However, others say that it is too easy to point fingers at AT&T for mismanaging DirecTV or damaging HBO. “HBO might have been incredibly successful with producing great content but its business model is flawed and let’s not forget that they completely messed up streaming,” says a media and telecom dealmaker, who is not advising AT&T but has followed the company closely.
The banker adds: “HBO and its executives were paying themselves crazy pay packages and living in a world that doesn’t exist any longer.”
Some current and former HBO executives described a “country club” culture at the network. “You had lifers who didn’t have any incentive to rock the boat. HBO was a high-margin cash cow business for Time Warner,” says Mr Edis, who is now a professor of new media at NYU’s school of business.
But one top HBO executive close to Mr Plepler says: “You could argue that Plepler is overly tanned and spending money and on his yacht . . . but he knew so much about the business. If we threw a party it had to be the best freaking party. Why? So if people came, they would say HBO does the best party. If it’s the third best party, then don’t do it at all.” HBO’s reputation for quality has paid off financially and critically, bringing in annual revenues of about $6bn and maintaining a margin above 30 per cent for earnings before interest, tax, depreciation and amortisation, while winning countless Emmys for its creative risk-taking.
HBO employees are putting their faith in Casey Bloys, who was close with Mr Plepler, and is still in charge of programming under Mr Stankey’s regime.
So far much of the consolidation at WarnerMedia has been in functions such as finance, technology, legal and human resources, where HBO will be combined more closely with other cable networks such as TNT and TBS, which do not have the same record of success.
Mr Greenblatt, the former chairman of NBC-Universal who now reports to Mr Stankey, has been tasked with overseeing the upcoming streaming platform. So far Mr Greenblatt is well-liked within HBO. “It’s no secret people are on edge,” says one longtime HBO executive. However “it doesn’t seem like Bob is shaking things up”. At a party for the latest season of Veep, Mr Greenblatt met John Oliver, the comedian who frequently takes jabs at AT&T on his weekly HBO show. But Mr Greenblatt told Mr Oliver: “I love that.”
AT&T is leaping on to Netflix’s turf at the same time as Disney, Apple and Comcast. While investors and stock analysts have offered effusive praise of Disney’s push, they are less confident about AT&T’s prospects. In addition to the challenges of restructuring WarnerMedia, some analysts question whether a product like HBO can successfully be packaged into a Netflix-style service.
“[HBO] uses the analogy of: Netflix is Walmart and HBO is Tiffany. But there is a very real strategic question about whether a Tiffany strategy has any chance of success as a direct-to-consumer service,” says Mr Moffett. “A service that is built around high quality shows such as Game of Thrones may be immensely successful at getting customers to subscribe. But the real question is whether you can keep them after they’ve finished binging the series.”
Last week AT&T said it would detail plans for its Netflix-killer in September or October. There will be a trial launch this autumn with an expected wider release in the first half of 2020, according to people briefed on the plans. HBO will continue to be offered as a standalone subscription, but the company is considering also giving HBO subscribers access to an online platform with family and teen-catered programming outside of HBO, these people said. For an extra cost, subscribers could then add the full streaming service which would offer other WarnerMedia content, such as the sitcom Friends.
Similar to Netflix, the WarnerMedia streaming service would initially not run advertisements, but down the line there are plans to offer another tier with ads, these people said. They cautioned that nothing has been finalised, with several months to go before the big reveal to the public.
Mr Stephenson last week brushed off concerns about the threat from Disney. “We’re very, very optimistic and the Disney announcement gave us nothing but more optimism in terms of what we think we will be able to bring to market,” the AT&T chief told investors.
A few weeks earlier at the Game of Thrones extravaganza, HBO threw what some feared could be its final freewheeling party for some time. Mr Stankey and other top AT&T executives made their way uptown to the Ziegfeld Ballroom, a former cinema, for an after-party where stars such as Kit Harington and Emilia Clarke enjoyed GoT-themed beer. Mr Plepler, however, went home and skipped the soirée.
