Last fall, about a month before his company dropped a bombshell on Hollywood, AT&T chief executive officer John Stankey was ushered into a screening room inside a shiny Manhattan skyscraper to watch what’s known in the entertainment business as a sizzle reel. The two-minute promotional clip featured footage from the upcoming Warner Bros. film slate—titles including Dune, Godzilla vs. Kong, and The Suicide Squad. Images of giant alien sandworms, Amazonian warriors, and comic-book villains were paired with text announcing that all seventeen movies the studio planned to release in 2021 would be available to subscribers of the streaming service HBO Max on the same day they launched in theaters. That unprecedented move would eliminate the ninety-day window when cinemas have traditionally enjoyed exclusive rights to show new releases. It could irrevocably disrupt the way the movie business works.

With theaters shuttered for most of 2020 because of the COVID-19 pandemic, North American box office totals were the worst in nearly forty years, and that’s without accounting for inflation. This posed a problem for Dallas-based AT&T, which in 2018 had spent $104 billion (including the assumption of debts) to purchase Warner Bros., DC Comics, HBO, and the Turner television networks from Time Warner, rebranding the collective assets as WarnerMedia.

Stankey had previously run the new subsidiary and oversaw the development of HBO Max, which launched in May 2020 with movies and television shows drawn from across the disparate WarnerMedia properties. That streaming service was so far viewed as something of a disappointment, having failed to build the sort of industry buzz heaped on the rival Disney+ service that launched a short time before it. Some 70 percent of existing HBO customers—who could have used HBO Max for no extra charge—had not even signed up.  

In response, new WarnerMedia head Jason Kilar had cooked up this so-called day-and-date release model, which calculated that sacrificing potential theatrical revenues from 2021 film releases was worth the anticipated boost to HBO Max’s subscriber base. The short-term benefits seemed readily apparent. Yet the potential long-term effects—such as fracturing relationships with theater owners and filmmakers—were much riskier gambles. Especially for a company, AT&T, that hadn’t yet proved that it knew how to play the entertainment game. That late October day, in a satellite office far from AT&T’s downtown Dallas headquarters, was the first Stankey had learned of the plan.

After the sizzle reel finished and the screening room lights went up, Kilar looked for the CEO’s blessing. Stankey is a bald, square-jawed man with a linebacker’s physique. He’s six-foot-five and fit. He looks and sounds like he was bred in a lab to become a telecom CEO. His deep baritone voice booms in a robotic monotone, and he’s known for his surgical grasp of data. He offered a response that matched his reputation as someone inspired more by spreadsheets and ledgers than Oscar winners and superheroes. “Let’s go run the numbers,” he said. 

The rest is already Hollywood history. On December 3, Warner Bros. announced the release plan. Perhaps ironic for a communications company was how few of the many agents, actors, and directors affected by the decision had been told ahead of time, much less consulted. Some of them stood to suffer financially, having been promised a cut of their films’ box-office revenue, which now would be substantially reduced. Director Christopher Nolan, who has made several blockbusters with Warner Bros., gave a blistering statement to the Hollywood Reporter. “Some of our industry’s biggest filmmakers and most important movie stars went to bed the night before thinking they were working for the greatest movie studio,” he said, “and woke up to find out they were working for the worst streaming service.”

WarnerMedia’s decision, and its fallout, could well prove to be the most significant legacy of what now appears to be a short-lived foray by AT&T into movies and television. On May 17, Stankey announced that WarnerMedia will be spun off and combined with Discovery Inc.—which has its own slate of cable channels, including HGTV and Discovery, and streaming service—to form a new company that could be a formidable streaming challenger to the likes of Netflix. The deal is expected to be finalized by the middle of 2022.

To understand why AT&T is making this apparent retreat after just three years, you must look back at the company’s recent history. The HBO Max release plan is indicative of how AT&T has long operated—charging ahead with a risky decision in hopes of making up for a setback. That approach has a lot to do, in fact, with why the boring old phone company bought into the glitz and glam of Hollywood in the first place.

While Stankey declined to be interviewed, in the months leading up to Monday’s surprising announcement, Texas Monthly spoke with nineteen current and former AT&T and WarnerMedia executives and employees. They paint a portrait of executives determined to build AT&T into a conglomerate with the influence (and market valuation) of Silicon Valley titans such as Facebook and Apple—even when that meant moving into arenas far outside its core business and expertise.

Before WarnerMedia, AT&T’s business was phone, television, broadband internet, and mobile data services. They provided the equivalent of pipes through which content of all sorts could flow. But company leaders saw potential in controlling the movies, TV shows, and other forms of entertainment its customers were buying. Someone who pays for a package deal of HBOMax and phone service, AT&T theorized, would also be less likely to cancel those services. “We can bundle those things together to make both of our businesses, our entertainment and our connectivity, kind of benefit from each other,” John Stephens, the company’s former chief financial officer, who retired in March, told me. Such bundling also offered the potential to learn even more about AT&T customers—their entertainment preferences and habits, in addition to how they used their phones. This new customer data might foster the creation of targeted advertising opportunities on par with those offered by Facebook or Google.

Stephens and other executives made the company’s entrée into entertainment sound like a natural progression. It’s true that the company has long pushed into new territory, ahead of other telecoms, largely thanks to the daring spirit of a Texan, Ed Whitacre, who built the modern version of AT&T. But the WarnerMedia deal followed a series of other bold, questionable decisions by former CEO Randall Stephenson, whom Stankey succeeded in July 2020.

One former manager, who retired in the fall of 2020 and still consults for AT&T, told me he felt the company’s focus shifted about every six months during the last few years. “The executives were so obsessed with mergers and financial issues,” this employee said, “that they really took their eye off the ball” on execution, on delivering value to customers, shareholders, and employees. Stephenson’s dealmaking left AT&T with a massive $180 billion in debt as of March and basically two paths forward. One option was to battle Netflix, Disney, Amazon, and Apple while completing a task vital to the future of its core business: building a next-generation 5G broadband cellular network to compete against those of Verizon and T-Mobile. Or it could acknowledge that the Time Warner deal was a mistake and get back to the basics of phones, 5G, and fiber. 

Stankey chose the latter, undoing the boldest moves of his predecessor after only about ten months in charge. The drama is enough inspire a movie—released directly to HBO Max, of course.   

Two unidentified Bell telephone operators work at a large switchboard in the 1940s.
Bell telephone operators work a large switchboard in the 1940s. Byrd Moore Williams, III/University of North Texas Libraries/The Portal to Texas History

Today’s AT&T is not your grandfather’s AT&T. Nor is it truly the same American Telephone and Telegraph company that sprung from Alexander Graham Bell’s 1876 invention of the telephone. For most of the twentieth century, that iteration of AT&T was a monopoly, stringing millions of miles of phone lines across the country and developing new technologies, including the transistor, at its renowned Bell Labs. In 1984, federal antitrust regulators forced AT&T to break away from its local-phone-service subsidiaries. This created seven newly independent companies, nicknamed the “Baby Bells.” AT&T carried on as a provider of long-distance phone service, while the regional Bells handled local calling. Among those was Southwestern Bell, which operated in Arkansas, Kansas, Missouri, Oklahoma, and Texas. It was the runt of the Baby Bell litter, but it also soon had a Texan CEO with big ambitions

Ed Whitacre grew up in Ennis, 35 miles southeast of Dallas. After graduating from Texas Tech University in 1964, he went to work for Southwestern Bell, climbing the corporate ladder from lineman all the way up to CEO, a job he took in 1990. Two years later, he arranged to move the company headquarters from St. Louis to his native state. Southwestern Bell’s largest customer base was in Texas, as was Whitacre’s Marble Falls vacation property. San Antonio beat out Dallas and Austin.

Whitacre renamed the company SBC Communications and went on a buying spree. Over the course of fifteen years, he spent nearly $300 billion on thirteen purchases, consolidating four of the Baby Bells. SBC’s service area ultimately stretched from California to Connecticut and even into Mexico, where it had purchased a stake in TelMex. Forbes declared that Whitacre infused the company with “cowboy swagger and Texas-size ambitions.”

In 2005, Whitacre caught the biggest fish: beleaguered former parent company AT&T, which had missed the wireless revolution. SBC Communications took on the AT&T name and branding—plus its famous T-for-telephone stock symbol. The next year, the company expanded beyond its core business for the first time by launching U-Verse, a bundle package of phone, internet, and TV. “In hindsight, it all got kick-started by that move to San Antonio,” Whitacre wrote in his 2013 memoir, American Turnaround.

When he retired in 2007, Whitacre helped pick his own successor, Stephenson, whose first telecom job had been loading magnetic tapes into a Southwestern Bell mainframe. Where Whitacre was a Texas-twanged swashbuckler who never had a computer on his desk, Stephenson was a bespectacled accountant from Oklahoma who would track on his tablet a list of companies he wanted to acquire. Whitacre handed Stephenson a company with $120 billion in annual revenue, up from $9 billion the year it moved to San Antonio. Shortly before Whitacre’s retirement, its cellular subscribers numbered 61 million, edging out Verizon’s 59 million. AT&T seemed certain to build on that lead, as Whitacre had secured a deal with Apple for exclusive rights through 2010 to offer service for the soon-to-launch iPhone. In exchange, according to Forbes, AT&T shared roughly 8 percent of all of its iPhone revenues with Apple.

While Whitacre succeeded in growing SBC, and launched the new AT&T, the company’s stock faltered during most of his final years in charge, underperforming the S&P 500. After years of dealmaking, analysts recommended the company stop buying and work with the pieces it had. But a pattern had been set. Whitacre’s AT&T had built through acquisition, buying its way up the corporate food chain, seemingly always on the hunt for the next big deal. Its Texan CEO may have retired, but AT&T carried right on operating with his brand of cowboy swagger.

David W. Dorman, AT&T chairman and chief executive (right) and Ed Whitacre, CEO of SBC pose for a photograph in the Plaza Hotel February 1, 2005 in New York City.
In 2005, Ed Whitacre (left) and David W. Dorman, then CEO of AT&T, announced that SBC Communications was acquiring the legacy brand that had once been its parent company.Mario Tama/Getty

On June 29, 2007, that swagger seemed well-earned. Crowds wrapped around AT&T and Apple stores throughout the country to snag iPhones, among the most hyped (and successful) technological devices ever. In Lubbock, an evangelist preached to hundreds of people waiting in line, and rumors swirled that the store’s staff had interrupted a noisy, amorous couple inside a tent waiting outside the night before. Soon all of these earliest adopters were AT&T customers.

Two years later, AT&T had sold services for 10 million iPhones. By the end of 2010, another 15 million. In the first three years after the phone’s release, AT&T’s wireless revenues and customer base each soared about 40 percent. What AT&T didn’t earn in profits, because of Apple’s steep fee for exclusivity and subsidized iPhone prices for new customers, it made up for with a more loyal customer base that could not get iPhone service anywhere else. But those early days of the iPhone may have been the high point for Stephenson as CEO. He angered San Antonio officials, and many employees, by moving the company’s headquarters to Dallas in June 2008, in order to be nearer a greater concentration of tech companies and have better access to direct flights. Whitacre, skeptical of moving 275 miles within the same state, later described learning of the company’s relocation as the saddest day of his life.

Meanwhile, complaints over dropped phone calls and patchy internet were as consistent as iPhone sales, highlighted by a 2010 Consumer Reports ranking of AT&T as the least-reliable carrier by a significant margin. Apple deserved some of the blame because of an iPhone chip that led to dropped calls. “No carrier would have been prepared for the crush of devices that hit the network,” says Will Townsend, a senior analyst with Moor Insights & Strategy. Average iPhone customers used two to four times as much data as those on other devices. AT&T, however, started spending substantially to improve its network only after it was already strained. As much as the iPhone benefited AT&T, the drawbacks gave its top competitor an opportunity to stand out. Verizon, which acquired the wireless carrier Alltel in 2008, surpassed AT&T in cellular subscribers that year. It built its brand around having superior service, and its customers, who in 2010 gobbled up more data than AT&T’s, reported fewer problems.

Customers wait in line to buy the Apple iPhone at the AT&T cellular store June 29, 2007 in Houston.
Customers wait in line to buy the original Apple iPhone at an AT&T cellular store in Houston, on June 29, 2007.Dave Einsel/Getty

To leap past Verizon again, Stephenson employed a move from the Whitacre playbook—growth through acquisition—announcing a $39 billion purchase of T-Mobile in March 2011. The fourth-place telecom, independent industry analyst Jeff Kagan says, “was just dying on the vine” at the time. AT&T’s top executives assumed the deal would sail past regulators, giving the company about 45 percent of the wireless market. But the Obama administration Justice Department filed an antitrust suit that August, and AT&T backed away. It was a costly mistake. Stephenson had agreed to the largest breakup fee in history. AT&T owed T-Mobile $3 billion in cash for calling it off, as well as valuable spectrum—the finite range of radio frequencies over which wireless carriers are authorized to transmit their customers’ internet data and phone calls.

Whitacre had made all his acquisitions without any major roadblocks from regulators, projecting an aura of invincibility and unimpeded growth for the company. The T-Mobile failure upended that. “That was sort of the first major sign to me—and I’m sure others—AT&T could not in fact do whatever it wanted to do,” says Alice Aanstoos, a former regional vice president for the company, who retired in 2015.

Buoyed by AT&T’s gift and the hiring of former AT&T executive John Legere, T-Mobile improved its network and slashed its rates. In response, AT&T and Verizon were forced to reprice their offerings, which cut into their margins. AT&T managers saw the portion of their compensation tied to stock prices dip, and felt that top executives left them in the dark on the direction of the company. “The communication to get everybody on the bandwagon, it was just very top-down,” one former manager told me. “There was no real engagement to try to bring people along.”    

While current executives brush off the consequences of the failed merger, they acknowledge one result: “I think it probably led us to the conclusion that we needed to look elsewhere for other opportunities for growth,” says Stephens, the former CFO.

So Stephenson, again, looked to make a big play. He sought to bolster AT&T’s TV service by purchasing satellite television provider DirecTV in 2015 for $67 billion. The hope was to make AT&T the largest traditional pay-TV provider in the U.S. by adding DirecTV’s 20 million subscribers to U-Verse’s 6 million. AT&T thought it would gain greater leverage in negotiating the fees charged by television networks to carry their content. It might have worked, if people still watched TV in 2015 like they had in 2005 or earlier. “They bought at the peak, literally at the peak,” says Roger Entner, a telecom analyst and founder of Recon Analytics. “They were told, ‘You are buying at the peak, and it’s going to go downhill from here.’ And they still did it.” AT&T executives told me they didn’t think the traditional TV industry would decline so quickly, but they clearly knew cord-cutting was not just the future but the present. In 2013, AT&T had tried and failed to buy Hulu.  

It’s as if AT&T were a trucking company, and Stephenson now wanted it to operate farms and grocery stores too.

Even with much greater influence as the largest pay-TV provider in the country, AT&T found itself dealing with rapidly increasing rates for content by networks it sought to carry on DirectTV and the spinoff DirecTV Now streaming service it launched in November 2016. Competition among streaming-television providers was just beginning to intensify, and it was soon apparent the contenders needed as much content as possible on their services to keep customers’ attention (along with their monthly subscription payments). Television and movie studios, owned by the likes of Disney, NBCUniversal, and Viacom, were charging escalating prices and using the proceeds to invest in their own planned streaming services to challenge Netflix. As these increasing expenses made it apparent that the DirecTV deal would not pay off as the company had hoped, AT&T looked for yet another big swing.  

At the same time, Stephenson saw some of the largest companies in the world—Facebook, Apple, Amazon, Netflix, and Google—swelling in market value. Like them, AT&T had distribution, and it had valuable user data for targeting ads to its wireless and broadband customers. What he felt the company needed to compete with the Silicon Valley crowd was content. It’s as if AT&T were a trucking company, and Stephenson now wanted it to operate farms and grocery stores too. Or, as he put it in his typical mode of speaking, “If you don’t create a pure vertically integrated capability … from distribution all the way through content creation and advertising models, you’re going to have a hard time competing with these guys.”

The opportunity soon came with Time Warner, which had already sold off its own distribution arms, AOL and Time Warner Cable. What remained was a collection of content producers—Warner Bros., HBO, and the Turner networks of TBS, TNT, TruTV, and CNN. 21st Century Fox had made an unsuccessful offer, and Apple expressed some interest in an acquisition, before AT&T announced a deal in October 2016 at a price of $81 billion in cash and stock, plus agreeing to take on $23 billion worth of Time Warner debts. “Premium content always wins,” Stephenson said at the time.  

Analysts appreciated the boldness of Stephenson’s plan to buy Time Warner, even though they were split on its chances of proving a success. AT&T was, after all, far from the first to attempt to control both pipes and content. The Time Warner deal led Aanstoos, the former regional VP, to think about the Southwestern Bell days, when she recalls a Wall Street analyst pegging the company as staid and “sticking to its knitting,” a pejorative the company turned into a positive when Ed Whitacre had overhauled the company by unifying most of the Baby Bells under the SBC banner. Whitacre’s moves had been bold, but Aanstoos saw those purchases—rooted in phone and broadband—as part of a telecom’s core offerings, part of the knitting. “Running the likes of CNN? That to me is far away from our knitting,” she says.

Meanwhile, while DirecTV likely would have declined under any owner, Phillip Swann, a longtime TV industry analyst, says AT&T hastened the satellite provider’s demise with its focus on WarnerMedia and the DirecTV Now service. “They were sending signals to the audience and investors and anyone who’s listening that they were going down the road of streaming at that point,” Swann says. By the end of 2020, AT&T had lost about 9 million of the 26 million TV subscribers it had at the time of the 2015 DirecTV purchase. (In the same time frame, cable-TV giant Comcast went from 22 million to 20 million subscribers.)

AT&T executives still defend the DirecTV deal by citing $4 billion in annual cash flow it brought the company, which helped it fund expenditures for its core phone business. Hardly anyone outside AT&T agrees it made sense: “Inarguably one of the worst deals of all time,” Craig Moffett, an analyst for MoffettNathanson and a prominent AT&T critic, wrote in one investors’ note.

The DirecTV and Time Warner acquisitions weren’t all on Stephenson. He notably had help from John Stankey, who supported AT&T’s ventures into entertainment as chief strategy officer. Stankey also oversaw DirecTV from 2015 to 2017. When it came time to put someone in charge of the new WarnerMedia, Stephenson believed Stankey was the phone company’s best fit.

Chairman, CEO and president of AT&T Randall Stephenson (far left) and others testify during a hearing before the Intellectual Property, Competition and the Internet Subcommittee of the House Judiciary Committee to examine the proposed merger between AT&T and T-Mobile, May 26, 2011 in Washington, DC.
Randall Stephenson (far left), then chairman, CEO, and president of AT&T, and others testify before a Congressional committee about the proposed merger between AT&T and T-Mobile, in May 2011.Alex Wong/Getty

Despite a politically motivated antitrust challenge from the Trump administration that nearly derailed the deal, the sale of Time Warner was completed in June 2018. HBO employees gathered that month at the network’s New York City headquarters, near Times Square, to welcome the new boss. The marketing team, adept at assembling promos for prestige entertainments such as The Sopranos and Deadwood, cut together a clip to hype a new sort of attraction: a 55-year-old engineer with an MBA and more than thirty years of telecom experience. In it, Bill Hader, star of the series Barry, deadpanned that he had always wanted to work for the phone company. Emilia Clarke, the British actress from the megahit Game of Thrones, announced, “I will bend the knee to Lord Stankey.”

Stankey grew up on the Palos Verdes Peninsula, south of Los Angeles. He worked at an Oshman’s sporting goods store in high school, stringing tennis rackets, and followed his father and grandfather in becoming an Eagle Scout. He graduated from Loyola Marymount University in 1985 and months later started working for Pacific Bell, which was acquired by Ed Whitacre’s SBC in 1997.

Stankey moved up the ranks, earning leadership positions in nearly every sector of the company, from logistics to technology to DirecTV. He became known within the company for hosting in-house seminars that displayed an all-encompassing knowledge of the industry. “If you were to talk to him, depending on the topic, you might think, ‘Oh, my gosh, this guy has like, a freaking MBA in finance. Oh, my gosh, no, no, this guy is like a deep technical engineer,’” says Anne Chow, who leads the unit dealing with AT&T’s wireless and broadband for business customers. “He’s able to connect the dots in a way that perhaps others don’t.”

But one thing Stankey doesn’t have, something he didn’t need in the phone business, is flair. At that 2018 town hall where most at HBO were meeting him for the first time, a recording of which was leaked to the New York Times, Stankey introduced himself as a “Bellhead,” the industry slang for phone company lifers who got their start at the Baby Bells. He also employed an odd metaphor to explain the commitment required to broaden HBO’s offerings for the streaming future. “You will work very hard, and this next year will—my wife hates when I say this—feel like childbirth,” he said.

“Stankey just seemed like Tywin Lannister,” one HBO employee who was present says, describing the ruthless patriarch of one of the ruling families on Game of Thrones. “Like pretty humorless and pretty severe.”

HBO corporate meetings, which previously had involved freewheeling discussions, began under Stankey to feel like the bureaucratic grilling of U.S. Senate hearings, according to one former WarnerMedia executive. AT&T instituted an arduous process called “workstream” to gauge how WarnerMedia best fit with its new parent company, and company managers used endless PowerPoints to communicate. “These guys can’t say hello without making a deck to do it,” the former executive said wryly.

When he took charge, Stankey announced he would keep jobs intact, but there were hundreds of layoffs and buyouts in the first year after AT&T took over. Some WarnerMedia executives found, without explanation, that new hires or managers from AT&T or DirecTV had assumed their roles, effectively making their jobs unnecessary. “There was a little bit of a feeling of powerlessness,” says one of the laid-off executives, “knowing that the people at AT&T thought of themselves as making decisions that had significantly more important results than any decision that a person in entertainment could possibly have.”

Another of the former execs—who said he liked Stankey’s dry sense of humor, directness, and lack of ego—wished his new boss would have thought of entertainment as something other than a product in need of distribution. Stankey, who led WarnerMedia until the spring of 2020, almost never talked about shows and movies, or the actors, writers, and directors who made them.

“John, in his own admission, was so clearly not a fan of entertainment,” this executive says. “It’s like bringing somebody to a sporting event where they are like, ‘How many points do you get for a basket?’ It was almost at that level with him in entertainment.” 

Meanwhile, the entertainment industry landscape was rapidly changing around AT&T. Disney swallowed 21st Century Fox. Viacom remerged with CBS. Apple and Disney both launched streamers, jumping ahead of AT&T’s HBO Max as Netflix challengers. T-Mobile cut a deal to offer Netflix to phone subscribers, and Verizon offered Disney+, Hulu, and ESPN+ as part of a bundle package. An activist investment group, Elliott Management, wondered in September 2019 why AT&T hadn’t simply made an arrangement like those instead of spending $104 billion to get into show business.

Stankey, who led WarnerMedia until the spring of 2020, almost never talked about shows and movies, or the actors, writers, and directors who made them.

Elliott bought $3 billion in AT&T shares, planning to use its financial position to influence the company to make changes it believed would increase the value of its stock. Firm partner Jesse Cohn authored a scathing letter to AT&T’s board, disparaging Stephenson and Stankey without calling them out by name. “More than three years after the (WarnerMedia) deal was announced,” the letter stated, “there is still confusion over strategy and a growing sense that AT&T doesn’t have a plan.”

The letter’s underlying critique was that Stephenson focused on questionable expansion rather than execution, leading the stock price to stagnate during his tenure, gaining basically no value, while the S&P 500 doubled. After the WarnerMedia deal closed, the stock hardly budged even as other streaming companies made huge gains on Wall Street. Under Whitacre, Elliott Management wrote, “the company had a clear strategic rationale for the assets it required.” But under Stephenson? “AT&T has transformed itself into a sprawling collection of businesses battling well-funded competitors in new markets … saddled with the financial repercussions of its choices.” Elliott wanted AT&T to divest assets and trim costs. Stephenson committed to working with the investors and postponed a planned retirement. After originally opposing Stankey as CEO, according to CNBC, Elliott Management decided he was better positioned than an outsider to take over.

The investment firm’s judgment that Stankey would slim down AT&T proved to be correct. About the time he became CEO last July, he hosted a virtual webcast for some 200,000 employees, sitting socially distanced from other executives in an auditorium. As Stankey gave a preamble on the company’s widespread obligations and debt load, he said AT&T had “too many mouths” to feed.

Amid the pandemic, Stankey soon laid offa reported 3,400 phone workers and another 1,200 from WarnerMedia. In February 2021, he announced that DirecTV and U-Verse would be spun off, creating a new company valued at $16 billion. The news propelled AT&T to one of its best monthly stock gains in years, with shares rising nearly 10 percent. It also seemed a tacit admission that acquiring DirecTV had been a mistake, something Stephens, the CFO, was nearly willing to concede to me. “I don’t know if it wasn’t the right move or not, but if you’re asking me, did I expect or hope it would turn out more value-creating than the value it created? Yes,” he said.

That Stankey had been the number one cheerleader for that deal and had managed DirecTV for two years did not deter him from spinning it off. “He is clinical, he looks at facts,” says Jeff McElfresh, who heads AT&T’s cellular and broadband sector. “And when the facts tell we’ve got to change because this industry is evaporating, this industry is winding down, whether or not he was the one who made the decision to launch the product, he is the first one in the organization to say that it’s got to change.”

The cuts and layoffs, which Stankey referred to as “head count rationalization” at a Morgan Stanley tech conference last year, didn’t endear him to thousands of employees who lost jobs, but Elliott Management backed off. In November 2020, the fund revealed it was selling nearly all of its shares, just as Stankey and WarnerMedia were discussing one of their most audacious moves yet.

John Stankey, President & COO of AT&T and CEO of WarnerMedia, speaks onstage during the HBO Max WarnerMedia Investor Day Presentation at Warner Bros. Studios on October 29, 2019 in Burbank, California.
John Stankey makes a presentation about HBO Max and WarnerMedia to investors and analysts at Warner Bros. Studios, in Burbank, California, in October 2019.Presley Ann/Getty Images for WarnerMedia

When the HBO Max news hit Hollywood the morning of December 3, WarnerMedia Studios head Ann Sarnoff hunkered down in a Los Angeles conference room with Toby Emmerich, Warner Bros. chairman, to make call after call to filmmakers surprised by the news. The pair explained how the uncertainty of theatrical attendance during the pandemic had forced their decision. “It took some time to tell them and kind of have them understand where we were coming from, and we eventually got there,” Sarnoff says. “But something new is never easy.”  

Some of the biggest stars, notably The Little Things lead actor Denzel Washington, had been notified in advance of the press release, Sarnoff told me. She, Emmerich, and Jason Kilar had to explain their decision to almost everyone else. Over some 45 days, they reached out to 180 directors, actors, and agents involved in seventeen films. There were plenty of lawyers and plenty of payouts made to replace traditional “back-end” earnings, the share of a film’s box-office profits to which some of them were entitled.

A few days after the news dropped, Kilar went on technology writer Kara Swisher’s Sway podcast and expressed pride in AT&T’s disruptive strategy. “We have no problem going where others have not gone before,” Kilar told her. “This is not for the faint of heart.” Yet he sounded comparatively chastened during a conversation with Texas Monthly in late March, saying that Warner Bros. should have worked out more compensation deals in advance but decided not to because the studio feared the day-and-date release plan would be leaked to the press. “I’m absolutely the one who bears responsibility for that,” he said.

On a corporate earnings call in late January, AT&T revealed that HBO Max had amassed 17 million active users (about a quarter of whom receive the service for free as an add-on to their phone plans). That doubled the user count since the previous quarter, including about 4 million subscribers added during the month after Wonder Woman 1984 became the first straight-to-Max new release in late December. At the end of 2020, combined HBO and HBO Max customers stood at 41.5 million, an increase of about 7 million since the end of 2019. According to AT&T, the net gain was more than HBO alone had grown in the previous ten years combined.

In April, Godzilla vs. Kong opened on HBO Max to the highest viewership totals yet on the platform, but also to a first weekend U.S. box office of $32 million, the biggest opening haul of any film since the onset of pandemic. Still, that number seems like a pittance compared with the hundred-million-plus dollars films like it, Wonder Woman 1984, and Dune might have earned at the box office in a pre-pandemic weekend. Both Sarnoff and Kilar say the COVID-19 pandemic made the HBO Max release plan the right financial move, regardless of the theatrical revenue the studio would have reaped during a normal year. Streaming is expected to continue to cut into box-office totals after the pandemic. Beyond 2021, Kilar describes a permanent shift in which “an ever-growing slate” of movies go straight to HBO Max with an option for theaters to show them, while “a certain type of movie that is a spectacle and larger than life” will go to theaters first.

And what about all those actors, producers, and agents furious at AT&T? I spoke with insiders who were not certain the anger would subside. Artists don’t find disruption as scintillating as Silicon Valley acolytes. Warner Bros., with a storied history and reputation for taking care of talent, was more desirable against Amazon and Netflix when the bidding prices were roughly equal. After the HBO Max maneuver, there is the possibility AT&T permanently spoiled that advantage, and Warner Bros. has become just another studio.

An exterior view of AT&T corporate headquarters on March 13, 2020 in Dallas.
AT&T’s downtown Dallas headquarters is in Whitacre Tower, named for Ed Whitacre.Ronald Martinez/Getty

AT&T’s divided attentions were abundantly on display in and around the company’s headquarters in downtown Dallas in January. On a building adjacent to the 37-story Whitacre Tower, a 104-foot screen flashed images of Wonder Woman stars Gal Gadot, Kristen Wiig, and Chris Pine. A plaza outside the building was filled with sculptures of rainbow-streaked W’s, and visitors posed for pictures inside a massive silver orb shaped like the AT&T logo. Beneath the giant screen was the AT&T Experience Store, featuring virtual reality Wonder Woman games and two life-size statues: Gadot sparkling in golden Wonder Woman armor, and Wiig grimacing in spotted fur as the villainous Cheetah. Meanwhile, a few feet away, a salesman in a gray and blue polo was explaining a wireless plan to a prospective customer. AT&T was still primarily a phone company, despite its Hollywood trappings.

Weeks later, during a videoconference presentation to investors and analysts on March 12, Stankey gave jargon-heavy explanations for why these disparate parts fit together. “If you think about the work that had to be done to normalize distribution agreements and get ourselves set up so that we can make the pivot from a linear foundation, which was HBO, to a forward-leaning SVOD capability, which was HBO Max,” he said at one point.

The numbers he and other executives touted then were chosen to indicate everything was going in the right direction. They talked about HBO Max rolling into sixty additional countries this year and the unveiling of a cheaper, ad-supported version that would allow AT&T to test its targeted advertising strategy. The company projected that by 2025, it would have 150 million subscribers on HBO and HBO Max, up from an earlier projection of 90 million. But just two months later, AT&T revealed it wants to go back to focusing on the pipes business.

Bloomberg broke news of a possible spinoff of WarnerMedia on Sunday, May 16. AT&T made it official in a press release about 6:15 a.m., Dallas time, the next day. Fifteen minutes after that, Stankey joined Discovery CEO David Zaslav on a conference call with the press. They explained how they started talking via text messages earlier this year, at first commiserating over the cancellation of the AT&T Pebble Beach Pro-Am. The conversations shifted to business, and Zaslav said soon they were meeting in “secret” at his Greenwich Village brownstone. Stankey said “discreet” was a better description. “Secret sounds like we were in the Bat Cave or something,” he said, giving a nod to the entertainment properties he was discarding.

While the timing of the merger with Discovery is shocking, especially given all of AT&T’s professed optimism over the last few months, many analysts and current and former AT&T employees had remained unconvinced of the mutual benefits of a phone company running an entertainment business. Just a few months ago, LightShed Ventures analyst Rich Greenfield wrote in an investors’ note that AT&T and Comcast should each give up their entertainment properties and merge WarnerMedia and NBCUniversal. “Content creators do not need pipes,” he wrote. Verizon gave up on its comparably light gamble outside its core business in early May, announcing the sale of AOL and Yahoo to the private equity firm Apollo Global Management so it could focus on phones and internet. Entner, the analyst with Recon Analytics, told me a phone business that depends on using a streaming service to add customers was like an expensive restaurant seeking to hook patrons with free coffee.

Skepticism abounded because no matter how many headlines HBO Max and Warner Bros. garnered, phones are a steadier, much bigger business. AT&T’s wireless category brought in $30 billion in EBITDA last year (and $5 billion for broadband), a metric that best indicates a company’s cash flow. WarnerMedia’s EBITDA was $9 billion. Entertainment had also been a distraction as AT&T attempted to build its 5G network. At its essence, 5G is a faster 4G, but it is so much faster it may lead to changes we cannot yet predict. Whereas carriers tried to stand out during the last decade with unlimited data plans and speed and access, Townsend, the analyst at Moor Insights & Strategy, believes the winners in 5G will, for instance, improve automation in health care and manufacturing businesses and create immersive virtual-reality experiences for consumers.

In both areas, Townsend says AT&T could succeed, particularly after spending $27 billion on 5G spectrum in February. Still, T-Mobile, thanks in part to a 2019 merger with Sprint and a smart purchase of cheap spectrum in April 2017—made while AT&T was sparring with federal regulators over Time Warner—leads in 5G for now.

There were signs, even before announcing the spinoffs of DirecTV and WarnerMedia, that Stankey was refocusing AT&T on its core businesses. In October, AT&T offered existing customers the same rates traditionally used to hook new subscribers, and it reported one million net additional subscribers in the first quarter of 2021, including a record-low number of customers dropping service. (To be fair, it’s possible some of that retention was attributable to the inclusion of free HBO Max in some phone plans.) During the same period, Verizon had a net loss of 300,000 subscribers and T-Mobile added 1.3 million.

While Stephenson fell for the “lure of Tinseltown,” Entner says, “and it was a siren song,” Stankey has given more focus in the area that matters most. “They did not invest properly in their bread-and-butter business. And now that they invest in their bread-and-butter business, suddenly the money comes in.” Entner gives Stankey credit for doing the right thing with the Discovery deal. “You have to have the courage to face the truth and say, ‘We made a mistake,’” Entner told me. “He didn’t call it a mistake, but when you basically, within ten months, completely undo the legacy of your predecessor, you don’t have to say that. It says it all.”

Now Stankey must do what Stephenson, and even Whitacre, did not: the boring, hard work necessary to grow AT&T the old-fashioned way. He must add and serve customers instead of adding companies. He acknowledged the need for that shift back that March videoconference. “What I’m looking for and what journey we’re on right now is a simpler, more focused AT&T,” he said. As Stankey finished his comments, the camera zoomed out, and on a shelf in the background, a Batman figurine—with its fists squared for battle—loomed over his shoulder.