WarnerMedia Plans 3-Tier Streaming SVOD Service

Launch planned in 4Q of 2019
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WarnerMedia plans to launch its new streaming service in late 2019 with a three tiered offering, the company said Thursday.

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John Stankey

Speaking at an AT&T analyst conference, John Stankey, head of AT&T’s WarnerMedia unit said the company is looking to capture its share of the $150 per month U.S. households spend on entertainment at a time when viewing behavior is shifting from traditional TV to streaming.

WarnerMedia’s new service will initially be based on its current assets, including Warner Bros., HBO and Turner.

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Stankey said the new SVOD offering will be based on three tiers, but that the company hopes that consumers will take all three.

The entry-level tier one will be movie focused. Subscribers who move up to tier two will be able to get original content and programming, including blockbuster movies. The third tier will give consumers access to the broad library of content Time Warner controls, including classic films, kids and family programming and theatrical films.

Stankey said the goal was to generate high engagement with consumers with great content. That engagement will drive insights and recommendations, which in turn will drive purchasing and monetization. The monetization will enable the company to innovate on new content and get more engagement.

Some of that monetization will come by working with AT&T Xandr advertising platform.

“At the end of the day, that engagement is good for all of AT&T’s business,” he said.

During the call AT&T provided financial guidance for 2019. It said it expected to have free cash flow in the $26 billion range. It said its dividend payout would be in the high 50% range.

It will use about $12 billion of its free cash flow to pay down debt and set a target of having debt in the 2.5 times EBITDA by the end of 2019.

Although battling the government over the acquisition of Time Warner—now the company’s WarnerMedia unit—slowed its plays, the company expects to have $2.5 billion in synergies at WarnerMedia by the end of 2021 including $1.5 billion in cost synergies.

Some of those cost savings will come from efficiencies in marketing and procurement. It also expects revenue synergies from lower subscriber churn and higher advertising rates and revenues.

“We are well positioned for success as the lines between entertainment and communications continue to blur,” said AT&T CEO Randall Stephenson. “If you’re a media company, you can no longer rely exclusively on wholesale distribution models. You must develop a direct relationship with your viewers. And if you’re a communications company, you can no longer rely exclusively on oversized bundles of content.

“We have some of the world’s best content and 370 million direct-to-consumer relationships across mobility, video, broadband and our digital properties,” Stephenson said. “That exceptional combination enables us to deliver a broad spectrum of entertainment experiences — from premium video to skinnier over-the-top and mobile- centric bundles of live content, and a subscription video-on-demand product to launch late next year. And with Xandr, our advertising business, we’re using insights from our customers.”

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