In retrospect, AT&T (NYSE:T) arguably should have sold its minority stake in Hulu back to its majority owners long ago. With less than 10% equity in what was essentially an experimental competitor to Netflix (NASDAQ:NFLX), Hulu didn’t mean enough to owners of AT&T stock to truly matter.
Regardless of the timing, it’s now happened. AT&T has sold the Time Warner sliver of Hulu back to its majority owner Walt Disney (NYSE:DIS) and larger-minority owner Comcast (NASDAQ:CMCSA), pocketing roughly $1.5 billion for its share.
It’s hardly the end of AT&T’s streaming ambitions, though. If anything, it’s closer to the beginning of a home-grown streaming video platform.
The foreseeable future of that ambition, however, looks like a rocky one.
Going Solo
Take a closer, careful look at the streaming video landscape and you’ll recognize that partnerships are falling out of favor, and integrated top-down solutions are becoming the preferred means of penetrating the market.
Hulu was, of course, the quintessential partnership in the business, melding content from Disney, Time Warner and Comcast’s NBCUniversal. It fared reasonably well too, reaching 25 million subscribers as of the end of last year. That’s still a distant second to Netflix’s 139 million paying members, but far better than any rival operating in the same space.
Hulu wasn’t built to last, though. Too many cooks, or chiefs, and schools of thought to do the collective any good.
Disney’s upcoming official launch of its standalone streaming service Disney+ validates the idea that media and entertainment companies feel they’re better served doing their own thing, though the fact that Netflix and CBS have also bet heavily on the creation of content sold directly to consumers underscores the idea. Indeed, even Time Warner’s HBO offers a standalone streaming option, and Comcast’s NBCUniversal reportedly has one in the works.
By virtue of bowing out of the Hulu consortium — not that it had much choice — AT&T’s Time Warner has sloughed off a potential confusion of interests and freed the company to focus on its own Netflix competitor.
It’s still behind the eight ball, though.
Work to Do Ahead
It’s a development that’s not exactly surprising to AT&T stock owners.
In March, the organization shook up its management ranks to name former NBC Entertainment chairman Robert Greenblatt as chairman of WarnerMedia’s entertainment and streaming businesses. The shakeup also included resignations from HBO’s head Richard Plepler and Turner’s president David Levy.
The changes, according to AT&T, facilitate “agility and flexibility,” which isn’t difficult to interpret as a shift toward direct-to-consumer options.
AT&T is already in that business, to be clear, but hardly thriving. Streaming service DirecTV Now actually lost 267,000 customers last quarter, which was the first net subscriber loss the platform has logged since launching in late 2016. A Time Warner-branded service might fare better, by costing less, which can be made possible by limiting its library of content to just the video consumers want from the company.
That’s easier said than done, howver. As Hollywood Reporter‘s critic Tim Goodman pointed out following word that AT&T was exiting its Hulu stake:
“Nobody outside of this town — and hell, many right inside of it — can really tell you what the hell WarnerMedia is or has, which is not a problem that Netflix, Amazon, Hulu or Disney+ currently grapple with. So, congratulations, WarnerMedia, you’re only slightly more mysterious than Apple+, which, for better or worse, is trying to be mysterious on purpose.”
He’s right.
And, that’s going to be a major headache for a player that’s essentially entering the streaming race already in sixth place.
In the meantime, pulling the company away from strategizing its branding is the sheer demand for more video content than the company currently produces.
“They want a lot more content coming out of Warner,” said CFRA Research analyst Keith Snyder, adding, “That’s going to help them launch the streaming service and go up against Disney. They really need to start generating more content… [the] reorganization is aiming at that more than anything.”
It’s all going to be a lot more work, and complicated, than participation in the Hulu partnership was.
Looking Ahead for AT&T Stock
It remains to be seen how the market will view the company’s next steps down this inevitable path, primarily because it’s not even clear the company itself has looked that far down the streaming video path ahead.
One matter is clear, however. That is, much work remains to be done, and AT&T isn’t looking especially well-positioned.
That’s not to suggest AT&T stock is unownable here, or that a Time Warner streaming app can’t be competitive. It is to suggest, however, that an awful lot of questions remain regarding exactly how AT&T is going to stand out in an increasingly crowded streaming video industry when most consumers still don’t recognize the brand the way they do Netflix, CBS or Disney.
As of this writing, James Brumley held a long position in AT&T. You can learn more about James at his site, jamesbrumley.com, or follow him on Twitter, at @jbrumley.
