AT&T Under Fire From Activist Investor... And Disney

AT&T finds itself under fire from Paul Singer’s Elliott Management Corp., the hedge fund that now owns a $3.2-billion stake in the telecom — which is publicly excoriating AT&T’s strategy and pushing for a sale of DirecTV, among other shakeups.

At the same time, as it continues carriage negotiations with Disney, AT&T is now facing new pressure generated by “Monday Night Football” announcers on Disney's ESPN warning viewers during a game that DirecTV might drop ESPN channels.

In a tactic it has used with other companies in which it has invested, Elliott Management on Monday sent out a press release announcing that it had sent a letter to AT&T’s board, disclosing the letter’s full content.

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The fund criticized WarnerMedia’s strategy, writing in part: “Last November, AT&T laid out a detailed, three-tiered offering with an emphasis on Warner Brothers (not HBO). Then, just six months later, AT&T scrapped that plan and instead promoted a single new product, HBO Max, with radically different pricing and an already delayed launch. This quick reversal has intensified the skepticism around WarnerMedia, its OTT strategy and the management of the business itself.”

As for DirecTV, acquired by AT&T in 2014 for $67 billion, Elliott’s letter asserts that “it has become clear” that the acquisition occurred “at the absolute peak of the linear TV market,” pointing out that DirecTV, along with pay TV as a whole, has since lost millions of subscribers. (Video subs, at 21.6 million, are down nearly 9% versus a year ago.)

The trends “are continuing to erode, with AT&T’s premium TV subscribers in rapid decline as the industry, particularly satellite, struggles mightily,” stressed the letter, noting that in DirecTV’s case, the exit of the company’s former management team after the acquisition may have contributed to the problems.

The letter adds that AT&T TV Now (formerly DirecTV Now) has been “poorly executed, with delays, technical mishaps, weak customer service and usability issues.”

Elliott’s letter outlines a four-part, 24-page “Activating AT&T Plan” that recommends “increased strategic focus, improved operational efficiency, a formal capital allocation framework; and enhanced leadership and oversight.”

Specific recommendations include divesting DirecTV and AT&T’s Mexican wireless business; bringing in independent advisors to analyze the company’s operations; and assessing the leadership team’s fitness to run the company over the next decade.

The letter argues that the plan could enable AT&T to boost its value per share by some 65%, to more than $60, by the end of 2021, “prior to any strategic actions regarding the portfolio.”

In response, AT&T issued a statement: “We look forward to engaging with Elliott. Indeed, many of the actions outlined are ones we are already executing today. AT&T’s Board and management team firmly believe that the focused and successful execution of our strategy is the best path forward to create long-term value for shareholders.”

Sources told NBC News media blogger Dylan Byer that Singer and his Elliott team “wants to rid [AT&T] of both chief executive Randall Stephenson and his top deputy and heir apparent John Stankey,” CEO of WarnerMedia.

Byer also cites points made by The Information’s Martin Peers. With more competition coming, including AT&T’s own HBO Max, “If just 20% of cable and satellite customers in the U.S. switch to streaming as a result of the new service, HBO Max may need to sign up 60 million customers paying full price to cover its programming costs and revenue losses elsewhere at the media and telecom giant,” writes Peers. “That’s as many as Netflix has signed up in the U.S. a decade after launching, at a price point several dollars less than where HBO Max is likely to come in."

Meanwhile, on the carriage negotiations front, ESPN’s Bob Iger and Jimmy Pitaro warned viewers during Monday night’s football game that the carriage negotiations could result in AT&T dropping ESPN channels.

Sports Business Journal reporter John Ourand tweeted ESPN’s explanation: “Our contract is due to expire soon, so we have a responsibility to make our viewers aware of the potential loss of our programming. However, we remain fully committed to reaching a deal and we are hopeful we can do so.”

He also tweeted AT&T’s response: “We’re disappointed to see The Walt Disney Co. put their viewers into the middle of negotiations. We are on the side of consumer choice and value and want to keep Disney channels and owned-and-operated local ABC stations in eight cities in our customers’ lineups.”

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