Filed by AT&T Inc.
Pursuant to Rule 425 under the Securities Act of 1933
and deemed filed pursuant to Rule 14a–12
of the Securities Exchange Act of 1934
Subject Company: Time Warner Inc.
Commission File No.: 1-15062
The following is a transcript of a live interview with AT&T CEO Randall Stephenson and Time Warner Inc. CEO Jeff Bewkes posted on the website of the Wall Street Journal on October 25, 2016:
1 P R O C E E D I N G S
2 INTRODUCTORY SPEAKER: All
3 right, what would you buy if I
4 gave you 85 billion dollars? AT&T
5 just bought Bugs Bunny, Batman,
6 and the Baratheon family, it's the
7 deal of the fall, and I'm sure
8 you've got a lot of questions, and
9 we've built in some time for that
10 today.
11 To get things started let's
12 bring out the deputy editor in
13 chief, Rebecca Blumenstein, also
14 the CEO of AT&T, Randall
15 Stephenson, and the chairman and
16 CEO of Time Warner, Jeff Bewkes.
17 MS. BLUMENSTEIN: Well,
18 thanks so much to you both for
19 coming all the way, after
20 announcing the biggest media deal
21 in years.
22 I -- I want to cut to the
1 chase: Time Warner was bought
2 once before, tell me why it's
3 going to turn out better this
4 time.
5 MR. STEPHENSON: Well, we
6 didn't try before, all right?
7 I'll start there.
8 But this -- this deal was
9 about one thing, and that was, how
10 could we change the game in this
11 ecosystem, because if there was
12 ever an environment that was
13 begging for innovation it is this
14 environment.
15 And if you think about
16 what's happened in this system
17 literally you have 20 million
18 households now who have left the
19 premium content system. They're
20 not buying a bundle of premium
21 content, they're gone, they're not
22 around, and this is one of the
1 things we're trying to do, how do
2 you begin to do something to
3 access that -- that segment of the
4 market.
5 MS. BLUMENSTEIN: So they've
6 kind of cut the cord?
7 MR. STEPHENSON: Yeah,
8 they've cut the cord. They're not
9 even engaged in the premium
10 ecosystem anymore.
11 And then so we're going to
12 launch, at the end of next month,
13 November, a product that we think
14 does this, and that's what this
15 deal is about, and I think it's
16 important to understand it, it's
17 Direct TV Now is what we're
18 calling it, but this is, for the
19 first time, a hundred plus premium
20 channels, all right? This isn't
21 the junk nobody wants. This is a
22 hundred plus premium channels,
1 purely over the top, a mobile
2 centric platform for $35 a month,
3 all right? It has all of Jeff's
4 content, it has all the premium
5 content that you know and love,
6 you like to watch, $35 a month,
7 and that includes your mobile
8 streaming costs, all right?
9 Streaming it over the mobile
10 internet. So 35 bucks pretty much
11 all in, we think this is big. We
12 think it's a game changer.
13 MS. BLUMENSTEIN: So you're
14 making more news now by announcing
15 the price point.
16 MR. STEPHENSON: We haven't
17 announced the price point before
18 but we're announcing it right now.
19 And as you think about people
20 saying this is nothing but a way
21 to increase prices, no, this is a
22 way to drive pricing down in the
1 marketplace. We think this is
2 really important.
3 And I think there's
4 something else that's important,
5 and it's instructive to how you
6 consider this deal, and that is:
7 That would not be possible, we
8 started trying to develop this
9 product over a year ago, it would
10 not be possible had we not done
11 the Direct TV deal, it would be
12 impossible, because we had been
13 trying to do this for the last
14 three years.
15 We cannot get the media
16 companies to participate in this
17 until we have scale, in fact,
18 interestingly enough, one of the
19 last companies to finally come in
20 to this hundred channel package
21 was Fox. They were the last ones
22 to come in.
1 And I think what's equally
2 instructive is one of the first
3 ones in was NBC Universal, which I
4 think is ironic, when you think
5 that the one company that is
6 vertically integrated, like we're
7 talking about doing, is one of the
8 first ones in doing the innovation
9 in the marketplace.
10 And I would tell you one of
11 the other first ones in was this
12 guy, we got TBS, TNT, all of those
13 channels we got in early in the
14 game. And -- and I think that's a
15 really important observation, that
16 if you want to innovate you're
17 going to have to have scale,
18 you're going to have to have
19 content that will allow you to
20 innovate.
21 And so to that end, just
22 considering that, there was a lot
1 of noise yesterday around what
2 this new company looks like, and
3 -- and what people should be
4 concerned with.
5 And we have, internally, at
6 AT&T, that Jeff's team will be
7 introduced to, we call it our
8 Magna Carta: What are the guiding
9 principles as you put these two
10 companies together. And it starts
11 with, "Dear AT&T executives, with
12 distribution assets, Direct TV,
13 our mobility company, number one
14 principle of the Magna Carta is:
15 Recognize, Time Warner will
16 continue to distribute their
17 content widely and broadly.
18 You're now going to get exclusive
19 access to Time Warner content.
20 They've built a franchise on wide
21 and broad distribution that's
22 going to continue.
1 Time Warner, when you come
2 in, point number two, our
3 distribution businesses are going
4 to continue to distribute a wide
5 variety of content. That's what
6 the customers expect and want, a
7 hundred channels of premium
8 content, that will not change.
9 Time Warner don't expect that to
10 be premium.
11 MS. BLUMENSTEIN: So you're
12 vowing you're not going to take
13 any price advantage?
14 MR. STEPHENSON: We're
15 actually trying to bring prices
16 down, $35, you know, find that in
17 the marketplace with wireless
18 streaming, right?
19 Principle number three, and
20 this is to the AT&T board, when
21 you own a news company
22 independence is sacrosanct. You
1 must protect the independent
2 editorial privileges of that news
3 organization. And to the extent
4 your customers deem otherwise you
5 damage the brand of a CNN,
6 specifically.
7 Fourth is, Time Warner is
8 going to become the launching pad
9 for innovation. Time Warner is
10 what we're going to try to touch
11 these third rails that the
12 industry will not and has not
13 touched. It's where we're going
14 to begin to experiment and test,
15 how can you bring a la carte
16 pricing into the ecosystem? How
17 can you do that?
18 I think this is going to be
19 a really important innovation.
20 It's also the place where we'll
21 begin to develop new ad support
22 models, where you can net $35
1 price point, these content costs
2 are not going to be flat. So how
3 can we develop new ad models that
4 will allow us to keep the price
5 point in check offsetting the
6 price increases on content?
7 I think that's really,
8 really important. And then last
9 element of our Magna Carta is: We
10 are going to be a head-to-head
11 nationwide competitor with the
12 cable ecosystem.
13 And 5G deployment is a game
14 changer. We will be a new
15 competitor nationwide with 5G.
16 And so the intent is to bring Time
17 Warner and AT&T together and
18 create a very new and a very
19 different kind of competitor,
20 nationwide, in the cable
21 ecosystem.
22 So that's how we're framing
1 this, this is what we're trying to
2 become as a company.
3 MS. BLUMENSTEIN: So Jeff,
4 are you trying to right the
5 historical wrong of AOL, in part,
6 here? You have come out
7 previously against the
8 distribution coming together.
9 MR. BEWKES: No, no, no,
10 we're way past that. I've got to
11 add an example, if I could, and I
12 think it will resonate with
13 everybody here: It was about
14 seven years ago that we at Time
15 Warner we saw that the world
16 wanted to go to VOD. We already
17 had it at HBO. Richard's here, he
18 talked this morning, we had done
19 at VOD at HBO 15 or 20 years ago,
20 but we knew people wanted it on
21 every channel.
22 So we want and literally
1 unilaterally at Time Warner we put
2 all our channels out on VOD. We
3 gave a contract with no
4 negotiation, no change, any
5 distributor, large or small, could
6 take it, and what did it say? It
7 said: "You can have the right,
8 cable, telco, satellite, anybody,
9 you can have the right to have all
10 our channels on VOD, if you didn't
11 have it before, you don't pay us
12 for this, provided, really, one
13 thing, you don't charge consumers
14 for it, you don't create a package
15 where if you pay extra you get it,
16 another guy doesn't pay he doesn't
17 get it, it's got to be go -- got
18 to go to everybody."
19 And we also said: "You
20 can't tie your broadband service
21 to your video service, because
22 anybody that's got a video
1 service, anybody who's paid for"
2 -- which we all know 80 percent,
3 90 percent of the people have paid
4 for CNN, Fox News, et cetera, you
5 get it, what happened? Seven
6 years ago.
7 So we waited, year after
8 year we've talked about this, the
9 old media business, the other
10 media companies, the distributors,
11 they didn't offer this to
12 consumers, even though it was
13 sitting there for no charge. Why
14 not? Because the old distribution
15 company they -- some of them did,
16 we can go through who did it
17 better than others, but basically
18 they didn't want to make the plan
19 investments in what you have to do
20 to provide that, they didn't have
21 either the skill or the scale to
22 do the interfaces, which everybody
1 out here knows so well is
2 important when you have more and
3 more volume of programming you
4 need a better interface to find it
5 and recommend it and share it, et
6 cetera.
7 So that was on the
8 distributor side. But then you look
9 at the other network companies, they
10 didn't offer it, either. Why not?
11 They were waiting for years for this
12 renewal negotiation or that renewal
13 negotiation. That's not how you
14 change consumer behavior.
15 What you want, and we wanted
16 this seven years ago, we want you to
17 go to your TV dial or your tablet or
18 your mobile device and you should be
19 able to get any network on that, on
20 demand, because the originators of the
21 program, whether it's NBC or TNT, or
22 HBO, we paid for the program. You
1 paid for it, you ought to have it,
2 there's no cost to doing it on DOD.
3 So now we come to this
4 stitch, we've made some progress,
5 there, but you all know what did it
6 force consumers to do in this interim
7 period? They all had to go out and
8 pay extra money to get library SVOD
9 services, for the very same
10 programming that should have been
11 available on VOD all along.
12 So we would say, and we've
13 been saying this since 1995, every
14 channel in the country, every network
15 should look like HBO or Netflix.
16 There's no reason it can't.
17 And now we have a
18 distribution platform where we can,
19 together, put out a launching pad of
20 services. And do we want it to be
21 just our channels? No. We want it to
22 be all the most important channels,
1 just this way I've described just now.
2 MS. BLUMENSTEIN: A question
3 for both of you: How much of this
4 is offense and how much is
5 defense? I mean, Randall, your
6 core business wireless subscribers
7 are down, ATT subscribers are
8 down, I mean, is this, in a sense,
9 almost to vet the company deal?
10 MR. STEPHENSON: I don't
11 know how you characterize it, vet
12 the company deal, when you buy an
13 asset like this that is EPS
14 accretive, cash flow accretive,
15 enhances dividend coverages, keep
16 credit metrics that are credit
17 quality, talk great credit
18 quality.
19 So I don't see how you can
20 characterize that as defensive.
21 It's just something where you have
22 customers, you have a known demand
1 that customers have, this isn't
2 one of those that you have to do a
3 lot of guessing and swing for the
4 fences and hope for the best.
5 We know what the customers
6 want. It's really, really
7 obvious. They want premium
8 content in a mobile environment.
9 We have had a really difficult
10 time getting that put together.
11 It's been really hard.
12 This is a way where we can
13 actually begin to move much, much
14 faster at bringing bundled premium
15 content over a mobile environment
16 to our customer. It's no more
17 complicated than that.
18 MS. BLUMENSTEIN: Regulators
19 and politicians have come up to me
20 against the deal. Donald Trump
21 has said he would nix it, and
22 actually went further and said
1 that he would try to do -- undo
2 Comcast NBC Universal. Tim Kaine
3 has said he has concerns that it
4 would raise consumer prices.
5 And there seems to be a
6 growing sense at the Department of
7 Justice and the FCC about this
8 state of mega deals and true
9 antitrust concerns.
10 What is -- what is your
11 response, are you surprised by
12 this?
13 MR. STEPHENSON: Not
14 surprised. They're uninformed
15 comments.
16 ...(APPLAUSE)...
17 MR. STEPHENSON: Anybody --
18 anybody who characterizes this as
19 a means to raise prices is
20 ignoring the basic premise of what
21 we're trying do here.
22 Again, a $35 product we
1 bring into the market to innovate
2 on and find new ways of bringing
3 content to customers, that's not a
4 medium for raising prices.
5 Also, vertical integrations
6 are rarely a means for raising
7 prices. You're not changing the
8 market structure in any way,
9 shape, or form. You're not
10 changing the broadband market,
11 you're not changing the wireless
12 market.
13 When we wake up, after this
14 deal is approved, the wireless
15 market will look exactly the same
16 as it does today and the media
17 market will look the same as it
18 does today.
19 So this is not -- this is
20 not a combination that typically,
21 you know, gains that kind of
22 horizontal type merger scrutiny,
1 in fact, it's really important to
2 know it is a, by every technical
3 definition, a vertical merger
4 integration. And vertical merger
5 integrations are historically
6 approved.
7 Now, it doesn't mean they're
8 approved carte blanche. Regulators
9 will have some concerns with this, I'm
10 quite confident they will. Those
11 concerns are invariably remedied with
12 conditions.
13 So we anticipate there will
14 be a good, fulsome review and
15 discussion about this.
16 MR. BEWKES: You know, we
17 ought to talk about advertising,
18 because if you're looking into
19 competition this is going to be
20 extremely helpful to increase
21 competition in advertising. And I
22 think, since we are west of the
1 mountains, at least where I live,
2 we all need more competition in
3 advertising because what we've
4 been seeing is growing
5 concentration to a duopoly and
6 digital enabled advertising.
7 MS. BLUMENSTEIN: You're
8 talking Facebook and Google?
9 MR. BEWKES: Yes, I am. And
10 I hope some of you -- I know that
11 the Google and Facebook people,
12 because we work with them and know
13 them well, there's one thing they
14 love and that's innovation and
15 competition. And we are here to
16 help. We are. We're going to
17 bring more of that, and that's
18 good not only for -- that's
19 basically a very good development
20 for all media companies, because
21 when you create the ability to
22 have the same kind of digitally
1 powered advertising you get so
2 many benefits, you know,
3 competition always helps
4 consumers, and it gives
5 advertisers better choices.
6 But it, most important,
7 allows the consumer experience
8 watching video to have more
9 relevant ads, less intrusive and
10 interruptive ads. Therefore,
11 they're more valuable. Therefore,
12 more of the burden of cost of
13 content goes to advertising rather
14 than to people.
15 Again, more competition,
16 lower prices, better for consumers.
17 MS. BLUMENSTEIN: Randall,
18 explain how these less intrusive
19 ads are going to work, because
20 they seem a bit intrusive, I have
21 to say. You're going to be able
22 to target homes? You're going to
1 be able to pretty much know what
2 people are watching and then use
3 that data to --
4 MR. BEWKES: I think we
5 should get the Google and Facebook
6 people come up.
7 MS. BLUMENSTEIN: The last
8 question is in a bit.
9 MR. STEPHENSON: How that
10 works? So we have in the market
11 today an addressable advertising
12 platform. And we do have some
13 unique viewership data on our
14 platform. You know, we have the
15 largest video distribution
16 platform in US right now. So we
17 have some unique viewership data.
18 We anonymized that data. We
19 would never say, Rebecca, send
20 Rebecca an ad. But there are, you
21 know, 25, 50 Rebeccas out there
22 who have a certain viewership
1 pattern. And that viewership
2 pattern informs what type of
3 advertising that individual would
4 find interesting and relevant to
5 them, and so literally begin to
6 direct and address advertising to
7 a segment of the market that has a
8 known viewing pattern or
9 discernible viewing pattern.
10 MS. BLUMENSTEIN: And you
11 think this will allow you to
12 compete better with Facebook and
13 Google, specifically.
14 MR. STEPHENSON: I think it
15 will allow us to do a lot of
16 things, specifically provide
17 advertising that's more relevant
18 to the user. I think that's
19 really, really important, and I
20 think also it will allow us to
21 defray the content cost ensuing,
22 because content costs, in spite of
1 what people write about this
2 industry, they're not going down.
3 The content costs continue to
4 escalate.
5 And if we really want to
6 keep that retail price point in
7 check and keep 20 million homes
8 that are not on the system from
9 growing dramatically over time we
10 have to find ways to keep those
11 prices down.
12 MS. BLUMENSTEIN: Jeff, I
13 can't let you off the hook too
14 quickly about the regulators.
15 There seems to be a sense that
16 maybe they erred in not attaching
17 enough conditions to the Comcast
18 merger. And that's something that
19 there's a sense out there that
20 that's something that's going to
21 hurt this merger.
22 What's your view of this?
1 MR. BEWKES: I'm not an
2 expert in that merger. I think,
3 if I understand this, and I may be
4 not exactly right, the reporting,
5 at that time, much of the
6 condition on what they thought --
7 what NBC or the content-side
8 should should do in terms of
9 making content available, that may
10 be as much on what the distributor
11 should do, I'm not sure about
12 that.
13 Do you know?
14 MR. STEPHENSON: Yeah, they
15 actually -- well, the
16 distributors, they were going
17 after two things. They were
18 trying to remedy the vertical
19 integration. There were two
20 concerns they had, that neutrality
21 was a big one, there is.
22 MR. BEWKES: Yeah.
1 MR. STEPHENSON: And so they
2 put conditions all over that thing
3 to ensure that they preserved the
4 principals of that neutrality.
5 And the second was they wanted to
6 protect the introduction of
7 over-the-top content players.
8 And so net neutrality, you
9 guys from Google, you won, right?
10 It's done. We don't have to worry
11 about that one, anymore. The
12 boogieman's gone, he's in a box,
13 you won't have to worry about that
14 neutrality anymore.
15 As it relates to OTT, Jeff
16 and I have talked and we've
17 concluded that Netflix is probably
18 going to be okay now. They might
19 make it. We don't think it's
20 necessary to protect the OTT guys
21 that much anymore.
22 So the two issues that were
1 really relevant and critical six
2 years ago are largely they're kind
3 of matured and they've aged and
4 they're kind of not as relevant
5 now.
6 MR. BEWKES: If you don't
7 take it from us, Reed was here
8 last month and he said he was
9 fine.
10 MR. STEPHENSON: He said he
11 was fine as long as the broadband
12 connection was the same for him as
13 for everybody else, and that's net
14 neutrality, that's what net
15 neutrality is.
16 MS. BLUMENSTEIN: In the
17 options market this morning placed
18 a 29 percent chance of this deal
19 going through. Are the markets
20 just pessimistic?
21 MR. BEWKES: Obviously we
22 think so or else would we still be
1 sitting here?
2 MR. STEPHENSON: I think the
3 markets are too pessimistic. I
4 wish I could buy Time Warner stock
5 in advance, I would probably buy
6 some. I feel pretty good about --
7 about this deal. Once it gets
8 into the hands of the regulators
9 the filings are done, the
10 professionals, who actually do
11 these things for a living, get
12 into it, I think the data and the
13 law will dictate how this deal was
14 handled.
15 MS. BLUMENSTEIN: You made a
16 call that didn't go so well with
17 T-Mobile. Does this -- I mean,
18 would you say that --
19 MR. STEPHENSON: You're just
20 bringing all kinds of pleasant
21 issues up, aren't you?
22 MS. BLUMENSTEIN: It's my
1 job.
2 MR. STEPHENSON: Let's go
3 back to AOL. Let's go back to
4 AOL, okay?
5 (Laughter)
6 MS. BLUMENSTEIN: Would you
7 say the regulatory risk of this
8 deal, you talked about it, I guess
9 it came together quickly, but for
10 a couple of months was that the
11 biggest call you had to make, is
12 your lawyer the person who this
13 came down to, is this something
14 that you would say is a close
15 call?
16 MR. STEPHENSON: Look, this
17 is not T-Mobile close. T-Mobile
18 was a classic horizontal merger.
19 We actually thought, based on the
20 way the DOJ had defined the market
21 in multiple transaction, before,
22 that even that horizontal merger
1 would be good, but that was -- we
2 knew, going in, that one was a
3 high-risk deal, that's why they
4 had such a breakup deal because
5 the company was requiring high
6 risk.
7 So we knew going in that
8 that one had a lot of risk around
9 it, because it was a classic
10 horizontal merger. You were
11 taking a competitor, a nationwide
12 competitor, out of the
13 marketplace.
14 Recognize, this one, you
15 can't even compare the two. This
16 is, once again, a vertical merger.
17 No -- no competitive environment
18 is changing, in the least, here.
19 The media competitive environment
20 is not changing, the Telecom
21 market is not changing.
22 MS. BLUMENSTEIN: I want to
1 talk a bit about how the deal came
2 together. Apparently, you both
3 had lunch and you brought it up to
4 Jeff. You were a bit surprised.
5 You both come from very different
6 cultures and companies and, Jeff,
7 I guess the question is to you, I
8 mean, obviously 20th Century Fox
9 tried to -- tried to buy you a
10 couple years ago and you said no.
11 What -- what was different
12 when Randall asked?
13 MR. BEWKES: Well, what we
14 were -- you know, time got us on,
15 first of all. Secondly, the Fox,
16 Time Warner or any kind of media
17 horizontal, that's a horizontal
18 merger, it has not only different
19 issues, including regulatory ones
20 involved in it, it also, because
21 of that, doesn't provide the kind
22 of resource and capabilities
1 changes either to Fox or to us
2 that something like this would.
3 So I think the difference,
4 now, is -- and you could do this
5 in light of our Time Warner Cable
6 spin, as well, seven/eight years
7 ago, what you have now, we all
8 know this, and it's, you know, I'm
9 -- for me, saying it to all of
10 you, you're out here living in the
11 digital world, very cleanly, you
12 got the distribution platforms or
13 the distribution pipes becoming
14 not dumb, smarter all the time.
15 And so everything needs to
16 be seamless across the in-home
17 television, the mobile device
18 going out the house, you got to
19 have that, we all know you have to
20 have much better curation,
21 navigation, recommendation, easy
22 ability to find things, because
1 with that you need full view ID of
2 broadband enables you to have, and
3 all of that in the evolution of
4 the distribution platform means
5 that there's much more ability to
6 customize off for us, either what
7 you offer to subscribe to, what
8 product, individually, you might
9 want to look at, because there's
10 more and more of it all the time,
11 how the advertising works to
12 support it, which is no longer
13 point to mass, you know, you buy a
14 30 and a -- you know, for five
15 million people watching something
16 when some advertisers can do it
17 for the advertiser for particular
18 people that are interested in that
19 product.
20 So with all of those changes
21 what we all needed in the media
22 business, and I think it's true of
1 all media network companies, is we
2 need the distribution industry to
3 be more capable in bringing those
4 benefits to network TV and even
5 movie releases and all of that,
6 and that's what AT&T offers, that
7 huge scale of direct selling
8 platform, direct customer
9 relationships, consumer data about
10 what people want, for both content
11 origination and delivery, and also
12 for advertising support, all
13 better for consumers, you all know
14 that, that's what occurs at
15 Google, Facebook, YouTube,
16 Netflix, et cetera.
17 So that's what the advantage
18 of this is, that time has come.
19 Now, that doesn't mean that every
20 media network company needs to be
21 co-owned and operated with
22 distribution plants, because if
1 you have this kind of change in
2 the distribution ecosystem what we
3 think is going to happen, and
4 Randall said at the beginning, we
5 don't want network packages that
6 are reduced to our networks and
7 not -- there's people that are
8 interested in T&T are interested
9 in FX. They tend to like those
10 shows. If they like HBO they like
11 Netflix and Showtime.
12 So we want the right
13 packages for consumers. And we
14 think what this will do is cause
15 adoption of other network
16 companies to do what we've tried
17 to do, we didn't get followed in
18 terms of consumer benefits as much
19 as we'd hoped, and it will have
20 the other distribution platforms
21 make the same innovations because
22 if they don't the consumers are
1 the ones who are in charge of all
2 this, and they're going to get
3 what they want.
4 And if the media business,
5 with its distribution, doesn't
6 give it then they are going to get
7 it through the next industry.
8 And, you know, that's the, quote,
9 tech industry also very helpful in
10 terms of the innovations that
11 they've brought to this, but we
12 all know they're all coming
13 together. I mean, that's why
14 we're doing it.
15 MS. BLUMENSTEIN: Randall,
16 before we go to questions I just
17 have to ask you about culture and
18 some execution. You have come up
19 from your very working days to a
20 phone company. You have
21 installers, and you have calling
22 centers, and Time Warner is a very
1 different culture.
2 MR. BEWKES: We have a call
3 center. We have a call center.
4 MS. BLUMENSTEIN: How are
5 you -- how are you -- I mean, Time
6 Warner's creative, are you going
7 to be committed to keeping it a
8 separate unit? You're -- you're
9 not going to interfere with calls
10 and Game of Thrones and CNN?
11 You're going to --
12 MR. STEPHENSON: He does
13 want to do the casting on Game of
14 Thrones. He told me that.
15 JEFF; I know Richard's
16 here, this is going to be a little
17 awkward. We have a guy that runs
18 the network that I think would be
19 great at running HBO. And so I
20 think --
21 MS. BLUMENSTEIN: You mean
22 the phone network, then?
1 MR. STEPHENSON: No, look, I
2 understand, I'll be the first to
3 tell you, I've never run a movie
4 studio. I don't know the first
5 thing about it, and I've never run
6 a premium content delivery
7 company, like HBO. I don't know
8 the first thing about it.
9 And so we will be conscious
10 and thoughtful about how we
11 organize this, and the way it will
12 be organized is Time Warner will
13 be a wholly-owned, separate
14 subsidiary of AT&T, that's just --
15 that's how we'll structure it, and
16 we'll have the experts that know
17 how to run these businesses
18 running these businesses.
19 We'll have to figure out the
20 management art and even the
21 management science on how to
22 affect these issues that we're
1 talking about, how do we allow our
2 viewership data to begin to
3 influence content creation,
4 Richard? And how do we begin to
5 use that data on content that has
6 been created? How do we direct it
7 and promote it to the right
8 audiences and so forth? How do we
9 use that data to begin to inform
10 and actually affect the
11 advertising avails that are within
12 the Turner Network?
13 I mean, there's so many
14 advertising avails in there that
15 as we get really good and targeted
16 at addressable advertising we
17 think we can change the yield on
18 advertising within Turner
19 Networks.
20 And so there's going to be a
21 management challenge on how do you
22 affect that, right? And how do
1 you put mechanisms in place to
2 cause that to happen.
3 I feel really confident
4 that's a logistical -- we've done
5 harder logistical issues than
6 that, before, with difficult
7 organizational challenges.
8 So I -- look, I know there
9 are different cultures and we'll
10 be protective of the cultures to
11 ensure we don't destroy the
12 business. But I am not that
13 concerned that we can't manage
14 through it.
15 MS. BLUMENSTEIN: And I
16 think you're heading over to the
17 movie studio, after this, I
18 understand?
19 MR. STEPHENSON: That's
20 right. I'm going to unbutton my
21 shirt, like Richards, over there.
22 MS. BLUMENSTEIN: I would
1 like to open it up to questions,
2 if there are any. I see one right
3 here in the front. There's a mic.
4 Please identify yourself.
5 MR. SANDS: Hi, my name is
6 Christian Sands, I'm the strategy
7 of Sky Catch. I think the
8 strategy is sound, very simple,
9 very smart, premium content for
10 mobile, excellent.
11 What is Time Warner and AT&T
12 going to do to amplify their
13 infrastructure or to get to more
14 homes more places?
15 MR. STEPHENSON: So I'll
16 take that, Jeff. You can add on.
17 But look, one of the
18 fundamental underpinnings of this
19 deal, the reasons I can get so
20 enthusiastic about it, this is
21 three, five years downstream, but
22 we are in an all-out push of
1 getting the standard set around
2 5G, around getting the vendor
3 community going on 5G.
4 Where our software defined
5 networking technology is ramping
6 and is scaling, which is critical
7 for scaling content delivery at
8 the level we're talking about
9 doing here, when 5G is up and
10 deployed it becomes a nationwide
11 platform of video delivery,
12 period. Hear me on this. This is
13 a one gig network capability --
14 MS. BLUMENSTEIN: When is
15 that?
16 MR. STEPHENSON: -- that is
17 wireless and mobile.
18 What is that?
19 MS. BLUMENSTEIN: When is 5G
20 up?
21 MR. STEPHENSON: We'll be
22 deploying in 2018. And they'll
1 scale, probably, in the 2019, 2020
2 time horizon. But this is
3 exciting, all right? And it's
4 exciting for content, it's
5 exciting for video delivery, but
6 it's exciting for autonomous
7 cards.
8 The guys at Zooks need 5G to
9 get autonomous cars on the roads
10 in San Francisco by 2020. It's
11 really important. Virtual
12 reality, you guys working on
13 virtual reality and augmented
14 reality, you need this for that,
15 you guys working on health care
16 applications, and so forth, you
17 need 5G, low latency, really fast
18 networks with high capacity,
19 that's -- I got to tell you,
20 that's one of the reasons I get
21 most enthusiastic about what we're
22 trying to put together here.
1 MS. BLUMENSTEIN: Any other
2 questions? Right in the back,
3 there.
4 >> (Inaudible) Now, would
5 there be an alternative to see how
6 direct TV, you wouldn't
7 necessarily need a satellite dish,
8 you would actually get the
9 content. And now you, Sterling,
10 spoke about offering $35 over 100
11 channels, it's really exciting to
12 see the portfolio of apps that you
13 have, now, bringing in HBO Go, HBO
14 Now, how do you actually look at
15 the portfolio of apps, because you
16 have so many ways to distribute
17 the content, and how will that
18 affect, certainly, pricing
19 packages as well as the
20 distribution across cities and the
21 way consumers connect as to
22 content?
1 MR. STEPHENSON: Okay, it's
2 a good question, because -- look,
3 I -- for a long time there are
4 going to be households, like many
5 of you in this room, where you
6 need three 80-inch screens in your
7 house, streaming 4K, you know,
8 into your home. You're a heavy
9 video centric, sport centric
10 content consumer, and multiple
11 streams, satellite delivery is
12 going to be the vehicle for that,
13 for a long, long time, all right?
14 I -- just for that kind of
15 distribution it's going to be hard
16 the amounts of bandwidth, okay?
17 You start working down,
18 there's going to be different
19 segments of the market you deliver
20 that content differently, okay? I
21 do believe, you know, in the
22 future, that one of the
1 pre-premium means for delivering
2 content will be with out set top
3 boxes, be web, all right? As the
4 web continues to get integrations
5 go down, that starts to get really
6 exciting, because take it to its
7 extreme, Direct TV Now, $35.
8 How do you get to a $35
9 price point with the prices these
10 guys charge for content, right?
11 The way you get there is you don't
12 have a satellite dish on a hooked
13 roof, you don't have a technician
14 going out and spending four hours
15 to install it, you don't have a 5,
16 6, 7 hundred dollar set top box.
17 You go to the web, you
18 download an app, you subscribe and
19 you're streaming Direct TV Now and
20 all of the content that these guys
21 provide.
22 That's a radical concept,
1 right? That's how costs come down
2 dramatically and that's how you
3 hit a $35 price point in the
4 marketplace.
5 So it's going to be a wide
6 range of offerings, some wireless
7 only, some satellite, some in
8 between.
9 MS. BLUMENSTEIN: Jeff, how
10 do you feel about getting back
11 into the cable business?
12 MR. BEWKES: It's great.
13 We've been working with and trying
14 to evolve the cable and all the
15 other distribution businesses for
16 30 years. So we are always on
17 that game. We're always trying to
18 do that.
19 MS. BLUMENSTEIN: So you're
20 serious about forming a competitor
21 to cable, a nationwide competitor
22 to cable?
1 MR. STEPHENSON: I can't
2 tell you -- I border on
3 evangelical about it, all right?
4 MR. BEWKES: You can hear
5 that.
6 MR. STEPHENSON: This is the
7 most exciting thing I've been a
8 part of in a long time and I can't
9 wait.
10 MS. BLUMENSTEIN: More
11 questions? This is my friend,
12 Oren. Here comes the mic.
13 OREN: Thank you, Oren
14 Michaels, from Cloudery.
15 Twenty years ago next year
16 David Eisenberg wrote The Rise of
17 the Stupid Network. He was an
18 employee of AT&T and was fired for
19 writing it, very impressions, and
20 Warren begins content company,
21 essentially, at the time, twisting
22 themselves into pretzels to
1 optimize for the parent company's
2 network quality independence, were
3 more nimble and able to take
4 whatever network they wanted.
5 Most of the people in this
6 room are now moving to the cloud,
7 where we're getting out of the
8 business of owning our own atoms
9 and dealing with our bits.
10 Why are you guys, through --
11 going in the exact opposite
12 direction when everybody seems to
13 want to not own the hardware if
14 they're -- if they're creating the
15 -- the value on top?
16 MR. STEPHENSON: You go
17 ahead.
18 MR. BEWKES: So your premise
19 or his seems to be that at that
20 time the content companies he was
21 looking at were changing either
22 what they did or where they put it
1 in order to serve whoever their
2 vertical, that was it.
3 OREN: The network area has
4 limitations federally in
5 distribution.
6 MR. BEWKES: Yeah, well, I
7 think the difference with that,
8 because that would be bad for the
9 content, whether it was the Fox
10 content or ours, what -- what --
11 you know, one owned or one not.
12 The problem now, and if you
13 go and look at -- and I'm sure
14 many of you in internet-based
15 companies tried to do this, when
16 you innovate with media rights you
17 encounter the fact that media
18 rights are pretty complicated in
19 video because there are Windows
20 and there's all these things that
21 you've all seen, that's why it's
22 been hard to innovate in media
1 because it's kind of difficult to
2 get an innovation in and then have
3 it get applied essentially
4 universally, across an entire
5 suite of networks, or to break up
6 network groupings and so forth.
7 I don't think that is what
8 we're looking at, here. We're
9 certainly not, in our case, and
10 you've said it and I've said it,
11 we both know this, we would never,
12 in our media business at Time
13 Warner, and we have never did,
14 including in the AOL days,
15 restrict or change what we're
16 doing in either the innovation of
17 our distribution for our content,
18 how our content works, the form of
19 the content, we always wanted to
20 be maximally delivered by every
21 kind of distribution.
22 What this is about is
1 catalyzing that, not restricting
2 it, it would be idiotic to
3 restrict it.
4 MR. STEPHENSON: And to
5 perhaps challenge the fundamental
6 premise of your statement, that as
7 you begin to push more and more
8 content to the cloud that it
9 requires less and less in terms of
10 smartness, if you will, out of the
11 network, it's the opposite, in
12 fact, we're experiencing just the
13 opposite.
14 The more you guys push more
15 and more into the cloud the more
16 it's requiring greater and greater
17 intelligence out of the network.
18 And one could argue, wow,
19 shouldn't you be commoditizing the
20 network the more you get into the
21 cloud? No. The more companies
22 that are putting mission critical
1 capabilities into the cloud the
2 more it scares the hell out of
3 them on security, the more it
4 worries them about quality of
5 service, all right?
6 You just run some of these
7 mission critical applications over
8 the open internet you're not going
9 to like it.
10 We have a product, and
11 you'll see it as it relates to
12 what we're going to be doing here
13 together, called Net Bond. It was
14 created and invented and patented
15 just for this purpose, because
16 people want to put stuff in the
17 Amazon cloud, mission critical
18 information, applications, compute
19 and so forth, they say, but I'm
20 scared to death of it, I need
21 security.
22 And so we have created Net
1 Bond and we have bonded every
2 major cloud provider, Amazon,
3 Microsoft, Azure, salesforce.com,
4 I can go on and on and on, to
5 ensure that our customers, when
6 they take a smart phone out of
7 their pocket and go to access an
8 application or data in the cloud
9 it never touches the public
10 internet, that is their number one
11 requirement.
12 That's what this product is,
13 it is exploding. Connections of
14 Net Bond are up 4X this year. The
15 traffic over Net Bond, connections
16 are up 4X, the traffic is up 8X,
17 that tells you how much people are
18 concentrating mission critical
19 applications.
20 We go to 5G and we -- that
21 -- our Direct TV Now is a
22 cloud-based platform for
1 delivering content, all right?
2 You can't just do that over the
3 open internet. There have to be
4 elements of it that you control
5 end-to-end, the CEN has to be on
6 your control.
7 There's a sophistication in
8 delivering this, and a true what I
9 would call cable-like experience.
10 And so I would suggest to you the
11 more you push elements into the
12 cloud the more sophisticated and
13 smart the networking elements have
14 to become.
15 MS. BLUMENSTEIN: Well,
16 unfortunately we're out of time.
17 Thank you both so much for coming,
18 it's a fascinating topic.
19 MR. STEPHENSON: Thank you
20 very much.
21 MR. BEWKES: Thank you.
22 Appreciate it.
1 (Concluded at 2:27 p.m.)
Cautionary Language Concerning Forward-Looking Statements
Information set forth in this communication, including financial estimates and statements as to the expected timing, completion and effects of the proposed merger between AT&T and Time Warner, constitute forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the rules, regulations and releases of the Securities and Exchange Commission. These forward-looking statements are subject to risks and uncertainties, and actual results might differ materially from those discussed in, or implied by, the forward-looking statements. Such forward-looking statements include, but are not limited to, statements about the benefits of the merger, including future financial and operating results, the combined company's plans, objectives, expectations and intentions, and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of the management of AT&T and Time Warner and are subject to significant risks and uncertainties outside of our control.
Among the risks and uncertainties that could cause actual results to differ from those described in the forward-looking statements are the following: (1) the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, (2) the risk that Time Warner stockholders may not adopt the merger agreement, (3) the risk that the necessary regulatory approvals may not be obtained or may be obtained subject to conditions that are not anticipated, (4) risks that any of the closing conditions to the proposed merger may not be satisfied in a timely manner, (5) risks related to disruption of management time from ongoing business operations due to the proposed merger, (6) failure to realize the benefits expected from the proposed merger and (7) the effect of the announcement of the proposed merger on the ability of Time Warner and AT&T to retain customers and retain and hire key personnel and maintain relationships with their suppliers, and on their operating results and businesses generally. Discussions of additional risks and uncertainties are and will be contained in AT&T's and Time Warner's filings with the Securities and Exchange Commission. Neither AT&T nor Time Warner is under any obligation, and each expressly disclaim any obligation, to update, alter, or otherwise revise any forward-looking statements, whether written or oral, that may be made from time to time, whether as a result of new information, future events, or otherwise. Persons reading this communication are cautioned not to place undue reliance on these forward-looking statements which speak only as of the date hereof.
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Additional Information and Where to Find It
In connection with the proposed merger, AT&T intends to file a registration statement on Form S-4, containing a proxy statement/prospectus with the Securities and Exchange Commission ("SEC"). AT&T and Time Warner will make the proxy statement/prospectus available to their respective stockholders and AT&T and Time Warner will file other documents regarding the proposed merger with the SEC. This communication is not intended to be, and is not, a substitute for such filings or for any other document that AT&T or Time Warner may file with the SEC in connection with the proposed merger. STOCKHOLDERS OF TIME WARNER ARE URGED TO READ ALL RELEVANT DOCUMENTS FILED WITH THE SEC, INCLUDING THE REGISTRATION STATEMENT AND THE PROXY STATEMENT/PROSPECTUS CAREFULLY WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AT&T, TIME WARNER AND THE PROPOSED MERGER. Investors and security holders will be able to obtain copies of the proxy statement/prospectus as well as other filings containing information about AT&T and Time Warner once they become available, without charge, at the SEC's website, http://www.sec.gov. Copies of documents filed with the SEC by AT&T will be made available free of charge on AT&T's investor relations website at http://phx.corporate-ir.net/phoenix.zhtml?c=113088&p=irol-sec. Copies of documents filed with the SEC by Time Warner will be made available free of charge on Time Warner's investor relations website at http://ir.timewarner.com/phoenix.zhtml?c=70972&p=irol-sec.
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AT&T, Time Warner and certain of their respective directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies from the holders of Time Warner common stock in respect to the proposed merger. Information about the directors and executive officers of AT&T is set forth in the proxy statement for AT&T's 2016 Annual Meeting of Stockholders, which was filed with the SEC on March 11, 2016. Information about the directors and executive officers of Time Warner is set forth in the proxy statement for Time Warner's 2016 Annual Meeting of Stockholders, which was filed with the SEC on May 19, 2016. Investors may obtain additional information regarding the interest of such participants by reading the proxy statement/prospectus regarding the proposed merger when it becomes available and other relevant materials filed with the SEC. These documents will be available free of charge from the sources indicated above.