AT&T’s tinkering with HBO’s winning formula is puzzling

Is it possible to put a value on something as nebulous as creativity? AT&T had a stab at it in the autumn of 2016 when it struck a $85bn deal to buy Time Warner — a deal that cleared its final hurdle last week when the telecoms giant prevailed in court over an attempt by the US government to block it.

For its $85bn, AT&T gets a collection of businesses that specialise in creativity, from the Warner Brothers movie studio to the Turner collection of cable television networks. But the jewel in the Time Warner portfolio is HBO, the producer of revered shows such as The Sopranos, The Wire, Big Little Lies and Game of Thrones.

HBO has for decades set the standard for creative risk-taking in television. It has won countless Emmys for programmes that challenge, surprise and entertain and generated vast profits for Time Warner with an ebitda margin that has exceeded 30 per cent. All of which makes AT&T’s tinkering with its winning formula rather puzzling. 

Richard Plepler, HBO’s chief executive — and the architect of its recent successes — announced he was stepping down last week, apparently in response to a series of changes behind the scenes by AT&T and a loss of autonomy. The telecoms group has reorganised Warner Media, as it now calls the Time Warner businesses, into new divisions, merging functions such as technology, production and accounting. HBO will continue to exist as a standalone brand but the company will now be overseen by Bob Greenblatt, a former NBC Entertainment chief executive, who will also be in charge of Warner Media cable networks such as TNT and TBS. 

On the surface this makes sense. AT&T paid a big premium for Time Warner, borrowing heavily to finance the purchase: its debt pile is eye watering and currently stands at more than $175bn. It needs to find savings from the Time Warner deal and is committed to using the content and production capability it has acquired to power new direct-to-consumer streaming services that, it hopes, will be a driver of future profits. With this in mind, structural changes within the Time Warner-owned companies were always going to happen. 

And yet in allowing such a key executive to leave, AT&T risks damaging the very thing that made HBO such an attractive asset in the first place: its ability to continue making hits. After all, series such as Game of Thrones do not happen by accident. They are big bets, the result of a carefully tended company culture that has allowed creativity and risk-taking to flourish. Mr Plepler once told the FT that talent was allowed to “stretch” at HBO with writers and producers such as Lena Dunham and Armando Iannucci given as much freedom as they needed, while dissenters were encouraged to speak freely. “Everyone can say what’s on their mind and once we make a choice, everyone is behind it,” he said of this work environment, adding: “Culture eats strategy for breakfast.”

Pixar, the animation group that has released hit after hit, also places great store in the idea of a culture that allows creativity to thrive and dissent to be expressed, to the extent that it allows its designers to create their own workspaces — anything to get their creative juices flowing. When the FT visited the company’s Emeryville headquarters five years ago, one pair of animators had built a workspace that resembled the wreckage of a 1930s-style plane that has crashed in a jungle. “Pixar has this policy — ask for forgiveness, not for permission,” one of them told the FT at the time. 

Mr Plepler’s departure does not mean HBO is abandoning an ethos that has served it so well. Casey Bloys, the company’s programming chief, is sticking around and has told colleagues he was encouraged after meeting Mr Greenblatt.

But the departure of a chief executive who stitched the company’s creative culture together sends a big signal that HBO is changing. The premium brand now sits alongside lesser cable networks owned by Warner Media, such as TNT and TBS, which have neither its reputation nor its creative pedigree.

AT&T will need to take care that this week’s restructuring does not eventually tarnish a business that was the crown jewel in the Time Warner portfolio. It would also be wise to remember one of the cardinal rules of business — one that applies as much to a creative entity such as HBO as to a widget maker or telecoms provider: if it ain’t broke, don’t fix it.