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What Is AT&T Seeking to Achieve with WarnerMedia Shakeup?

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AT&T reorganizes WarnerMedia unit

AT&T (T) recently reorganized its WarnerMedia division in a move that seems to be aimed at cutting costs and allowing for more investments in products that can drive more rapid growth in the business. The changes announced at WarnerMedia affect the division’s operating model and leadership structure, as some top executives are heading out.

According to a Reuters report citing international communications, a need to cut costs seems to be at the center of the WarnerMedia reorganization. “At a time when we must shift our investment focus to develop more content for specific and demanding audiences on emerging platforms, we can’t sustain a model where we invest one dollar more than necessary in the administrative aspects of running our business,” Reuters quoted WarnerMedia CEO John Sankey as saying in a memo.

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Expenses rose to nearly $42 billion at AT&T

AT&T’s operating costs and expenses rose to $41.8 billion in the fourth quarter from $40.4 billion a year earlier. Verizon (VZ) and Sprint (S) also reported increases in operating expenses in the fourth quarter to $33.6 billion and $8.1 billion, respectively.

Responding to cord-cutting

AT&T is expected to reinvest financial savings from the WarnerMedia reorganization in its digital media business. AT&T already runs two digital video streaming services and is planning to launch a third one under its WarnerMedia unit in the coming months. Walt Disney (DIS) and Comcast (CMCSA), other victims of cord-cutting, also are gearing up to launch their own video streaming services. Disney’s Netflix-like video service called Disney Plus is expected to launch in the coming months.

According to eMarketer estimates, cord-cutters in the United States reached 33 million people in 2018 and will top 55 million people by the end of 2022. Amid the ongoing loss of satellite and cable television customers because of cord-cutting, AT&T seems to be betting on video streaming services to turn around its media fortunes.

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