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Time Warner and AT&T: Could a Merger Be the Catalyst for Addressable Advertising?

November 15th, 2016   ||    by Monta Monaco Hernon   ||    No Comments

Late last month, Time Warner and AT&T announced a plan to merge in a stock/cash deal worth $85.4 billion. The resulting company would be a media powerhouse, combining AT&T’s telecom/wireless business, Time Warner’s content production, and the pay TV service of DirecTV—which AT&T acquired earlier this year.

AT&T CEO Randall Stephenson asserts that advertising will benefit from the merger, according to Dow Jones Business News. The company currently has 90 million-plus wireless subscribers; combined with DirecTV’s customers, AT&T’s network amounts to a lot of data to cull in an effort to determine where to target ads. This bodes well for programmatic platforms, which combine workflow automation with data-driven ad buys to find when, where, and how prime viewers are watching content.

Addressable Advancements

Programmatic enables advertisers to drill down through demographics to find, for instance, what content appeals to married couples in Illinois with a certain income who are in the market for a new home. Addressable advertising extends this ability further by reaching specific households or set-top boxes. In other words, different houses in the same community could be presented with different advertisements tailored to their differing preferences.

One of the constraints on addressable advertising has been that pay TV providers have been restricted to running addressable ads during the two minutes per hour of local commercial time in the cable programming they sell, Dow Jones Business News explains. But AT&T has started targeting DirecTV customers through AdWorks and says it will be able to reach 13 million households with addressable TV. The Time Warner and AT&T combo would extend addressable capability on Turner network ad space to houses served by AT&T (with the proper customer equipment).

“When you combine Time Warner’s content with our scale and distribution—we have 100 million-plus TV, mobile, and broadband subscribers—you put that with our customer insights and addressable opportunities that flow from that, we think we build something here that’s really special,” Stephenson said. Analysts, however, are skeptical over whether the deal will affect addressable TV in any “meaningful way,” Brian Wieser, a senior analyst at AdAge. “I can imagine they would try to establish some ad products…which include some bundling of VOD and addressable units into AT&T/DirecTV inventory…As a practical matter, that’s not going to be very meaningful.”

Regulatory Muster

Before any of this matters, however, the acquisition must pass regulatory scrutiny, and analyst predictions are mixed on whether the formation of a mega-corporation will pass muster and on whether the benefits will justify the cost if it does. “There is a litany of things to worry about. The deal faces a steep uphill climb in Washington, and it obviously isn’t helped by the fact that both Republicans and Democrats have now come out against it,” Craig Moffett, an analyst with MoffetNathanson, told The Wall Street Journal (WSJ).

Both Republican president-elect Donald Trump and Democratic vice presidential candidate Tim Kaine have expressed concern that approval of the transaction could place too much influence in the hands of one company and have negative implications for consumers. But Jennifer Fritzsche, a Wells Fargo analyst, also noted to WSJ that AT&T needs the Time Warner content piece to compete against the likes of Comcast and over-the-top players like Amazon.

Cable operator Comcast owns NBCUniversal, a content giant in its own right, but backed out of a deal with Time Warner Cable when it became clear the acquisition was not likely to be approved by regulators. (TWC, which recently completed a merger with Charter Communications, is a different company from the Time Warner AT&T is seeking to acquire.) AT&T argues that its combination with Time Warner mirrors Comcast/NBCUniversal, not the failed Comcast/TWC, because it’s a vertical and not a horizontal integration, meaning Time Warner and AT&T do not compete with one another. “While regulators will often times have concerns with vertical integrations, those are always remedied by conditions imposed on the merger. And so that’s how we envision this one to play out,” Stevenson said, as reported by Business Insider.

Content and Competition

AT&T will also need to keep its content relevant in an age where the tech/Internet companies of the world, including Google and Amazon, are morphing into media and telecom companies. For example, Google Fi resells T-Mobile and Sprint wireless service. Subscribers use Android phones that switch seamlessly between Wi-Fi and the carriers based on signal strength. As Wired notes, the result could be a situation where users pay a broker like Google to connect to either a national carrier or Wi-Fi, leaving less space for a traditional carrier like AT&T.

Firms like Amazon and Netflix are also making waves with original programming, and the Comcasts and AT&T’s of the world are feeling pressure to create. Time Warner comes with a plethora of movies, TV stations, and other content, but the benefits of a merger do not stem from refusing licensing rights to competitors, which Stevenson has said doesn’t even make financial sense, according to The New York Times.

Instead, AT&T will gain the ability to develop unique content. And the company says it has plans to focus on interactive programming for its mobile customers. AT&T also says it will create rather than stifle competition by building out 5G wireless capability, which will enable it to provide broadband and television service. If this proves true, future advertisers using programmatic might look back on the AT&T/Time Warner merger with gratitude.

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