AT&T and Verizon’s goal to revolutionize advertising looks doomed
- AT&T and Verizon have spent billions to buy media and tech companies to restart their businesses and change the way advertising is sold, but are far from having realized that strategy.
- Verizon has since written down the value of its media properties while AT&T is now reportedly selling parts of its business that were core to its ambitions.
- Meanwhile, neither has dented Facebook and Google’s dominance of digital advertising.
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A few years ago, AT&T laid out in grandiose terms its plan to reinvent the way all of TV advertising was sold, taking on Facebook and Google in the process and perhaps craziest, making ads people don’t hate.
“The modern media company [has] everything to do with the combination of content, distribution, data and technology,” Brian Lesser, an ad agency vet who was brought on to carry out this plan, explained in 2018. “AT&T alone has the components to solve this problem.”
The mantra was, bigger was better. The idea was that by melding data, distribution, and content, AT&T could juice its slowing core wireless business, because there are only so many phone services people can sign up for, and take on Facebook and Google’s dominance of digital advertising.
In short order, AT&T acquired DirecTV for $48.5 billion, Time Warner for $84.5 billion, and digital ad company AppNexus for $1.6 billion.
Lesser has since left AT&T, and AT&T is reportedly hanging a for-sale sign on assets outside its core telco business, including its digital ad business Xandr and streaming service Crunchyroll. Without a digital ad business, can a sale of WarnerMedia (with the exception of subscription-driven HBO) be far behind?
Verizon, which pursued a similar playbook, buying media companies like Yahoo and AOL, has written down the value of its media properties and abandoned its streaming video service Go90. Tim Armstrong, who championed this vision at Verizon, has left.
Neither has dented Facebook and Google’s dominance of digital advertising.
Depending on who you ask, the whole strategy was fraught with execution missteps, the victim of bad timing, flawed from the get-go, or all of the above.
On the execution part, no one would expect slamming together disparate businesses with wildly different cultures would be easy.
Insiders at DirecTV said the company was damaged under AT&T. Top leadership at Time Warner, now WarnerMedia, is all gone. Xandr had challenges plugging AT&T data into advertising and getting TV ad buyers and rivals to buy into its idea to create a single industry marketplace for addressable TV, which means every household gets zapped an ad tailored to them.
No one saw the pandemic coming, which sped up cord-cutting
All those deals also saddled AT&T with a ton of debt, and it ultimately faced a showdown with activist investor Elliott Management. It ended with AT&T agreeing to improve its profits and not make any more big acquisitions like WarnerMedia.
“It’s a good idea that faces a tremendous amount of operational challenges,” said Ana Milicevic, principal and cofounder at Sparrow Advisers. “Till then, they were saying to advertisers, ‘We’re going to have an ad powerhouse, it’s going to be built on telco, and with AppNexus at center of that.’ Elliott made them have that reckoning as to whether they were in the ad and media business as well as the telco business.”
Meanwhile, consumer habits were changing faster than expected. People were already abandoning cable TV for streaming services, but the pace sped up when the pandemic hit. AT&T entered the race with HBO Max in May, but it’s just one of several new ones, from NBCU’s Peacock to Disney+ that’s competing for viewers.
And with the pandemic speeding up e-commerce, advertisers became more interested in running ads meant to lead directly to sales, which hurt traditional media companies.
Suddenly Verizon’s and AT&T’s new media businesses didn’t look so valuable anymore. Investors are increasingly interested in media businesses that can make money from users in different ways, like commerce and subscriptions.
Meanwhile, Amazon was charging ahead building its own advertising business. It’s now the third biggest player behind Facebook in Google for digital ad spending, approaching 10% of the market.
Verizon is a distant fifth, with 3%, and AT&T doesn’t even crack the top five.
As big as the telcos are, they couldn’t match Google and Facebook
As for the core premise that they could take on Google and Facebook by building walled gardens of their own, at the end of the day, Facebook and Google have made themselves essential to users and advertisers in a way that the telco companies were never able to be.
People visit Google and Facebook regularly and freely hand over their personal data to them, which the tech companies have made very easy for advertisers to use to buy and track ads.
“They’re all trying to create a version of the walled garden, but they all learned very quickly that unless you have some special consumer relationship, these businesses aren’t as lucrative as you think,” said Corey Ferengul, who has led multiple adtech deals as a buyer and seller over the years and sits on the board member of several companies. “It’s a cautionary tale.”