AT&T’s plans to acquire satellite and pay TV provider DirecTV for an estimated sum of $49 billion, revealed Sunday, gives the carrier more reach – but it also could help the carrier scale its addressable TV initiatives.
“AT&T and DirecTV combined will have a massive base of customers to market to, and that is a powerful combination for advertisers,” said Jan Dawson, chief analyst for independent technology research and advisory firm Jackdaw Research. “The combination of national reach and deep penetration in certain regions of the country is also somewhat unique” to advertisers.
Specifically, the DirecTV acquisition will give AT&T “a more traditional triple play inside its footprint, utilizing DirecTV where U-Verse doesn’t make sense to provide the TV element of the bundle, [such as the] … ability to sell DirecTV services to AT&T wireless customers outside of AT&T's wireline footprint,"he noted.
In addition to North American markets, DirecTV has 18 million subscribers in Latin America, which when combined with exploding mobile penetration rates, could be quite attractive to the traditionally domestic telco.
AT&T CEO Randall Stephenson said during an investor’s call Monday morning that Brazil in particular is a viable growth opportunity for AT&T, as the region is underpenetrated and programming costs are lower. Stephenson also alluded to “very robust video offerings” to come in the next 12-18 months that could leverage DirecTV’s content strengths.
The deal “gives us the opportunity to redefine the video entertainment space for mobile [and to] deliver content cross-device, [whether that’s’ connected cars, laptops, phones and the ability to develop new over-the-top (OTT) services,” Stephenson said. “Video across all screens will be table stakes. Video is a key growth driver for the entire industry.”
Cross-screen video also presents greater opportunities to sell addressable TV ads, a seeming focus for the carrier’s AdWorks division since last fall when AT&T scrapped plans to develop an online and mobile ad network. Competitors like Millennial Media and Google had already moved into the space, the Wall Street Journal reported.
AT&T underscored its commitment toward addressable TV advertising during a recent Advanced Advertising summit in New York City, when Chris Monteferrante, VP of national sales for AT&T AdWorks spoke about its audience targeting product TV Blueprint. The product is designed to find television audiences for advertisers via predictive models developed by AT&T’s data science division AT&T Labs.
Although the execution of addressable TV ad buys – at scale and at the household level – is still in its infancy, AT&T AdWorks claimed a campaign it ran on behalf of a major automotive company combining TV Blueprint data with in-commercial overlays and iTV improved target CPMs by 33%.
AT&T’s TV Blueprint has set-top box data on about 15 million devices, and although the merger with DirecTV could feasibly layer in data on some 20 million subscribers, according to one source with knowledge of the pay TV industry, “this doesn’t substantially impact the scale of addressable.”
Although AT&T has examples of early successes with its TV targeting product, like many of its competitors, these are more one-off exceptions than a widespread rule at present.
But, as campaigns increasingly become more interconnected cross-device, AT&T might argue that the deal is setting the stage infrastructurally for future placements. To put it simply, the deal connects more pipes between the mobile carrier and TV and video content. “From our perspective, this is a unique combination,” Michael White, CEO of DirecTV said on the investor call. “If you look at mobile, the future has a lot of video. But to have video, you need the rights [to content] at a competitive cost.”
AT&T’s Stephenson sees huge potential on the carrier side. “The next six years will be about delivering video over [mobile, and broadband] networks. That was the key rationale in our mind.”
In terms of next steps, "AT&T needs to get national fast, especially if Comcast-Time Warner goes through," commented Jim Nail, principal analyst at Forrester Research. "Right now they get national distribution with with satellite, plus the cash to build out their network with an extra 15 million homes passed in the next four years. No doubt they will migrate people from satellite to broadband TV as fast as they can … my take on all this beyond the basic business reasons -- the real driver is changing consumer behavior."