Why AT&T Wants To Buy AppNexus
AT&T (NYSE:T) is reportedly in talks to buy digital ad exchange AppNexus for around $1.6 billion, in a move that could allow the company to make deeper inroads into the digital advertising space while augmenting its advertising technology, following its acquisition of media behemoth Time Warner. In this note, we take a look at why AT&T is interested in this space.
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Why AT&T Is Increasingly Interested In Digital Advertising
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AT&T’s interest in the advertising space has been increasing ever since it became the largest pay-TV provider in the United States following its 2015 acquisition of DirecTV. Following its acquisition of Time Warner, the company noted that it would be operating a dedicated advertising and analytics segment, indicating that it is taking its advertising ambitions much more seriously. Digital distribution is likely to be a big part of AT&T’s strategy going forward, considering its recent subscriber declines in the pay-TV business and its emphasis on its new streaming platform, DirecTV Now.
AT&T is also counting on advertising as a way to reduce prices for customers, shifting a part of the costs of content creation from customers to advertisers. AT&T is particularly interested in data-based advertising, including addressable TV ads (which play different TV ads for different households), digital ads and mobile ads. It’s possible that AppNexus, which operates one of the largest digital ad exchanges, could give the company a stronger position in this space. Unlike many ad technology companies, which only work for publishers and app developers to manage inventory, or for marketers who are looking to purchase ads, AppNexus carries out both tasks.
Competition Will Be Intense, But AT&T Might Have Some Advantages
The digital ad market is extremely competitive, with Silicon Valley giants Google and Facebook dominating the space. According to eMarketer, Google and Facebook are together projected to hold 57% of the digital ad market in the U.S. in 2018. AT&T’s wireless rival Verizon is likely to be a distant third place in this market, through its Oath subsidiary, which operates the erstwhile Yahoo and AOL brands. While AT&T will be a smaller player in this space, it could have some advantages. Firstly, the company could leverage its wireless data to better target ads. Within the digital ad market, mobile data is typically the most difficult to collect, as traditional browser cookies that advertisers use to target customers on desktops don’t universally work on mobile phones. AT&T could potentially be able to circumvent this with data from its 130 million+ wireless customers. Moreover, considering AT&T’s reach across channels including mobile and TV, it could develop a buying platform that will include multiple ad formats including TV and digital video ads.
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