Will AT&T Become A Force To Reckon With In The Ad Market?

AT&T (NYSE:T) could play a much bigger role in the advertising space after closing its merger with media behemoth Time Warner. With the deal, the company could be in a relatively unique position in the advertising space, considering its massive ad inventory from its TV channels, its large customer data sets, and control over distribution channels that span pay TV, broadband and wireless. In this note, we take a look at how AT&T’s ad business could be transformed following the deal.

We have created an interactive dashboard analysis which outlines our expectations for AT&T (standalone) over 2018.

AT&T’s Ad Inventory Grows Manifold

AT&T’s interest in the advertising space has been growing since it became the largest pay-TV provider in the United States following its 2015 acquisition of DirecTV. However, with the Time Warner deal, the scale of the company’s ad business could grow considerably. Per the Wall Street Journal, AT&T had about two minutes of ad space per TV hour on DirecTV. However, Time Warner’s Turner cable channels will give the company about 14 minutes per hour. More importantly, AT&T could allow advertisers to spend its ad dollars in a more effective manner considering its control over the entire content and distribution value chain.

Addressable Advertising

With addressable advertising technology, TV channels can play different advertisements in different households while they are watching the same program, allowing marketers to target specific groups of customers based on demographic and other attributes. AT&T could become a formidable player in this space, on account of its vast distribution network, which includes 25 million pay TV subscribers across its DirecTV and U-Verse brands and 130 million+ wireless subscribers. The company also has rich customer data sets, which include demographic and location data and potentially information on users’ content consumption and usage habits.  Besides improved targeting, AT&T’s multi-screen (TV, mobile) platform could also help the company better coordinate ad capabilities across different screens. While the addressable TV advertising market is currently fairly small (it was projected to stand at just $890 million in 2017, or just 1.3% of U.S. television advertising spend), its share of the mix is likely to accelerate.

Exploring Ad-Supported Business Models

These targeted ads could be much more lucrative for AT&T. For instance, the cost per thousand impressions for targeted ads can come in at upwards of $60, compared to an average of $10 for national ads. This could allow the company to explore different business models for its core businesses, including ad-supported models that shift some of the costs of content creation from customers to advertisers. The company recently indicated that it would launch a new ad-supported skinny bundle dubbed AT&T Watch TV, next week, featuring content from Turner networks. AT&T also noted that it intends to acquire a few smaller companies to support its Advertising and Analytics unit in the coming weeks as it looks to build up its ad business.

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