Just exactly how much of a programmatic advertising powerhouse would the $85 billion AT&T Time Warner combination be? I see great potential, but a lot of roadblocks.
AT&T executives have hinted at a glowing programmatic future, in a variety of forums.
“They [Time Warner] really do not know how much time their customers spend watching their products beyond what Nielsen tells them,” John Stankey, CEO of AT&T’s Entertainment Group, said at the AT&T Town Hall Meeting last week, according to the New York Post’s report. “But with AT&T’s data, the two companies could ‘close the loop’ and know what the customer did after they saw [a particular] ad,” he pointed out, adding that the combination of the two companies would “crank up the yield on ads ‘40 times.’”
In announcing the deal, the two companies stated: “Owning content will help AT&T innovate on new advertising options, which, combined with subscriptions, will help pay for the cost of content creation. This two-sided business model — advertising- and subscription-based — gives customers the largest amount of premium content at the best value.”
Sounds impressive … but not so fast, guys. As a telephone company and the nation’s largest cable company, AT&T has major restrictions imposed on it by the Federal Communications Commission, regulating what they can do with data from their Internet Service Provider (ISP) operation, their cable modem service.
“The FCC says they can’t use ISP information, so they lose any advantage there — which means they’re no different than any other company,” comments a highly placed executive.
Let’s drill down on that. On October 27, the FCC voted 3-2 to limit the commercial use of subscriber data by ISPs. Specifically, if AT&T Time Warner wanted to use a lot of this data, it would have to ask first. Those pieces of information that an ISP cannot share — unless the customer explicitly grants permission — includes financial information, health information, precise geo-location information (as from your phone’s GPS), Social Security numbers, information relating to children, Web-browsing history, app-usage history, and the content of communications.
Precisely the data Google and Facebook use to dominate over 80% of the online ad business.
Now, tell Google they can’t use any of that without asking permission and you have a wounded Google. But nobody is telling Google they can’t use it, just ISPs. Supposedly, AT&T and its competitors could come up with a “pay for privacy plan” that would allow the ISPs to offer discounts to consumers who let them use their data. The FCC hasn’t ruled that out yet. But compared to what Google and Facebook can do, this seems pretty restrictive.
Who’s The Monopoly Now?
But the FCC is not crazy. They moved to restrict ISP’s use of data because of the more-or-less involuntary nature of your connection to your cable company. For years, before companies like DirecTV and Verizon got into wiring your entertainment choices, cable pretty much had a monopoly, and rewarding that monopoly with allowing aggressive advertising use of customer data doesn’t seem right. One could argue, however, that cable ISPs no longer have a monopoly. You don’t need cable if you have Roku or Apple TV, and DirecTV, Verizon and other alternatives do exist. One could argue also that Google is a monopoly now — in that they totally dominate search, to the exclusion of most others. Maybe more of a monopoly than AT&T.
The combined companies will face a major culture clash, though AT&T seems to want to attain some, if not all, of the current crop of execs. Speculation continues on what role, if any, former News Corp. president Peter Chernin might play in the new conglomerate. He apparently played a Mike Ovitz-style role in getting the two companies together.
If Time Warner thought AOL was a handful, wait until they start dealing with AT&T on a corporate basis. A little history is useful here. I was part of a joint Internet venture between long distance phone company MCI and Rupert Murdoch’s News Corp. back in the ’90s. I was a director of MCI. When I joined, they handed me a thick book. At first, I thought it was a directory of MCI employees. When I looked closer, I realized it was a directory of locations. Some 800 pages of them.
The scale of MCI then was not something I had ever dealt with before. Later, I was involved with attempting to get MCI and News Corp. on the same page as far as content was concerned. The MCI guys were located in suburban D.C. I flew down there in 1996 with News Corp.’s Anthea Disney, the formidable, British-born former editor of TV Guide and Self magazines.
What ensued was pretty disastrous as a succession of MCI personnel, who had very little experience in the world of entertainment, presented their ideas on music and movies and whatnot to the former editor of TV Guide. Suffice it to say, Disney was not pleased with the people she was supposed to be working with. The whole thing blew up pretty soon after, and that in itself is another story.
I remember calling on AT&T in Basking Ridge, N.J. in the ’90s, when I was a consultant. What I still carry with me is 1) the huge scale of the building and 2) the complete absence of any sign of AT&T presence in the little town of Basking Ridge itself, less than a mile away. One had the feeling that nobody from AT&T went there, that the world of a telephone conglomerate was totally self-contained.
That is a very different culture from media and entertainment, which is heavily collaborative and, hopefully, creative.
But then, a French water company has owned movie-studio conglomerate Universal. A Japanese electronics firm bought Columbia. Germans bought RCA Records, which was part of the former Record Corporation of America. Maybe AT&T Time Warner can work out somehow. Still, a lot of angry voices are predicting the deal will never be consummated, not least that of Leo Hindery, Jr., who once headed the very TCI cable systems that AT&T owns now. In a video interview with Investopedia, Hindery warned that regulators might attempt to scotch any vertical integration that AT&T and Time Warner could achieve.
That’s the ostensible reason for the deal in the first place. Add to that those pesky FCC regulations, and you have a host of issues facing this projected combo.