AT&T CEO Randall Stephenson, talked candidly about the company’s plans for including Time Warner, at this week’s Goldman Sachs Communacopia Conference – talking about becoming an advertising superpower.
He cited the 200 billion a year advertising impressions which the existing combination of AT&T and DirecTV carry, claiming that they brought in about 3 times as much per impression as the 750 billion which Time Warner sells every year.
By using big data, the data that AT&T and DirecTV have about their customers and selling advertising mostly online and programmatically, he said he felt that all 1 trillion advertising impressions the combined companies would have post-merger, could yield a similar kind of revenue – potentially tripling the Time Warner ad revenue over time.
In AT&T Stephenson claimed that a large portion of those 200 billion impressions were already taken to market using addressable capabilities, while still admitting that AT&T was very early on in its advertising technology development.
“This value accretion comes from taking an incredibly rich trove of data that exist in these communication companies, and taking advantage of that in the media company, and this data is all centered around viewership data. And we have some amazing viewership data. When you have the largest pay TV business in the US, and you have a mobile business where people are streaming media continually on their mobile devices, then you have great data.”
He claimed that the combination has data at the device level, the location level, about what device they are watching on, and said the use case is purely advertising.
AT&T would then use this increase in revenues either to get even better data, or to drive down the cost of subscriptions like DirecTV Now, so that there was even more advertising inventory.
He used the presentation to allude to recent mishaps of Google and Facebook and suggest that AT&T has the data to ensure that every impression was brand safe – never showing adverts against inappropriate content or failing to even show the adverts that were claimed, two problems which caught those internet majors during the past quarter. Stephenson also talked about transparency throughout the process with the advertiser.
One of the recent moves carried out in August was bringing on board Brian Lesser of GroupM to head up the AT&T effort into addressable and programmatic advertising
Lesser built up Xaxis to a $1 billion business before selling out to GroupM, and is charged with maximizing the value of media investments for many of the world’s largest advertisers. He had, until recently, done this through development and support of GroupM’s leading agencies and specialist companies including Maxus, MEC, Mediacom, Mindshare, and Xaxis.
Stephenson talked about gaining as much as $10 more per subscriber in advertising and said that’s $10 of revenue you can use in the marketplace to discount to the consumer to take share and drive down churn and reminded everyone how even the smaller churn reduction yielded great financial benefits at AT&T. He also promised that Time Warner would continue to operate as a separate company after the merger.
The other thing that he hinted he could then spend these advertising dollars on is original content. HBO is already one of the biggest spenders in the world on this, though recently over taken by Netflix, and Stephenson may well pile more money into this, a trend we have seen picking up dramatically recently with both Apple and Facebook each pledging $1 billion in original content for next year.
We’re not sure he is entirely right, in that Netflix sells not a single advert and recoups all of its investment by selling subscriptions – if he tries to do that through advertising on a global basis, it may not work quite so spectacularly well as the Netflix model, because people hate ads. What he did say was that he was not interested in buying expensive sports rights – as they were one time wins, with a single shot at revenue, and he say the build-up of long term content as a more desirable aim.
“Creating a lot of great content, and then just licensing it out is probably not that interesting to us in the long run, but taking our content and distributing it broadly, and selling it to other distributors… we think is really, really important.”
Stephenson also reiterated the claim that the Time Warner deal was still on track to complete by year end and that so far the process had not thrown up “any surprises.”
Stephenson then attacked the traditional linear TV model saying that
traditional linear TV is in decline, and said that it’s not really complicated. “When the average revenue per subscribers is well over a $100 a month, it’s a price issue.” And his way of dealing with that is to have a strong negotiating position, for which he has DirecTV to thank, and to take costs out of the equation on the network side. He pointed out that the $120 a month average ARPU was a long way from his own DirecTV Now service at $30 to $60 a month.
Those who have opted out of traditional cable, he said, tend to be younger, or lower-income, and millennials and they tend to live in apartment complexes or MDUs.
We have already seen how AT&T is bringing together its new MDU broadband proposition with a cheaper content bundle and how it plans to take that to MDU tenants at a low price, with a high broadband speeds, without any satellite dish. This is critical in that the traditional customer acquisition cost of DirecTV has often been several hundred dollars to buy and install a dish.
And he said out loud what we have been saying for a while now, he wants to wean people off DTH, and deliver content over broadband. Of course it will be 20 years before he can switch off the satellite, but he won’t have those painful customer acquisition costs to deal with.
So he concluded that the main benefit of buying DirecTV was to have as stronger negotiating position with content companies.
And Stephenson had a word about cross selling between DirecTV and AT&T, suggesting that although he cannot reveal the numbers there were a lot of people going into a store to buy a phone contract who were also coming out with DirecTV Now or vice-versa.
“If you are a household and you have our wireless, there is an all-out push to make sure that you have one of our video products as well and there’s been an incredible push to make this reality since we closed DirecTV and the success we are having has been really, really good. The number of people that walk into one of our stores and add wireless service, the percentage of those that add some form of video into the household is really high.”
Which is why AT&T’s wireless churn is at record low levels, claimed Stephenson which is leading to record margins. The next step is the begin to take back market share in the wireless market, using DirecTV and potentially Time Warner and especially original content. One phone package that AT&T is planning to put out now includes HBO in the price of the package and the ability to add DirecTV Now for just $10. If AT&T gets more customers, but spends less getting them, and keeps them for longer, then the lifetime value of each customer goes significantly higher and that’s the prize that AT&T is chasing.
Finally Stephenson said that he has to deliver 1 Gbps in both fixed wireless and in wireless to the phone, and that over the next few years he would deliver it everywhere.
His final political point was that he promised he could achieve all that as long as the US government is successful in bringing down corporate taxation levels to between 20% and 25% and then he could accelerate his current capex promises, which are limited to around $22 billion a year and unlikely to be enough for all of this plans.