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7 May 2020

AT&T latest tier 1 to overhaul ad tech, folding Xandr into WarnerMedia

AT&T has accelerated the deliquescence of its advertising unit Xandr into WarnerMedia following last week’s concerning first quarter earnings. Unifying Xandr with WarnerMedia has been on the cards for months, as a strategy to harmonize operations and grow the technology’s powerful audience targeting potential to increase the value of ad slots. Ultimately though, lockdowns have prompted AT&T to patch over cracks before the situation intensifies.

The new combined business will fuse all go-to-market and commercial efforts, with an eye towards innovating new advertising formats for HBO Max in 2021. If it wasn’t abundantly obvious before, then the crisis has emphasized how important HBO Max will be in AT&T’s future video business, paired with the advancement of its fiber and 5G network infrastructure.

For Xandr as a brand, its journey was a real flash in the pan. Named in homage to AT&T founder Alexander Graham Bell, the business arm was only formed in September 2018, housing, AppNexus and AdWorks. As well as powering AT&T’s own addressable ads, Xandr also has deals at Altice USA and Frontier Communications for addressable ad inventory aggregation.

WarnerMedia CRO and President, Gerhard Zeiler, described the merger as producing “one holistic conversation that spans premium content and trusted environments, alongside proven and advanced ad capabilities.”

But just like Comcast and Verizon, AT&T is another on the list of major US operators rapidly transforming advertising technologies and marketing strategies at a blistering pace. Of all the markets we cover, ad tech is arguably the hardest to keep track of.

As a quick reminder of the changing face of tier 1 ad tech, Comcast’s Spotlight cable advertising unit rebranded as Effectv back in Q4, to stress its new-look addressable approach. The name change is about moving away from traditional ad spot sales to a data-driven ecosystem for advertising clients serving cable TV. Similarly, Verizon’s Oath operations capitulated in late 2018, after the company’s share of digital ad revenues continued to wither on the vine.

Xandr’s global marketplace is designed to streamline the process of finding audiences across screens for buyers, while driving performance with increased safeguards, transparency and better measurement – also working with partners like Comscore for addressable advertising measurement.

The idea behind combining Xandr with WarnerMedia (besides the obvious strategy of internal cost savings), is also about scalability. Over 60 million US households can now be served addressable ads over traditional cable and satellite TV networks, but the next question has then been what proportion of current TV ad inventory is available for addressable advertising, which was about 13% as of Q4 2019, according to Xandr. Clearly, as addressable advertising takes off, that figure will rise rapidly as more ads are made with that in mind.

Xandr will continue to offer advanced media and technology solutions, including addressable video, and a premium advertising marketplace powered by the Xandr Invest platform for buyers and the Xandr Monetize platform for sellers.

Both WarnerMedia and Xandr business units were impacted by the evaporation of live sports and knock-on effect on advertising budgets in the first quarter. Xandr’s operating revenues fell by 19.4% to $489 million in Q1, with EBITDA down 25.8% to $319 million. WarnerMedia, meanwhile, was hurt by lower advertising revenues and lower costs from sports rights during the quarter. AT&T executives warned last week that this crunch was set to continue, due to content production being placed on hiatus and theatrical releases postponed.