with Mike Welch, VP of strategy, product and business development for AT&T AdWorks
While many in the rank and file of most pay-TV operations dread the closure of a huge merger, AT&T AdWorks strategy and development chief Mike Welch couldn't wait for his company to get its hands on DirecTV. "I came from the legacy AT&T side of the equation," he said. "We were so excited during the merger planning process to know that we were going to be combining with DirecTV's platform and had access to this capability. DirecTV was the lynchpin into addressability. Having two platforms combined is a great competitive advantage for us."
With the closure of the merger, AT&T AdWorks -- a division that had started out as a simple advertising sales division responsible for selling the local time on U-verse -- became a powerful force in the fast-emerging area of addressable advertising, right alongside Cablevision and Dish Network. In fact, with 26 million pay-TV set-tops deployed in the U.S., AdWorks usurps every other pay-TV company in the area of advanced ad delivery.
FierceCable recently caught up with Welch for an overview of AdWorks … and of an overall pay-TV advanced advertising business he said will soon be worth billions.
FierceCable: Would you call what you're into "programmatic advertising"?
Mike Welch: Regardless of who you ask, you're going to get a different definition of what programmatic is. Most people will say it's using data to do audience targeting at scale across multiple publishers. And a lot of times there's sort of the thinking that it's automated -- there is a machine buying and selling process. We do not have a machine buying process in the market today, although we are testing different options, and I think you'll see us play in that space in 2016 for sure. But we do have industry-leading capabilities in the audience side. And that really starts with addressable television.
It is nationwide so we can deliver a specific ad to a specific house, that's how I'm defining addressable advertising. The same commercial break on the same network, you get a different ad than your neighbor because of some data parameter that we've used.
FierceCable: How does it work? I mean, how do the dog food people know I own a dog?
Welch: The majority of our addressable campaigns today use custom list matches. So let's take an auto manufacturer. They may come to us and say, 'Here is a list of households that have auto leases expiring in the next three months. I would like to serve an ad to just those households to potentially drum up interest in a new car.'
So we match that custom list in an anonymous way through an Axiom or an Experian. We match that to our households, we find the households that match, then we deliver just that auto manufacturer's ad to just the households that match the target list. It's sort of a zero waste proposition. If you think about how TV has traditionally been bought and sold, it's all been about reach. You have to buy every household in America and you're really targeting just on Nielsen's age and gender parameters. So there's inevitably a lot of waste in the legacy solution. With addressable there's zero waste. You're only reaching homes that you want to reach.
FierceCable: Pretty cool stuff, Mike. How much is AT&T making from all this?
Welch: We don't break out our revenues, so I can't speak to that specifically. But we see the addressable business growing into a multi-billion dollar business industry-wide over the next three to five years. We're going to continue to grow our addressable base. Of our 26 million pay-TV households, 12.5 million are addressable today. We have plans to close that gap quickly. You'll see the other MVPDs start to build out their addressable capabilities. I think today there's about 30 percent of all pay-TV households that are addressable. I think that grows into the 50, 60, 70 percent range over the next five years. That will bring tremendous scale, and with that scale I think you'll see billions of dollars of budget shift in that direction.
FierceCable: Where does AdWorks fit in, in terms of AT&T's upcoming mobile video service?
Welch: We are excited about cross-screen addressability. That's our focus. As new products launch, that plays right into our cross-screen addressability. I would say AdWorks will be important. We are going to provide to brands and agencies that option to target premium video content addressable on any screen. That's our mission and that's what we're going to deliver with the various products we launch in the future.
FierceCable: You recently formed a partnership with a large mobile ad network, Opera Mediaworks. How does that fit into what you're doing?
Welch: The majority of Opera's inventory is mobile app-based. And as a result of serving ads into mobile apps, most consumers opt in to sharing their location when they use these mobile apps. So Opera has very precise mobile location data. They can tie the latitude and longitude of a device and really pinpoint what the home location of a device is. So what we've done, we can match Opera's device location with the billing address information of our addressable TV customers, and we can associate the devices that are tied to our addressable TV households. So we've run one beta campaign. And we've got two more actually running as we speak, where the targeting process I just mentioned has happened. We've identified target TV households that we are delivering addressable TV campaigns to. We are also delivering ads to the mobile devices associated with those addressable TV households. So even though the term cross-screen targeting has been around forever, and all the major players -- the Googles, the Facebooks, the Twitters, the Yahoos, AOL -- sure, they all do cross-screen targeting. What they mean by cross-screen is online and mobile. We are the first to do, at scale, cross-screen targeting with the one screen that has been sort of conspicuously absent, and that is the television screen.
FierceCable: What is TV Blueprint?
Welch: What Blueprint does is sort of fill the middle gap between addressable and broad reach advertising. We still have a product that delivers significant reach, but also benefits from data and targeting. And so, think of it this way: Let's say a client said, 'I want to reach the Game of Thrones audience.' Well, Game of Thrones is on HBO, which is not an ad-supported network. So what we would do is we would take the millions of set-top boxes that we're pulling data from. And we would analyze the viewership of the Game of Thrones audience when they're not watching Game of Thrones. And we would find the cable networks and days and the day parts that that target audience was watching most often. And then we would run a campaign only on those networks and only during those day parts. So that we are finding target audience in the programming they're watching most often. That product we would deliver across all 26 million of our pay-TV households. The combination of U-verse and DirecTV has yielded the largest pay-TV provider in the world. So that Blueprint campaign would find your target audience on the highest indexing cable networks and day parts that that audience is watching.
FierceCable: Are more operators besides AT&T, Dish and Cablevision ever going to get into addressable?
Welch: I do see every operator getting into this. I don't think the market becomes saturated. If you think of specific target audience that an advertiser wants to reach. Inevitably portions of that target audience are going to be subscribers on every operator's platform. The more the operators can build out addressability, the more demand there will be for the product. With scale comes demand.