Making AT&W greater than the sum of its parts won’t be easy

AT&T faces a host of political and regulatory hurdles before it can acquire Time Warner but, according to analyst firm Ovum, that will be just the start of its challenges. spoke to Ed Barton, who heads up the TV and video practice at Ovum, to get a sense of why AT&T has decided to make such a huge bet on diversifying into the content game. Verizon has made similar moves with AOL and Yahoo, but at a tenth of the cost of this one, so AT&T’s risk is far greater.

Despite all the talk of using premium content to sweeten the multiplay pot, Barton still reckons advertising comprises a major part of the business rationale. The advertising opportunity is based on the combined entities’ enhanced scale across media sales, practically all key content types and multichannel distribution,” said Barton. “This means that ‘AT&W’ (not TWATT? – Ed) has access to a volume and scale of customer data – e.g. audience viewing data on TV, OTT and mobile, and customer usage data of set-top boxes, etc – to enable targeted advertising across all distribution channels via fully integrated campaigns.

“This is not dissimilar to Verizon’s strategy which builds upon AOL’s ONE multichannel advertising platform. AT&W will be able to offer advertisers single, integrated campaign buys aggregating audiences across an incredibly broad selection of media and platforms, including critically valuable primetime TV and the growing opportunities emerging in online and mobile media.

“Traditional media is using the continued importance of live TV to build market share in online, OTT video and mobile advertising where Google, Facebook and the titans of digital media currently hold sway.”

The unique appeal of premium content is, of course, a potentially very powerful and profitable asset, but for this deal to make sense AT&W would need to do more with things like Game of Thrones than Time Warner currently does on its own. How to go about that is not immediately clear.

While practically every other product or service offered by AT&W can, to a great extent, be replicated by a competitor, if someone wants to watch the latest series of Game of Thrones this is not a fungible or even vaguely substitutable product,” said Barton. “Another high fantasy epic set in a medieval milieu will not satisfy that desire any more than watching another superhero movie would satisfy someone who wants to watch the latest Batman one.

“In an entertainment universe where the avenues to the audience are rapidly proliferating, controlling the fuel driving this proliferation – content audiences want to watch – is becoming paramount. Netflix investing in original productions, Liberty Media’s acquisition of F1 and the rapidly growing levels of Chinese investment into Hollywood are all emblematic of this trend.

“While single companies may no longer be able to monopolise the route to the audience – as, arguably, pay TV service providers have in some markets – single companies can still monopolise the content licensing driving the growth of alternative routes to the audience.

“The implications are fundamental for all content owners without a stake in distribution, all distributors without a stake in content and all media companies who will have to adjust to a competitive landscape with a new behemoth competing for brand advertising dollars.

“Netflix, Disney, Viacom and the majority of pay TV service providers, particularly those offering services targeting the lower value ends of the TV market will all be looking at their strategies with new eyes this morning.”

From a content perspective AT&T can be viewed as a distributor, especially since its acquisition of DirecTV, and while there is strength in owning both content and distribution, exploiting that strength is far from straightforward. “The potential available through integrating content and distribution is more nebulous,” said Barton. “Content companies within AT&W such as HBO will still want to license their content as far and wide as possible. Companies within the group won’t start offering sweetheart deals to each other for a host of regulatory and commercial reasons.

“So what is the opportunity? As part of the same group there will be more impetus to cooperate with each other on teasing out bundled services which drive growth in non-traditional bundled products i.e. outside the conventional single, dual, triple, quad-play structures.

“There are significant moves afoot to optimise evolved bundles which resonate with younger audiences more effectively than traditional bundles which typically depend on high prices, long commitment periods and relatively high costs for TV services with large basic channel bundles keeping the cost of entry relatively high.

“AT&W has a significant opportunity to experiment with bundles given its scale and the breadth of content from ultra-premium (HBO and early window Hollywood movies) to OTT (Ellation) and fixed and mobile data networks.”

So it looks like it might all come down to evolved bundles, or to put it in telecoms language: tariff innovation. We have moved into an on-demand era for video content and there are huge potential rewards to be had from being the company consumers associate with being able to get what they want, when and where they want it. AT&T seems to be betting it can be that company, but it might find achieving that more difficult than getting Omar Little to wear a tie

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