AABA Altaba Inc

By Mike Shields 

Since acquiring AOL a year ago, Verizon Communications has made a lot of noise in the advertising industry, talking openly about building a digital ad company that can take on the titans, Google and Facebook.

Meanwhile, what is rival AT&T's plan for advertising? Ad buyers say it isn't so clear, though they point out the wireless company's vast potential.

AT&T, fresh off the $49 billion acquisition of DirecTV last year, has been quietly putting together the pieces to potentially become one of the few outlets that can offer marketers the ability to precisely target people on all of their digital devices.

Some top digital ad buyers said they questioned AT&T's interest in the ad business after the company i n late 2013 reduced staff in its AT&T AdWorks advertising division and pulled the plug on a digital ad network and a mobile ad network -- both of which used the vast pools of data culled from its 130 million wireless subscribers. Since then, some of those ad buyers say they have barely heard from AT&T, let alone funneled much business the company's way.

Despite those cutbacks a few years ago, AT&T has spent the past year focused on beefing up its targeted TV and video advertising, capitalizing on the addition of satellite TV operator DirecTV. AT&T AdWorks now has annualized revenues of more than $1 billion, according to AT&T. And the company says that's just the start of its major ambitions in advertising.

"We are fully committed to the advertising business," said Rick Welday, president of AdWorks. "It's been declared a strategic priority by our top leadership."

AT&T AdWorks boasts of being able to sell linear TV ads in 25 million homes using data culled from its own viewership patterns. It also sells addressable ads -- which target specific households, such as people who may be shopping for a car -- in 13 million homes, thanks to the combined footprints of DirecTV and AT&T's other pay-TV service, U-verse.

The DirecTV deal was a "game-changer for us," said Mr. Welday. "And now we want to take our ad offering across screens. That all is coming together in a way that we are excited about playing a leading role."

Besides TV ads, AT&T is running videos ads on thousands of mobile apps on 285 million devices through a partnership with the mobile ad browser giant Opera Mediaworks. AT&T also sells video ads for several of its web video sister companies, including Fullscreen and Crunchyroll, as well as DirecTV's own mobile app. Fullscreen, a multichannel network, and animation-focused streaming service Crunchyroll are both part of Otter Media, AT&T's joint venture with the Chernin Group.

Starting in the fourth quarter, AT&T says it will also introduce three different over-the-top video services, which will create more ad space for it to sell targeting advertising. The three services will offer different tiers of content -- one will be ad-supported and free, while the highest-priced tier will include much of what is available on DirecTV.

The addressable TV ad sector is still a relatively small world, with eMarketer predicting it will hit $890 million this year, less than 2% of the U.S. ad market. Its size may perhaps explain why some buyers haven't heard from AT&T in a while, adding to the mystery surrounding its ambitions.

Maria Mandel Dunsche, head of marketing at AdWorks, acknowledged there is "lot of confusion in the marketplace" about AT&T's plans. "The biggest challenge is focus. We are really focused on TV and video advertising, specifically on audience targeting."

That targeting doesn't currently leverage AT&T's wireless subscriber data, a markedly different approach from Verizon's strategy since it acquired AOL last year. One of the central motivations touted for the AOL purchase was the combination of the two companies' data -- such as what websites they visit, where they live, what apps they frequent -- for advertising purposes.

Instead, AT&T has partnered with Opera Mediaworks to derive data for its mobile ad targeting program. "Frankly there is still a lot to be worked out from a privacy perspective" for companies like AT&T, said Ms. Mandel Dunsche. "You can do more cutting-edge things with third parties."

That reluctance to exploit its rich set of consumer data has fueled some skepticism in the marketplace about whether AT&T truly has the appetite to become a big ad player.

Questions about the scope of AT&T's advertising ambitions are even more pertinent amid Yahoo's sale of its core email, advertising and media businesses.

The New York Times reported that final bids for Yahoo are due Monday, listing AT&T as a bidder alongside Verizon, private-equity firms and Quicken Loans co-founder Dan Gilbert. AT&T declined to comment on Yahoo.

Bryan Wiener, chairman at the ad agency 360i, said he sees the potential in a Yahoo deal, simply because Yahoo would provide AT&T with an instant advertising infrastructure and a large sales force.

"If you are AT&T, you have to figure they want to be more than just a dumb pipe," he said. "And they are incredibly well situated when it comes to data. Yahoo would give them scale, relationships and institutional knowledge on how to get advertising to work, all of which AT&T does not have."

Regardless of what happens with Yahoo, Mike Bologna, president of Modi Media, a specialized TV ad buying division within GroupM, gives AT&T high marks for its efforts on addressable TV advertising.

"They are a big company, and it takes a long time to make decisions in their pipeline," he said. "But their ad product is very strong. I think they are all in and serious."

Write to Mike Shields at mike.shields@wsj.com

(END) Dow Jones Newswires

July 15, 2016 13:39 ET (17:39 GMT)

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