VZ Verizon Communications Inc

By Jack Nicas, Jack Marshall and Suzanne Vranica 

AT&T Inc., Verizon Communications Inc. on Wednesday joined a growing number of companies pulling much of their advertising from Google, expanding a controversy over the internet giant's ad placements on objectionable content and deepening the financial impact on the company even after it announced measures to assuage concerns.

The new moves by advertisers amplify a problem for Google that had been centered in the U.K., and suggests the Alphabet Inc. unit is finding it harder than expected to quell the backlash. The crisis has created an opening for some advertisers to press Google for long-sought changes, while highlighting its complicated relationship with some of its customers. AT&T and Verizon, for example, in addition to being big advertisers, are building online video and ad services to compete with Google.

The two wireless carriers and pharmaceutical company GlaxoSmithKline PLC suspended advertising spending on Google except for search, encompassing all ads on Google's YouTube site and the more than two million third-party websites in Google's advertising network. Johnson & Johnson and rental-car firm Enterprise Holdings Inc. said they were canceling advertising on YouTube. Distiller Beam Suntory Inc. said it also canceled some advertising with Google.

The companies said the suspensions were in response to evidence that Google placed their ads on extremist YouTube videos.

"We are deeply concerned that our ads may have appeared alongside YouTube content promoting terrorism and hate," AT&T said in a statement, adding that its move would last "until Google can ensure this won't happen again." AT&T declined to disclose how much it spends on YouTube, but a person familiar with the matter said AT&T is among the video site's top customers.

On Tuesday, Google unveiled changes to its policies and enforcement designed to keep ads away from controversial sites and videos, after brands such as the British newspaper the Guardian, HSBC Holdings PLC and L'Oréal SA reduced their ad dollars within the past week.

Verizon said in a statement that it is working with digital-ad partners "to understand the weak links so we can prevent this from happening in the future." Verizon's suspension applies to all so-called programmatic advertising, which uses software to automatically place ads across the web. Such advertising includes ads on YouTube and Google's network of third-party sites.

A Google spokeswoman said it is working on measures "to further safeguard our advertisers' brands." She declined to comment on specific companies.

For Google, the world's largest advertising platform, the uproar has spiraled from a public-relations issue into a crisis that some analysts say could hit its bottom line. Serving ads on third-party websites brought in revenue of $15.6 billion last year, or 17.3% of Alphabet's overall revenue. Alphabet doesn't disclose YouTube's revenue, but has signaled it has been a major driver of growth in recent quarters. The controversy hasn't touched the company's main moneymaker, ads atop search results.

"This probably gets worse before it gets better for Google," said Brian Wieser, Pivotal Research Group analyst, who downgraded Alphabet's stock to hold from buy on Monday because of advertisers' reactiony.

Google's recent policy changes "did nothing to alleviate concerns."

The advertising backlash began in the U.K. following a report in the Times of London about videos made by supporters of terrorist groups. Subsequently, it was found that many American brands continued to be shown alongside controversial clips, prompting the wave of ad cancellations Wednesday.

Some of the loudest voices stoking Google's controversy are companies with axes to grind with the tech giant: telecom companies that view themselves as rivals of Google in online advertising, publishers and media companies that have watched Google suck up ad dollars, and marketers that do battle regularly with Google and see a chance in the crisis to push for changes.

"We've been talking about brand safety for 20 years. It's not a new phenomenon," said David Cohen, president of Interpublic Group of Cos Inc. ad-buying group Magna Global in North America. "In a world where so much content is being produced, it's really difficult and challenging to come up with a 100% solution. That said, we have had a couple conversations with Google over the past couple of days. We're exerting pressure to do more."

In the past several days, executives at the biggest media-buying agencies have been fielding calls from marketers eager to find out more about whether their own ads have landed in foul places, not just in the U.K. but world-wide.

Meanwhile, a global beverage company has pulled most of its ad spending from Google, outside of search, in 30 countries including the U.S., according to a person familiar with the situation. In a few smaller markets, the beverage giant will continue to buy inventory from "Google Preferred," which are top YouTube channels that Google markets as some of the site's most brand-friendly content, the person said.

Agency executives have been in talks with Google to press for more details on the new tools it will provide. Industry executives have long called on Google to give them greater control over where their ads appear, and more visibility into its ad systems. But they feel the high-profile nature of the current flare-up gives them a strong change to make that case.

Mr. Cohen said Interpublic is asking for more specifics about the brand-safety measures Google said it would implement, and that it wants Google to be more accessible to third-party companies that verify the safety of web-ad inventory on behalf of brands.

Havas SA, the world's sixth-largest ad-agency holding company by revenue, last week pulled ads for its clients in the U.K. off Google properties. Yannick Bollore, Havas's chief executive, said the ad firm is working with some marketers to explore if they should be removing ads everywhere in the world, not just in the U.K. "Right now it is only discussions. I will know more in a couple of days," he said.

As for why Havas hasn't already suspended advertising on Google properties in other countries, Mr. Yannick said, "we had proof that it happened in the U.K., and I haven't received any proof that it happened in other markets."

Verizon has built up an online advertising business with the acquisition of AOL in 2015 and has struck a deal to acquire Yahoo Inc.'s core business. The combination would give Verizon roughly 2% of the global digital advertising market in 2016, according to eMarketer.

Like Google, AOL sells advertising that is automatically distributed to third-party sites. AT&T, meanwhile, is positioning itself as a budding competitor to Google as an advertising platform, pitching its proposed merger with Time Warner Inc. as a defense against Google's growing power in the industry.

"Advertisers need more competition," Time Warner CEO Jeff Bewkes said on an October conference call with analysts. "This will give another outlet, not just the Google and Facebook one that's been gaining all the traction."

--Ryan Knutson, Drew FitzGerald and Alexandra Bruell contributed to this article.

Write to Jack Nicas at jack.nicas@wsj.com, Jack Marshall at Jack.Marshall@wsj.com and Suzanne Vranica at suzanne.vranica@wsj.com

(END) Dow Jones Newswires

March 22, 2017 20:07 ET (00:07 GMT)

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