Targeting people with individualized TV commercials using cable or satellite boxes has been promoted as the future of television for at least a decade. But the business, known as addressable TV advertising, has remained on the fringes, usually limited to two minutes of local commercial time an hour on cable shows.
Now, AT&T and Time Warner are pointing to targeted advertising as a major benefit of their proposed $85 billion merger. Jeffrey L. Bewkes, the chief executive of Time Warner, and Randall L. Stephenson, AT&T’s chief executive, highlighted the vast trove of consumer data their combined companies would have in a call with investors on Monday, and its usefulness for both marketers and consumers.
Viewers, with new subscription options, could enjoy fewer interruptions and see ads for “the products you’re interested in, not the ones you don’t need to see,” Mr. Bewkes said. National advertisers would presumably pay more to reach them and have an alternative to spending on Google and Facebook.
Targeted advertising has become commonplace on streaming services like Hulu or platforms like YouTube, where, for example, women in their 20s may see ads for birth control, pregnancy tests or certain movie trailers. Advertisers hope things could potentially move even beyond that on TV, with people seeing ads based on, for instance, their location or individual interests, much like what happens on the internet. Still, skepticism over whether the AT&T-Time Warner merger will normalize the practice for traditional TV is rife within the ad industry.
“As to the question of whether this is a new route for advertising and another opportunity for targeted addressable TV advertising, the answer is it’s going to take a significant period of time,” said Martin Sorrell, chief executive of the advertising giant WPP, pointing to the risks around regulation and combining the two companies. “It’s possible, but implementing it is not going to be easy.”
Tailored advertising is a generally accepted part of the internet experience — consumers see it daily on Facebook or through banner ads, where it has become common for a specific shirt or bag placed in an online shopping cart to haunt a person for weeks, even after it has been purchased. But traditional TV has largely continued to advertise in broad swaths, showing ads to demographics like 18- to 49-year-old men.
Rishad Tobaccowala, chief strategist for the Publicis Groupe, questioned whether new targeting capabilities could improve the health of the TV ad business over all, pointing to this season’s reduction in commercials on “Saturday Night Live” and the drop in ratings for National Football League games.
“The reality of it is, we’re moving into a world where consumers are turning against advertising,” Mr. Tobaccowala said.
Stephen B. Burke, chief executive of NBCUniversal, speaking on Comcast’s earnings call on Wednesday, said that the TV group has been working to developing advanced advertising products but that the process was difficult.
“But it’s clear what advertisers want,” he said. “They want to combine the data intensity of internet advertising with the clear value and ability to change peoples’ perceptions that you get with a television ad.”
Others see great potential for advertising in the merger, which would marry AT&T’s more than 100 million subscribers across its wireless, broadband and DirecTV properties, with Time Warner’s offerings, which include CNN, TBS, Cartoon Network, the website Bleacher Report, HBO and Warner Bros. Pictures. On Tuesday at WSJD, a technology conference organized by The Wall Street Journal, Mr. Stephenson said that, starting next month, the company would offer a 100-channel internet-based premium television service that would cost $35 a month and allow people to watch video on their mobile phones and other devices.
Rob Norman, chief digital officer of WPP’s GroupM, a major media investment group, said the success of targeted advertising would hinge on cost. He offered the example of a home improvement business advertising grass seed in places like Arizona and Montana, which have significantly different climates. That advertising could be further tailored for whether viewers lived in a condominium versus a suburban home with a lawn, he said.
“If you believe in a future where the very, very fine targeting of households or individuals with specific messaging makes economic sense to do at scale, what this merger does is enable that by making more audience available to target in that way,” Mr. Norman said. “The question will be: What is the premium for addressability for that level of targeting that the advertiser is willing to pay?”
Even as DirecTV, purchased by AT&T for nearly $50 billion last year, and others have sought to improve targeting and analytics on cable in recent years, it has remained a “relatively patchwork” operation that is often time-consuming and inefficient, said Tim Hanlon, founder and chief executive of the Vertere Group, a media consulting firm. “It’s probably the last major medium to undergo digitization and sophistication to target audiences in a refined kind of way.”
The biggest change is that television “has evolved to being more fluid and digital-like,” as it appears on devices like phones and tablets and streams through accessories like Roku and Apple TV, Mr. Hanlon said.
“This is clearly one of the significant envisioned benefits of this tie-up, which is the next generation of video advertising in a much more robust, targetable and data-rich manner,” Mr. Hanlon said. “It’s almost as if the realm of digital advertising has been a dress rehearsal for the medium of television, which is now essentially getting ready for its full-fledged digital transformation.”
Dave Morgan, the founder and chief executive of Simulmedia, which works with advertisers on targeted TV ads, said a combined AT&T and Time Warner could narrow the average price gap between cable ads and more expensive digital video ads by establishing a uniquely “high degree of coordination” between a distributor, programmer and sales systems for digital and traditional video.
“I don’t think it’s going to be a magic silver bullet, but I do think a combination like this is going to accelerate better, more data-driven TV ads,” Mr. Morgan said. Outside of targeting, he said, that could also mean frequency capping, so that people do not see the same ads over and over again, better retargeting and improved measurement.
Mr. Sorrell predicted, “All of this is going to happen, but it’s a question of how long it’s going to take.”
AT&T AdWorks, the company’s advertising division, said it did not use its mobile location and other mobile data for products out of that unit. The company declined to say whether that would change.
Mr. Stephenson said in Monday’s call that the combined company planned to use “robust viewership insights” from its television, mobile and broadband subscribers to advise what content it created, tailored to where and when certain demographics watched. Those insights will also “expand the market for addressable advertising,” he said, describing it as “far more effective and more valuable both to the advertisers and to our customer.”
Jeffrey Chester, the executive director for the Center for Digital Democracy, a consumer advocacy group, said the deal made it clear that the “initial era of big data driven television is here.”
“The people who benefit here aside from AT&T shareholders are the big brands and advertisers across the country that are going to have a more effective vehicle for continually targeting consumers with interactive advertising and services,” he said. “Television, instead of the boob tube, is going to be ‘I know you’ tube.”