AT&T and Verizon Are Making Very Different Bets on What 5G Will Mean for Consumers and Content

Next generation of wireless tech promises to make carriers more competitive with traditional TV providers

Telecom giants AT&T and Verizon are battling for supremacy. Illustration: Matthew Billington

Later this month, AT&T will cloister 300 media, advertising and entertainment executives in a Santa Barbara, Calif., resort for three days. The telecom’s leaders will present some industry research it conducted, unveil a new brand name for its advertising and analytics business, and network over cocktails.

The exclusive gathering is essentially a peace summit. Fresh off the close of deals to absorb AppNexus and Time Warner, AT&T has big plans for the ad industry. It wants to automate the buying and selling of television advertising. It wants to re-calibrate which commercials are seen by which viewers. And it wants to eventually merge sales of premium video with those of digital display and native in the same big marketplace.

All of these ambitions are in service of AT&T’s transformation into what it calls a “modern media company”—a stack of content, data, ad tech and distribution tuned to maximize their tandem value. Experts say this model could provide a promising path forward for an industry stuck in the shadow of Google and Facebook.

But in order to match that scale, AT&T needs the cooperation of some of its competitors—which, as it happens, now include most of the media and advertising industry.

“We want to be able to support this entire ecosystem,” says Kirk McDonald, AT&T’s CMO of advertising. “A duopoly has formed in digital where two companies that didn’t spend their time bickering with the rest of the ecosystem are emerging in [a leadership] position. TV and premium video feels to us to be a place to do this right, and we don’t intend to make those mistakes.”

Until recently, chief rival Verizon seemed to have similar dreams. The carrier giant had pumped a reported $1.2 billion into Hollywood to build out Go90, a mobile streaming service meant to rival Netflix and Amazon. It had just consolidated its purchases of AOL and Yahoo into a single entity with a formidable ad-tech stack.

But Go90 effectively flamed out in less than a year, and rumors are starting to swirl that Oath is underperforming expectations. With a new technical-minded CEO at the helm (the company’s former chief technology officer, Hans Vestberg), Verizon wants nothing to do with owning more content shops. It now plans to remain in a position where it can partner with as many different content providers as possible, and sees managing another big media company as a potential albatross in that pursuit. It still adamantly stands by Oath, but the division’s content production is focused on just four core verticals: sports, finance, entertainment and news.

“Choice is the most important thing. We will focus on specific content that we believe is where the content industry is going—not where it has been—and we are going to be leveraging Oath to develop that content,” says Verizon’s chief strategy officer, Rima Qureshi. “We’re not going to tie consumers to particular content that they may not want or a bundle they’re not necessarily interested in.”

Both companies’ maneuvering is happening on the precipice of what could be a monumental shift for the wireless industry. The fifth generation of cell service promises to exponentially boost network speeds, making viable a whole range of connected technologies from mixed-reality streaming and instant movie downloads to self-driving car coordination and remote healthcare.

Fixed 5G is expected to eventually be fast enough for consumers to trade terrestrial broadband for home wireless plans, making carriers more competitive with traditional TV providers. That could ultimately lead to a grand convergence in the long term—lines will blur between wireless and cable companies, streaming and traditional video and other media tied to a particular distribution scheme, according to Doug Brake, a telecom analyst at the think tank ITIF.

“To some extent, their business models are converging, but they’re also taking different paths,” Brake says. “Everyone is moving to a point where the pipes are increasingly commoditized, and it’s about building value on top of that large, robust broadband pipe.”

The nation’s two biggest wireless carriers are taking increasingly different bets on what sorts of business propositions will make sense in this future state—AT&T thinks it will pay to own content and the means to monetize it, while Verizon sees value in selling quality network access to a range of partners across existing markets and any that might arise around 5G. In doing so, they’re reorganizing the media and advertising industries that sit atop their infrastructure.

“This is setting the blueprint for what I think the future of the modern media company may look like,” says Evan Hanlon, president of GroupM’s [m]Platform unit. “This, to me, is very much the first inning of a very long game.”

Targeting TV

David Verklin spent much of his 2008 talking about dog food. Then the CEO of a venture called Canoe, he was trying to explain the relatively untested idea of addressable, or targeted, TV ads to industry execs. His favorite oft-repeated example: the technology would show dog food commercials only to dog owners, denture ads only to the toothless.

Canoe was a consortium organized by six major cable companies to build a national system for targeted interactive TV ads through set-top boxes. That dream didn’t last long. The competing interests involved and the difficulty aligning agendas sunk the effort by 2012, and Canoe pivoted to a focus on video on demand. Addressable TV ads still haven’t seen widespread adoption.

“These are companies that are kind of frenemies,” Verklin, now a senior adviser at Boston Consulting Group, says. “Some days they’re allied, other days they compete. So it’s hard to get their interests in alignment.”

AT&T is staking its media strategy on succeeding where Canoe failed. Addressable television is central to the telecom’s pitch that its vast trove of data and ad-tech assets can add significant value to ads and thus, the content on which they appear. But AT&T’s cable channels are still distributed by various cable providers, where the company can’t control targeting. AT&T will most likely need to forge deals or some sort of joint venture with these other distributors.

“The ability to scale addressable TV inventory really is going to be dependent on us continuing to find ways to bring a stronger and scaled data set to the market and also working with—and not working against—other [multichannel video programming distributors (MVPDs)] to make sure we can actually aggregate this large-scale inventory pool for marketers to buy into,” McDonald says.

It’s not just the distribution side where AT&T needs to make friends. The carrier also wants to use AppNexus to build a universal media-buying platform for the whole television industry, uprooting a long-entrenched system of phone call and handshake deals. It could do so through private licensing deals with TV companies, but McDonald says AT&T is “philosophically opposed” to the idea of a closed platform; it aims to create a “community garden” instead of a walled one.

AT&T will need to convince rival TV companies that the telecom will treat their inventory fairly in an open exchange in which it will also presumably participate with its own cable networks, says one media buying exec who declined to be named because of client conflicts. That trust could take time to build, but it’s not without some precedent. The exec compares the situation to Google’s relationship to publishers through its DoubleClick platform.

The company may also have to assuage worries that it might seize on the reversal of Obama-era net neutrality rules to prioritize Time Warner’s content over competitors on its network, a decision that would not only hurt consumers but sully its supposed goodwill in the eyes of the rest of the industry.

McDonald says AT&T won’t aggressively push content providers to join its exchange, but rather take an “if you build it, they will come” approach with a quality product.

In an increasingly consolidated and interconnected advertising sphere, these double-edged alliances between competitors are creating a growing tangle of tightropes. With the duopoly powers always looming, every actor is chasing scale, and the best way to achieve it is to either merge or build symbiotic intra-industry structures.

“We’re in an industry where strange bedfellows are the thing of the day,” says MediaLink CEO Michael Kassan. “You have countless examples in our industry today of competition and collaboration.”

But even armed with a successful home-grown ad-tech operation in AdWorks, industry veterans like AT&T Advertising and Analytics CEO Brian Lesser and McDonald and all the talent and experience of AppNexus, there are always risks when telecoms move into unfamiliar territory. Some analysts say the margin boosts AT&T is hoping to squeeze out of its new inventory are far-fetched, given the realities of TV advertising budgets.

“The likelihood of realizing multiples on the value of ad inventory was—and is—fantastical,” says Pivotal Research advertising analyst Brian Wieser. “It’s not something that technology will solve for; you need to reinvent the economy.”

Verizon swears off Hollywood

In September 2015, Kanye West and Zach Galifianakis kicked off an auspicious new chapter for America’s second biggest phone company at a star-studded Beverly Hills party. Verizon was celebrating the launch of its new mobile-focused video streaming service, Go90, meant to provide a mix of traditional television programming and original content to a younger demographic.

But it quickly became apparent to those involved in producing content for Go90 that Verizon didn’t understand the business. It lacked the infrastructure to market its offerings, build franchises or focus direction—nor did it seem to grasp the need to do so, people who worked with the service say. The monetization scheme was just as flimsy; the task was passed around various divisions of Verizon’s then-dissociated ad-tech holdings with little success,  according to one former partner. Go90 ramped down operations about a year ago, and officially shut down this June.

The episode was emblematic of the risks faced when utilitarian distribution companies barge into the volatile world of media.

“It seems easy—what could be that difficult about making a movie or making a TV series? But it’s extremely difficult,” says Quantum Media consultant and former Food Network CEO Erica Gruen. “People just want to put on a pair of Ray-Bans and hop into a convertible and run around L.A.”

Verizon has now decided that apart from Oath’s core established brands, it wants to leave content to the companies already producing it successfully. With former chief technology officer and 5G network architect Vestberg taking over as CEO last month, Verizon’s new plan is to essentially play 5G gatekeeper. While AT&T is busy trying to reinvent advertising, Verizon wants to win the race to own 5G pipes and offer access to a range of content providers as well as any new connected tech markets the network might create.

“We are going to focus on what we are best at, and we are best at network and we are best at developing the capabilities first before anyone else,” Qureshi says. “We believe there is a huge demand from all content providers to want to have access to that.”

That strategy was on display last month when Verizon partnered with Apple and Google to bundle Apple TV boxes and YouTube TV subscriptions with fixed 5G packages in the four cities where Verizon plans to start testing them this year. A person familiar with the company’s plans says the deal is currently limited to these test markets, and more agreements are likely on the way as Verizon builds out its 5G network.

The carrier also maintains media rights contracts with the NFL and the NBA and hopes to explore ways that virtual-reality and high-definition streaming made possible by 5G could change game-viewing experiences. Projects like these are exemplary of Verizon’s assertion that 5G will present media opportunities that one cannot necessarily conceive of yet, another reason it doesn’t want to be locked into any particular type of content play.

Despite having rolled AOL and Yahoo’s considerable ad-tech assets into a single platform, industry figures seem lukewarm on Oath’s prospects. Rumors have swirled that Verizon is mulling spinning off the year-old unit.

“The sponsor of the deal—[former global media evp and president] Marni Walden—is gone, the supporter of the deal [former CEO Lowell McAdam] has retired and the new CEO, as near as I can tell, can’t spell the word ‘media,’” says Terry Kawaja, founder and CEO of Luma Partners, an investment bank that specializes in digital media M&A. “They focused on digital instead of TV—I don’t know why; TV is the bigger opportunity.”

Verizon has strenuously denied this speculation and stressed that Oath is the linchpin of its content strategy going forward.

“I believe we have the best assets in the business. I believe we have the best data in the business,” says Oath sales head Jeff Lucas. “We have new products—whether it’s new AR ad formats—we want to go into 3-D. If you want to go into the mobile moment, you can put those across those four verticals to enhance the advertising experience.”

A natural progression

The idea of combining content and advertising with the pipes through which they’re delivered is nothing new. Former USA network CEO Kay Koplovitz recalls that when she founded the pioneering cable channel (now owned by Comcast’s NBCUniversal) in 1977, there was a clearer demarcation between the content providers like her network and the cable operators busily building the nascent infrastructure. As cable grew through the 1980s, industry discussion began to fixate on whether “content or distribution was king,” she says. By the 1990s, as Time Warner emerged as a giant of cable television and cable operation, the answer appeared to be both. It wasn’t until the early 2000s that wireless carriers like Verizon and AT&T began to explore content ownership as a way to supplement flagging subscriber revenues and recoup investments in then-nascent 3G networks.

“These things have all evolved over the decades,” Koplovitz says. “There’s been this back-and-forth between consolidation of distribution, consolidation of distribution and programming, and then reorganization around a new player coming into the market like the telcos … and then the [over-the-top media (OTT) players] like Netflix.”

Now, with a sprawled ad-tech space, fragmented content world and game-changing wireless technology, companies like Verizon and AT&T are scrambling to figure out what the vertical media giant of the future will look like.

“All of these companies are trying to pick what’s the magic combination for them of broadband, premium paid content, ad-paid content and additional content,” says Kent Steffen, president of OTT solutions at telecom platform company CSG International. “It’s the wild, wild West out there for a lot these guys.”

This story first appeared in the September 3, 2018, issue of Adweek magazine. Click here to subscribe.
@patrickkulp Patrick Kulp is an emerging tech reporter at Adweek.