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. Jeff Bewkes, 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 last week, 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," 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 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.
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," 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 streamed through accessories like Roku and Apple TV, Hanlon said.
"This is clearly one of the significant envisioned benefits of this tieup, which is the next generation of video advertising in a much more robust, targetable and data-rich manner," 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."