Verizon CEO foresees big profits in mobile pay TV
NEW YORK - Verizon Chief Executive Officer Lowell McAdam has long wanted to become a force in mobile television. Now he's poised to make that happen.
McAdam already has the technology to stream video to mobiles devices. He has content, including NFL games. What he's lacked is an effective way to sell ads against that content. So McAdam is exploring deals with AOL and other companies that are leaders in so-called programmatic advertising, which allows marketers to buy and sell ads using an algorithm, rather than the phone calls, three-martini lunches and hand shakes of yore.
"Large Web companies like Google, Amazon, Facebook have dominated Internet commerce, while carriers like Verizon have been shut out," said Kevin Smithen, an analyst with Macquarie Securities USA Inc. "The next battle lines are being drawn in online video, and Verizon wants to be sure they get their share of a sizable new pie."
Verizon isn't alone in wanting to tap the rapidly evolving pay-TV market. Dish Network Corp. introduced its first online TV service called Sling TV Monday. AT&T wants to expand its TV reach with DirecTV and its 20.3 million subscribers.
By streaming content, Verizon Communications Inc. hopes to keep viewers glued to their screens and add advertising revenue to the money it already collects selling data and voice plans. In the next five years, mobile advertising revenues will more than double to about $29 billion, according to John Fletcher at research firm SNL Kagan.
Verizon has about 100 million wireless customers, and the company gleans a great deal of information about those customers from their phones. Basic info includes location, age range, gender, and - when users opt in - buying habits and team affiliations. Sifting through this data, Verizon can help pinpoint consumers, say 40- to 50-year-old women in southern Connecticut who fly fish.
Verizon wants to get its hands on AOL's automated advertising technology either through a joint venture or outright acquisition, according to two people familiar with the situation.
Automated ad buying and selling works much like financial trading. A media buyer seeking to reach a demographic is matched via algorithm with a publisher selling that type of ad space. The buyer bids, with the space going to the advertiser willing to pay the most. It's all over within seconds.
In the next four years, global automated advertising will grow by more than 150 percent to $53 billion, according to research firm Magna Global, which also predicts spending on digital advertising will match spending on TV ads by 2019.
Programmatic advertising fits well with Verizon's customer data analysis. It's designed to match large inventories of ads with more targeted consumers. It also lets advertisers find customers on whatever device they're using at any given time.
This more relevant, targeted advertising approach is a big opportunity for Verizon, says Roger Entner, an analyst with Recon Analytics in Dedham, Massachusetts.
"When Verizon looks at opportunities, they look at ones that start with a 'B,' as in billions, and that means advertising on mobile video," Entner said.
For years, Verizon has failed to find a way to make money from all the data flowing through its pipes. Google has captured much of the search advertising money. Yahoo and AOL profit from banner and pop-up ads. Sticking ads next to mobile videos finally gets Verizon in the game.
The opportunity got away from them before, but they are determined not to miss it again, Entner said.
"Verizon isn't happy being the dumb pipe that delivers the content, they want more control so they don't leave money on the table for others," he said.