AT&T Faces Challenges With U-verse Ad Sales

Faced with mounting demand to reach broad and small television audiences alike, AT&T Inc. is encountering challenges in determining the most effective means to connect advertisers and consumers through their U-verse service bundle.

AT&T executives candidly discussed the multitude of challenges it faces in evolving from a telco to a video service provider to an entity that can ring the cash register loud for ad revenue with its popular IP service bundle for consumers.

At present, the carrier provides U-verse in 11 markets in its 14-state region, with all but two of them getting the service in the past month. While revenue from the actual service bundle is first and foremost for now, advertising revenue is a close second, followed by commerce opportunities.

But while it can reach smaller audiences easier than larger ones based on its U-verse deployment to date, executives lack the much-coveted technology to reach smaller audiences, which would open a myriad of advertising opportunities.

AT&T seeks the ability to effectively perform local ad insertion, which would appeal to companies not on the Fortune 500 list but that still wish to reach small local markets to peddle their goods and services.

“The technology will still have to be built well into ’07 and beyond,” admitted Karl Spangenberg, vice president of integrated advertising entertainment services at AT&T. “Today we can do it at the regional and zone level, but after that, things get crude quickly.”

Part of Spangenberg’s challenge, in his nearly five months with AT&T, is to apply advertising to the company’s long-stated, three screen (TV, mobile device, Internet) integrated IP service strategy.

Referencing AT&T’s initial U-verse, Spangenberg candidly commented, “If advertisers today are looking for tonnage and holler-for-dollar, we won’t be their first buy.”

The traditional broadcast model was to take video feeds from the headend and push the content to the masses. AT&T is planning a better idea where it would serve up focused ads to consumer set-top boxes from a local facility it refers to as a video serving office, or from an edge server (also located outside the home).

This approach would enable the telco to more efficiently and effectively deliver relevant advertising opportunities in targeted local markets. Due to the lack of local ad insertion, small businesses, which make up more than 93 percent of all U.S. businesses, tend to target and reach potential customers via TV without big spends.

Another sizable challenge for Spangenberg is assuring to all parts of AT&T that the approach he prefers tracks with the fast-changing advertising industry, and, of course, that it can be implemented in an integrated fashion with security and without disruption.

“Believe me, we don’t have to sell the advertising industry on our strategy,” said Jeff Weber, director of product and management for AT&T. “We both want a heavily targeted and personalized approach that’s integrated across three-screens.”

Part of the work facing integrated IP service executives is striking a balance, and maintaining it, “that is the right combination of an industry business model and an economic ad delivery model,” added Weber.

Spangenberg seems set on an advertising model whereby AT&T would be paid per impressions and receive a cut of each products sold through ads on its services.

While AT&T forges ahead with its three-screen effort, it will also be advancing U-verse deployment in more markets as quickly as possible, aware that large advertisers with a volume or broad geographic message for viewers may not be impressed with the reach of U-verse, which has nearly half its current markets in Connecticut and Indiana.

AT&T Inc. www.att.com

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