FierceWireless is wrapping up an eventful 2016 by taking a hard look at five of the most important trends and developments that emerged in the market this year. Today’s installment analyzes the aggressive moves into media being made by Verizon and AT&T.
The news: The nation’s two largest carriers moved aggressively into digital media. AT&T launched DirecTV Now in November, unveiling a compelling OTT video offering stemming from its acquisition of the satellite TV service provider in 2015 for $48.5 billion. And earlier in the year AT&T announced plans to double down on its media strategy, agreeing to acquire Time Warner for a hefty $85.4 billion in a deal that would include HBO, CNN, TNT and TBS, as well as Warner Bros. Pictures and Warner Bros.
Verizon, meanwhile, built on last year’s $4.4 billion acquisition of AOL by offering $4.83 billion to acquire Yahoo (although the future of that agreement is still uncertain following the major hack of Yahoo’s customer information). The nation’s largest mobile network operator also made a slew of smaller media deals in 2016, most recently the purchase of web-video startup Vessel for an undisclosed sum, and it continues to pursue Go90, an OTT video offering aimed at young mobile users.
What it means: Both AT&T and Verizon clearly feel a sense of urgency to buy their way into new markets as growth in the U.S. wireless market slows and competition ramps up. The network gap between Verizon and its rivals has narrowed significantly, and handset portfolios are strikingly similar from one major carrier to another, so while T-Mobile and Sprint successfully differentiate their offerings largely on price, their counterparts are moving into other markets.
“What AT&T saw in the wireless business was a steady deterioration in both its own market position and the industry itself,” Craig Moffett of MoffettNathanson wrote in a recent research note. “DirecTV’s free cash flow was a welcome stopgap for the dividend. But since AT&T announced its agreement to acquire DirecTV in 2014, results in both wireless and AT&T’s Pay TV segment have weakened considerably. It is reasonable to assume that the decision to buy Time Warner would otherwise have come only years after a deal the size of DirecTV. Instead, AT&T was forced to go back to the well just fifteen months after the DirecTV deal had closed.”
Of course, both Verizon and AT&T are also moving aggressively into digital advertising to leverage their new businesses. Being able to deliver the right marketing messages to the right users on a specific device at the right time and place has been described as the Holy Grail of advertising – as if you hadn’t heard that before – so both carriers are building out their respective advertising partnerships and analytics capabilities to target those ads as accurately as possible.
Whether either company can do so effectively is still uncertain, however. Carriers have a mixed record in content and media since the early days of ringtones, and mobile video experiments such as MediaFlo and carrier-branded mobile music initiatives generally failed to generate any major market traction. And wireless carriers’ track record in mobile marketing isn’t much better. The heyday of the U.S. consumer wireless market may be on the wane, but pouring billions into media may not be the answer for operators. And while Verizon and AT&T are making huge bets, T-Mobile and Sprint continue to poach wireless subscribers.