Last week, AT&T announced a $43 billion deal to combine its content unit, WarnerMedia, with factual TV network Discovery. The telecommunications giant will unwind its acquisition of Time Warner, which it renamed WarnerMedia, to create with Discovery a new media company that could be worth as much as $150 billion. The move is a sign that the huge conglomerates which resulted from a flurry of mergers just a few years ago are no longer big enough to contend with the major streaming giants Netflix and Disney.
The much-discussed streaming wars are currently being won, by a large margin, by Netflix and Disney who both enjoyed significant growth during the pandemic. But even Disney is struggling to keep up with Netflix. Netflix has a huge 206 million subscribers and is still growing, albeit more slowly than Disney, which had 106.6 million subscribers as of early April. Netflix had a significant head start over the other streamers, and has a huge international footprint – crucial for continued sustainable growth in this competitive landscape. What’s more, Netflix is finally able to sustain itself financially, and no longer has to borrow money to fund its programming.
The American media conglomerates anticipated this situation, leading to a raft of mergers and acquisitions in recent years, such as Disney’s acquisition of Twenty-First Century Fox and AT&T’s purchases of DirecTV and, of course, Time Warner. These deals created huge entertainment companies, but the WarnerMedia/Discovery news suggests that even they are not big enough.
But the new company created by WarnerMedia and Discovery just might be.
The Economist neatly summarised the four key things that a streaming service needs to compete successfully in the streaming wars: scale in the domestic market, high-quality content, a flexible balance sheet and the ability to expand globally. WarnerMedia’s HBO Max meets the first two criteria, but falls down on the third and fourth. Parent company AT&T’s financial woes made it difficult to keep up with Netflix in terms of programming spend, while the decision to licence content to foreign companies, such as Sky in the UK, means that its international footprint is very poor. The merger with Discovery will help WarnerMedia to address both of those problems: it will no longer be held back by AT&T’s revenue sheet, and Discovery+ already has a significant presence in Europe and India.
The resulting company will present a significant headache for the current winners Netflix, Disney and Amazon. WarnerMedia and Discovery’s combined content library will be huge and diverse: it will include HBO’s critically acclaimed dramas, Warner Bros’ blockbuster films, Discovery’s unscripted shows and a variety of sport and live news services. It will be very interesting to watch how the company unfolds. Will they merge their streaming services, creating a ‘one-stop shop’ that would compare favourably to Netflix but would undoubtedly have a high price point (HBO Max currently charges $15 a month, significantly more than competitors)? Or will they ‘bundle’ existing services and new ones for a discounted subscription price?
The merger between WarnerMedia and Discovery is a de facto admission by AT&T that its foray into entertainment has failed. When it acquired Time Warner, which it renamed WarnerMedia, just a year after its purchase of satellite service provider DirecTV, the plan was to vertically integrate the businesses of content creation and content distribution – but that plan has been shelved. AT&T’s CEO John Stankey said that the telco giant lacked the global reach necessary to build a successful streaming business that could match the likes of Netflix and Disney. DirecTV will be sold to TPG.
The question on every advertiser’s lips is ‘how many unique individuals can I reach through as few companies as possible?’. By merging, WarnerMedia and Discovery may provide the most convincing answer yet to this question. They will aggregate more inventory than the separate companies already do, and will provide advertisers with a huge, diverse audience. This will put them in a very strong position, particularly as Netflix does not currently host any advertising on its platform.
Interestingly, however, WarnerMedia’s ad tech arm, Xandr, is not part of the merger, and will remain under AT&T’s ownership. This is likely because it would take a lot of time, effort and money to disentangle Xandr from AT&T’s customer data, but given the importance of targeting and measurement in TV and streaming, and of mining media companies’ first-party data, it is would certainly be an advantage for WarnerMedia/Discovery to have its own tech stack.
With the streaming landscape now dominated by three giants – Netflix, Disney and now the company formed by WarnerMedia and Discovery – the rest of the industry is now scrambling to form mergers of their own. One of the most significant is Amazon’s purchase of Hollywood studio MGM, confirmed this week for a price of $8.45 billion. The deal will bolster Amazon’s TV and film library for its Prime Video service, and the jewel in MGM’s crown, the James Bond franchise, will help Amazon to compete in the streaming wars, even though it will only own 50% of 007.
AppleTV+ is yet to take off, despite giving away a huge number of free subscriptions – more than 60% of its 40 million users are thought to be on a free trial. However, it does of course have plenty of money to spend on acquiring another media company if it chooses to do so.
The other giants of American entertainment, NBCUniversal and ViacomCBS, themselves the products of huge mergers a few years ago, have found themselves in a difficult position. The very fact that WarnerMedia and Discovery have decided to merge is a sign that even NBCUniversal and ViacomCBS aren’t big enough to compete with Disney and Netflix. The problem? There isn’t really anyone left for them to merge with. They have too much competing content to merge with each other and anyway, the Federal Communications Commission prohibits such a move. That is unlikely to change given the current White House’s stance on antitrust. They could purchase smaller media companies, but this wouldn’t give them the global scale they need.
As the world opens up again after the pandemic, people will be spending less time in front of their televisions. Many may decide to unsubscribe from some of their streaming services as TV no longer plays quite such a central role in their entertainment schedules. The race to grow and consolidate audiences – and therefore advertising dollars – continues, and the company resulting from the WarnerMedia/Discovery merger will be well-positioned to catch up with the current leaders.
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For 100 years, radio dominated audio media, entirely unchallenged. It still attracts the lion’s share of listeners and therefore advertisers: 92% of Americans listen to AM/FM radio every week – more than TV viewership (87%), PC use (54%) and smartphone use (81%). However, its dominance is becoming less certain with the rise of podcasts and now, social audio. So what does the future of audio look like?
The pandemic has had an impact on the way we live our lives, and that includes our listening habits. Despite fears that radio listener numbers would crash as commutes turned into 30-second walks to the kitchen table, in many countries, numbers increased as people turned to this trusted medium for information, comfort, connection and entertainment. In the UK, 40% of people working from home listened to the radio for an extra two hours and eight minutes a day. However, there is a belief in some quarters that, despite this increased listenership, advertising may have suffered because of radio’s great reputation for brand-building: amidst the hardships and budget cuts of the pandemic, marketers have been under pressure to deliver short-term sales results at the expense of longer-term brand-building ambitions.
Podcasting followed an interesting trajectory over the course of 2020. Podcast downloads decreased by 10% when the US went into lockdown, and it seemed that the pandemic was threatening to throw off podcasts’ meteoric rise. However, as people adapted their routines, download figures recovered and are even improving. The top 10 US podcast publishers saw a 20.6% increase in downloads in the summer of 2020 compared to the previous summer.
2020 was also the year that saw the rise of ‘social audio’: with people seeking connection but sick of screen time, social audio apps came on the scene, offering the ‘Goldilocks’ of connection – not too much, not too little, but just the right amount. But more on that later…
More and more people are listening to podcasts: about 41% of Americans aged 12 and up now listen to one podcast a month, compared to 37% in 2020 and 32% in 2019. Ad dollars have inevitably followed: IAB PwC estimated that US podcast ad revenue would increase by 14.7% to near $1 billion in 2020, despite the pandemic. In 2020, 37% of marketers said they would likely advertise in a podcast over the next six months – compared to 10% in 2015. The highly engaged audiences that podcasts enjoy have shown a propensity to take action when hearing an ad, which is of course very attractive. What’s more, digital audio has the great advantage of not being reliant on cookies in the same way that other digital channels are. It offers other, privacy-centric ways of targeting listeners, such as topic-based targeting – indeed, this type of contextual targeting is likely to become more common across other digital channels after the death of the cookie.
That said, it is difficult for marketers to track which users end up purchasing their products after hearing a podcast ad. Many are hoping that Spotify and the other podcast platforms will develop a pixel tool, similar to Facebook’s, which will be able to track user activity across the platform. Podcast platforms are aware that marketers need more tools if they are to continue growing their investments in the platform. This awareness has led to acquisitions such as Spotify’s purchase of Megaphone, a podcast ad tech company, in late 2020 in order to expand its self-service advertising platform. Megaphone claims to be able to target ‘types’ of users, so only listeners who fit a specific demographic will be served an ad.
With the popularity of social media and podcasting, it was perhaps only a matter of time before someone created ‘social audio’, where people connect through conversation. The pandemic was the optimum time for these chat rooms to take off, with people yearning for connection but fed up with their screens. Clubhouse is making waves with conversations that people can sit in on or participate in, and its success has spurred established platforms like Twitter and Facebook to create their own equivalents. Twitter’s Spaces and Facebook Rooms are still in the beta phase.
Clubhouse is, so far, ad-free and seems to actively discourage hard-selling. This means that working with the app’s influencers to create relevant, interesting conversations is the best way for brands to share their messaging with users – and has the added benefit of reaching people who have chosen to be in the room. However, as the social audio apps mature, it’s likely that advertising will become more prolific, as happened with the social media platforms. Experts predict that the explosion in social audio platforms will lead to a secondary explosion in analytics and marketing tools that will help influencers and, most significantly, brands understand their reach and impact in the social audio space.
Digital audio is the new frontier in advertising, with plenty of opportunities to engage with interested, relevant audiences. There is still some way to go in the development of tools for marketers to understand the impact of their investment, but they are in the making – this is not a space to be overlooked.
The future may not be all talk, but there will definitely be more talk.
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In a blog post released on March 3rd, David Temkin, Google’s Director of Product Management, Ads Privacy and Trust, confirmed that Google would be killing off the cookie, as early as January 2022. He also clarified the tech giant’s plans for targeted advertising and a ‘privacy-first web’. The tech, media and advertising industries have all known this is coming – Google first announced that it would be stopping support for cookies on Chrome back in early 2020, and it is not the first browser to do so. However, the blog post has got everyone talking about Google’s search for alternative solutions to targeted advertising, as well as proposals from other players. So what does it mean? And where will it leave advertisers?
Google, like the other tech giants, has come under increasing scrutiny and regulation around the world, with regulators and lawmakers looking very carefully at the company’s privacy and antitrust record. Indeed, two hires that the Biden administration recently made would appear to confirm that the US will continue to robustly enforce antitrust laws and other regulations. What’s more, there is a prevailing and increasing sentiment amongst internet users that they are worried about their privacy: in research conducted by Pew Research Center in 2019, 79% of American adults reported being somewhat or very concerned about the way their data is used by companies. It’s also as simple as a change in consumer habits: in the third quarter of 2020, mobile devices (excluding tablets) generated 50.81% of global website traffic – a share that has consistently hovered above the 50% mark since the start of 2017. Mobile browsers and apps don’t accommodate web-based cookie tracking as effectively as desktops, so there is a hole in advertisers’ ability to target their users.
Google’s statement earlier this month and the ensuing debate makes it clear that the industry is still only in the early stages of redefining how the online media market will work when the cookie becomes defunct. There is still a lot of uncertainty, and the industry is in a period of frantic experimentation, urgently seeking the best way to effectively target consumers with advertising.
In his blog, Temkin promised that Google would not implement new ways to track individual users around the internet, and vowed that the company would only use privacy-preserving technology that relies on methods such as anonymisation and aggregation of data. Google’s Privacy Sandbox initiative, which is seeking ways to protect privacy whilst allowing content to remain freely available on the open web, has plans to start testing one proposal with a group of advertisers in Q2 of this year. This proposal would group internet users based on similar browsing behaviours; only cohort IDs, rather than individual user IDs, would be used to target them. This approach is based on the same principle as Facebook’s, which offers advertisers the opportunity to target ads to certain categories of users based on their data. Google will be keen that this proposal is workable and appeals to brands, as marketers are already diversifying their ad spend up and down the funnel.
It’s not just Google with skin in this game: other collectives and ad tech players are also seeking ways to balance privacy with personalised, targeted advertising. A major collective formed last summer, called the Partnership for Responsible Addressable Media (PRAM), has brought together the IAB Tech Lab, the WFA, major advertisers like Ford, Unilever and IBM, media agencies, tech vendors and publishers. PRAM is proposing relacing cookie-based tracking with tracking tied to individual email addresses, whereby a user would log into a participating site with their email address or phone number, which would then be scrambled and used to keep tabs on them as they navigate other participating sites. Google has called this email-based approach impractical, and claims that it wouldn’t meet ‘rising consumer expectations for privacy’, or ‘stand up to rapidly evolving regulatory restrictions’ – and therefore wouldn’t be a sustainable investment in the long term.
Even taking into consideration Google’s motives for casting doubt on whether cross-site individual tracking will meet consumers’ and legislators’ expectations and therefore the wisdom of investing in such a targeting methodology, the tech giant isn’t wrong in its conclusions. Many view this as a bold act by Google – they are soberly letting go of bad habits while others are just trying to cut back on the worst parts and hoping it will be enough. Perhaps Google’s statement was in fact the most helpful thing that they could do for the industry as it approaches this crossroads, pointing out that what they are trying to do won’t work, and they need to start over.
While some industry experts and commentators believe that Google’s Privacy Sandbox proposal would be an improvement on the current, cookie-supported situation, others are yet to be convinced. They claim that Google is just swapping one form of invasive tracking for another and could, for example, work out who a user is by cross-referencing their information with an email address from one of Google’s owned sites.
They are equally sceptical about the email address approach, pointing out that it would be easy to ‘reverse-engineer’ a user’s identity by combining scrambled information with other information available in the public domain.
The implications of Google’s announcement are still unclear, and the situation will continue to unfold over the coming months. It’s safe to say, however, that we will never see anything close to the breadth and width of tracking coverage that cookies have given marketers over the last 25 years. It is thought that the demise of the cookie will affect 85% of online advertising as we know it. New solutions will come from a wide range of different sources and approaches, so will be fragmented. What’s more, a large share of online traffic may not be identified at all; outside walled gardens, contextual targeting is likely to become the main tool. That isn’t necessarily a bad thing – it offers marketers the ability to deliver ads to consumers when they’re in a specific situation or frame of mind, which can only be a positive as consumer behaviour becomes more fragmented and unpredictable. It’s also an antidote to many of the issues around brand risk and safety.
It’s worth bearing in mind that, just because the ways in which we manage reach, frequency and targeting are being fundamentally redesigned, it does not mean that people will radically alter their media consumption patterns, or that there won’t be any ways to target people online. Large sites with good user experience and consumer trust will retain their traffic and they will still be open for ads, even if impressions are anonymous. Ad impact on brand metrics and sales will remain, even when conversions can no longer be tracked. As Google said in their statement, ‘advertisers don’t need to track individual consumers across the web to get the performance benefits of digital advertising.’
For now, advertisers need to understand which tools will be lost, which will remain uncertain and which will not change. They should also keep their ad tech flexible and rely on their media agencies for guidance and updates. This is probably not the best time to be investing in ad tech or in-housing.
Looking ahead, even when data outside of Facebook and Google’s walled gardens is scarcer, advertisers should not resort to increasing their spend with these two platforms beyond what is proportional to media consumption patterns. They should also refrain from resorting to last-click attribution as view-through conversions tracking and MTA fail. Survey-based data and insights on brand metrics will undoubtedly surge.
Many advertisers are, rightly, focusing on their valuable first-party data, exploring ways to leverage it in order to make better-informed advertising decisions. Many will seek to work with partners to establish a data-exchange from different sources, including with the walled gardens. Marketers will also be able to integrate their consumer research with their first-party data, giving a clearer picture of what consumers do, and why they do it. This will in turn allow them more effectively target audiences with the best messaging in the best context.
The key takeaway? Hold tight – there’s no need to panic or do anything rash. Alternatives are being worked on and anyway, a world without the ability to track your consumers across the web might not be such a bad place.
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