AT&T's recently announced deal to acquire Time Warner reflects massive changes in media and technology. Although regulators could challenge the acquisition or slap conditions on it that may limit how AT&T can use its new assets, the purchase hints at a future where a single company can monetize the same customer multiple times over, just through the customer's routine use of the Internet.
Other Internet providers have made stabs at building this kind of business model. Verizon, for example, wants to do something similar with Yahoo and AOL. But if AT&T succeeds — and that's still a big if — it will be that much closer to turning its subscribers into virtual cash machines, going to them over and over to grow its revenue base. Here are a few ways that could work.
At its core, AT&T is a network company. Its main job until now has been to sell you access to communications, such as phone or Internet service. These services act as conduits to the information or media you can find once you're hooked as a subscriber.
This business model is not going away. In fact, it is what allows all the other business models to follow. It is also the easiest to describe, because selling data plans is the most directly observable way in which AT&T makes money from consumers like you and me.
On top of selling you the network, companies such as AT&T increasingly want to sell you the content that travels over those networks — including shows like “Game of Thrones” or “Westworld.” Historically, these types of shows were only available on cable TV. But thanks to the Internet, accessing this content just becomes a matter of network capacity. And guess who does networks? AT&T.
Because AT&T's merger with Time Warner could allow the telecom giant to control HBO's entire content catalogue, any money the premium channel makes could belong, ultimately, to AT&T. That includes the $15-a-month subscription fee that HBO charges for its Internet streaming app, HBO Now. HBO has been called the “crown jewel” of Time Warner, and AT&T knows it.
Suppose you're an AT&T Wireless subscriber and you pay for HBO Now. In the wake of a successful merger with Time Warner, this would allow AT&T to double-dip into your wallet.
This is the big one. Advertising, particularly of the targeted variety, forms the cornerstone of the entire Internet economy. And Internet providers want a big slice of it.
To compete with other ad heavyweights like Google and Facebook, Internet providers need to collect and use behavioral data. That means analyzing your browsing history, your app usage history, your location history, your financial information and other data that can help build a picture of who you are as a consumer. And since your Internet provider is collecting a lot of this information anyway simply to provide the basic function of getting you where you want to go on the Internet, its perspective is, why not use that data for advertising?
Armed with these insights, a company, such as AT&T, could approach a company, such as Walmart or Best Buy, and say, “I can reach this demographic for you. Do you want to advertise with us?” And if Walmart or Best Buy said yes, they could put their ads on any number of sites or channels owned by AT&T. As a result of the Time Warner merger, that could include platforms, such as TBS or CNN.
Targeted ads promise to “feature prominently” and in some cases represent “the whole ball of wax” for telecom companies in the new digital economy, according to Craig Moffett, an industry analyst at MoffettNathanson.
Things get even more intricate from here. Not only could the ads be targeted to a specific demographic, but thanks to a technique known as cross-screen advertising, a particular customer could see the same ad on their TVs that they do on their phones and their tablets. AT&T's tests show that cross-screen advertising can boost a company's sales by as much as 87 percent. If ads are about repeated messaging, this approach may be the purest — and most lucrative — form of it yet.
Federal regulators voted last week to limit how Internet providers can use your data, in a victory for privacy advocates. Still, many consumers may voluntarily opt in to the advertising, particularly if they're offered financial incentives in exchange.
Sell your data
A company, such as AT&T, could put your data to work for its own advertising business. But it could also benefit by sharing your data with marketing firms and other third parties who can use that information themselves.
Data brokers who traffic in behavioral insights are often invisible to the average consumer, but what they know about you can affect your choices, such as the types of credit you're offered. A network company with deep insights on its subscribers could sell the data to a third party.
All of these different business models entail monetizing different aspects of the customer relationship. Under the right circumstances, a telecom company could theoretically use a customer as a cash machine by:
1. Selling her a mobile data plan
2. Convincing her to pay for premium content on top of that plan
3. Watching how the customer engages with that content
4. Showing them ads tailored to her engagement
5. Selling that engagement data to third parties
That doesn't even begin to contemplate any potential cross-promotions or special bundles of content and service designed to lure even more customers into the ecosystem. Nor does it go into possible licensing deals with other businesses that could allow, for example, AT&T to charge other firms for the use of DC Comics' intellectual property, such as Batman or Superman.
The upshot is that by melding content and distribution, telecom and cable companies likely envision a whole constellation of business models that may form the foundation for a new digital economy, one that orbits largely around them.