While television advertising has always captured a wide audience, it lacks the precision of digital advertising. A company like Google is able to serve ads to exactly the right people and exactly the right time because of the data it gathers and intent behind search queries on its flagship product. But TV advertisers are forced to look at demographic ratings for television programming in order to determine if it's worth buying a 30-second commercial during a broadcast.
AT&T (NYSE: T) is developing new tools to help make it easier for advertisers to buy well-targeted TV ads. The nation's largest pay-TV provider is developing a private market for select advertisers. Those advertisers will be able to use their own data as well as third-party data to target specific audiences using programmatic advertising -- where software actually makes ad purchases based on data. With more effective targeting, AT&T may be able to increase its average price per ad for its pay-TV business.
Advertising is going digital
AT&T isn't the first to announce that it would offer advanced targeting tools to advertisers. NBCUniversal, a subsidiary of Comcast (NASDAQ:CMCSA), announced a week earlier that it would offer similar capabilities. But AT&T is opening up the program to all networks on its U-Verse and DIRECTV properties by taking advantage of the airtime it receives from networks as part of its carriage agreement.
Pay-TV operators bring in billions in revenue from those ad slots. While AT&T and DIRECTV don't provide figures in their annual reports, Comcast said it brought in $2.3 billion from advertising in 2015.
But Comcast saw a slight decline of 3.1% in ad revenue last year. As cable ratings decline, advertisers are spending less on TV ads and more on digital ads. AT&T and NBC's hope is that offering a similar product to digital advertising will help keep a larger percentage of brand advertisers' budgets on TV instead of social networks and streaming video sites.
The option to only advertise to households that are likely looking to buy a new car, or who have expressed interest in a political candidate, means advertisers are willing to spend more per household they actually reach. The key will be attracting enough advertisers to broadcast ads to every household AT&T serves.
Other companies have been pushing for programmatic TV ad buying for a couple years now. The problems they've run into is a lack of quality ad inventory and a lack of transparency. AT&T is aiming to solve both problems.
"What is unique about this is that we're talking about premium, reserved, upfront and scatter-based TV ad inventory," said Scott Ferber, CEO of Videology -- AT&T's technology partner for its ad marketplace. "That's very different than what's been available historically."
Jason Brown, VP of national advertising sales for AT&T, says that advertisers will know what networks their ads are being shown on and its solution opens up quality inventory for advertisers. Down the road, AT&T plans to also include the option to buy ads programmatically for its upcoming DIRECTV-branded mobile streaming services, offering more inventory.
If AT&T is able to develop a hub to buy all TV advertising programmatically, it could do more than just provide a boost to the value of its small advertising inventory. It could create an entirely new revenue stream as a platform for buying TV ads.
Adam Levy has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.