With CEO Brian Lesser gone, advertisers question AT&T’s commitment to Xandr

“The sudden resignation is making everyone ask what it means for the future of Xandr,” said a senior U.S. media agency executive. “There’s a big question mark on whether he was pushed or jumped to avoid being linked to something that no longer has support.”

Sources familiar with the company speculated that AT&T’s next big move will be to fold Xandr into WarnerMedia, rather than have it operate as a standalone business unit. Buyers have long hoped WarnerMedia and Xandr could work closer together, though a re-org could temper Xandr’s wider ambition to act as a one-stop-shop for targeted TV and video ads across all sorts of networks and publishers beyond the ones AT&T owns.

Previously a top exec at WPP’s GroupM, Lesser joined AT&T’s advertising and analytics division in 2017. He set out an ambitious vision to build a first-of-its-kind marketplace for television and video that would not only help AT&T better monetize its own content using its subscriber data for highly-targeted ads (bolstered by its $85 billion acquisition of Time Warner in 2018) but also connect advertisers with audiences from rival broadcasters and media owners too.

Lesser oversaw AT&T’s estimated $1.6 billion acquisition of the AppNexus in 2018 to build its underlying video ad tech and later launched the Xandr brand, derived from the name of AT&T founder Alexander Graham Bell. The unit also includes ad sales for AT&T’s DirecTV satellite business.

Xandr generated $2 billion in revenue in 2019, up 16% on the prior year. Analysts at JP Morgan estimate the Xandr unit would grow 33% from 2019 to become a $2.7 billion-in-revenue business by 2025. A person familiar with the company explained Xandr’s growth was likely to be tempered due to the decline of the DirecTV business, which is shedding subscribers. (Overall, AT&T reported $181 billion in revenue in 2019 and JP Morgan estimates it will generate around $185 billion in revenue by 2025.)

The wider marketplace Lesser envisioned is beginning to gain momentum. Just last week, the company said it had struck deals that would allow advertisers to use the Xandr Invest demand-side platform to buy national linear ads on WarnerMedia, Disney, and AMC Networks TV networks. It remains to be seen how much revenue those sorts of deals will generate.

The journey to get there hasn’t been without its challenges. A source within the media industry said some buyers and other media owners remained skeptical that Xandr’s marketplace could truly offer independence.

“Their commitment to truly servicing third parties outside their walled garden is always going to be under pressure,” said the media industry observer. “When you own a massive amount of content from Turner and Warner, your number one priority has got to be to monetize that content for the highest [price] you can.”

Integrating acquisitions is also rarely easy — let alone two in Warner and AppNexus. Sources familiar with the company said the culture clash between AT&T’s Dallas telco execs, WarnerMedia’s LA roots, and Xandr’s New York advertising and tech background had sometimes served up internal tensions. The majority of the former AppNexus leadership is no longer with the company. Aggregating AT&T’s subscriber data of tens of millions of customers across several products into segments workable for advertising environment had also proved an early initial challenge, people familiar said.

There will be big decisions to be made about Xandr’s future if it does move under the WarnerMedia fold. Through the new products it built and the ad-serving and supply-side platforms it acquired in AppNexus, Xandr is a participant in an advertising market that is broader than AT&T and the distribution platforms it owns. One lingering question will be around how committed AT&T will remain to being in the wider ad business beyond its owned and operated properties — particularly in countries outside of AT&T’s home U.S. market that the legacy AppNexus display business still continues to serve.

People familiar with the company suggested that Xandr might switch focus once it gets tucked into the WarnerMedia division to act more as an operational layer to service AT&T and WarnerMedia’s marketing teams and continue to help WarnerMedia sell data-driven advertising against its content.

“It makes a lot of sense pointing the ship in a different direction,” said a person familiar with the company. “Stop trying to serve the market as much and reprioritize … by leveraging the [Xandr] assets to cut marketing costs and drive efficiencies” as AT&T seeks to reduce its debt load, the person added.

The memo sent to AT&T employees last week by CEO Randall Stephenson about Lesser’s departure hints at more cohesion between the two units: “Brian’s decision comes at a logical time, as we prepare to go to market with our owned and operated inventory with WarnerMedia as one organization.”

Later on in the same memo, John Stankey, WarnerMedia CEO and AT&T president and chief operating officer, says, “Our commitment to Xandr Monetize and Xandr Invest has never been stronger.” Xandr Monetize is its supply-side platform and Xandr Invest the demand-side platform product. There was no mention of Xandr Community, its video marketplace that comprises publishers including A+E Networks, AMC Networks, Vice and the CW.

As for Lesser’s future, it seems likely he will resurface in a high-profile, senior executive role. On joining AT&T, Lesser had previously reported into CEO Stephenson. Last year he instead began reporting into WarnerMedia CEO John Stankey, who had been promoted to also serve as president and chief operating officer of AT&T — setting Stankey up as a likely heir to Stephenson. Lesser had his eye on the WarnerMedia CEO role, but he had recently learned he was unlikely to get it, sources said.

“Brian was hired to build and operate AT&T advertising. A vision built on data and targeting. Following the acquisition of Warner Media, two things could have happened: Either his role could have expanded around the availability of the full Warner Media empire and the ton of inventory to go with it — or narrowly focus on digital and addressable,” said Rob Norman, former chief digital officer at GroupM, where he and Lesser were colleagues.

“I’d imagine Brian was up for the former not the latter.”