Deutsche Telekom Considers Shaking Up Media Operations

By Alexandra Bruell Features Dow Jones Newswires

In May, Deutsche Telekom AG gathered a few media agencies, advertising technology firms and data companies in Berlin for a two-day workshop. The different types of firms worked together, under the observation of the telecommunications giant, to sketch out plans for how they might use data, technology and media to achieve specific marketing objectives, according to a person familiar with the event.

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The workshop was part of a larger effort, dubbed "Project Tetris," to align the company's media operations with a quickly changing media strategy, including spending more with companies like Facebook and Google and exerting greater control over data.

The German company, which controls wireless carrier T-Mobile US Inc., may potentially divide its European media operation into six different groups, such as programmatic buying and media intelligence, and slice up agency duties to support those tasks, according to a copy of an agency review document obtained by The Wall Street Journal.

A person familiar with the review said no decisions have been made yet.

Deutsche Telekom is the latest company to rethink the structure of its media operation as technology changes the way people consume media, and as advertisers discover new technology and data resources to help them get their ads in front of customers.

"The basic insight motivating a change in Deutsche Telekom's media operating model is that continuing with the current media model will lead to stagnation," the company states in the document. "Changes in the market structure as well as internal developments demand changes in Deutsche Telekom's way of working if the group is to defend and strengthen its leadership position."

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In the document, the company cites a need to attract consumers whose attention is shifting to mobile devices and away from traditional ads amid a "steep rise in users installing ad blockers," as well as a need to outsmart the telecom competition that's "insourcing analytics and investing in advertising technology."

"It is common business practice to review partners and suppliers," said a spokesman for Deutsche Telekom in an email. "Currently we are reviewing media partners within the context as a large advertiser within Europe."

Consulting giant McKinsey and advertising consultant ID Comms have supported the company's media efforts.

It isn't clear what impact the effort will have on the company's T-Mobile operations in the U.S., where wireless providers are engaged in a fierce pricing war.

The change comes as large advertisers rapidly reallocate their media spend from traditional channels like TV and print, to digital firms like Facebook and Google. Global digital advertising spend is expected to increase by 14% this year, according to the latest ad forecast from media buying group Magna. In Western Europe, online advertising sales are expected to grow by an average of 10% to $42 billion.

Deutsche Telekom, which spends hundreds of millions of dollars on media in Europe, according to someone familiar with the review, is no exception.

Traditional TV, which accounts for about one-third of Deutsche Telekom's media spend, will decline "slightly" over the next few years, according to the review document. Print, out-of-home and radio will also decline "sharply," from about a third of the company's media spend. At the same time, the company plans on "sharply" increasing spend on "advertising within walled gardens," like Facebook and YouTube, as well as programmatic advertising, including display and video ad formats in the coming years.

In the document, the company also expressed an interest in reducing its reliance on third parties and suppliers, for "more control over media spend, data, placements and outcomes."

Currently, Deutsche Telekom's media operations are "largely outsourced to agencies, with a low reliance on data, and limited internal collaboration."

Media agencies -- which typically support data and analytics, as well as traditional and digital media buying and planning, for a single client -- may now handle fewer and more specific tasks.

The company invited Omnicom, WPP and Publicis to participate in the review.

Write to Alexandra Bruell at alexandra.bruell@wsj.com

(END) Dow Jones Newswires

July 07, 2017 06:14 ET (10:14 GMT)