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T-Mobile's Octopus buy complicated by pandemic

While T-Mobile US Inc.'s acquisition of a ride-sharing ad network gives the carrier the arms to reach a sought-after demographic of young, high-income earners, the deal comes at an awkward time.

T-Mobile said Jan. 10 that it inked a deal to acquire Octopus Interactive, which operates a network of interactive video screens inside Uber and Lyft vehicles. Octopus will become part of T-Mobile's advertising technology business, Marketing Solutions. Financial terms of the deal were not disclosed.

Octopus Interactive reaches 5 million unique riders each month; 80% of these riders are between the ages of 18 and 49 years old with an average annual income of more than $130,000. An analyst notes this is an attractive audience for advertisers, but also that ride-sharing and commuting are likely to slow again due to pandemic-related lifestyle changes. Thus, the Octopus buy, while small, could represent another failed attempt by a wireless carrier to expand a digital advertising business.

There is a long list of unsuccessful efforts by carriers to get into digital advertising. Last year T-Mobile shut down TVision Home, the pay TV service from its 2018 acquisition of Layer3 TV. Verizon Communications Inc. spent nearly $9 billion to acquire AOL and Yahoo in 2015 and 2017, respectively, and off-loaded both in 2021. AT&T Inc. in December 2021 agreed to sell its global programmatic advertising marketplace Xandr to Microsoft Corp. for an undisclosed sum.

The Octopus buy is much smaller than some of these past deals and may prove a smarter move, said 451 Research senior analyst Raúl Castañón-Martínez.

"This is a narrowly defined segment that plays well to T-Mobile's key strengths — namely their network coverage and reliability," Castañón-Martínez said. "The deal could help it expand its marketing and advertising offerings, enabling brands with access to a key target audience for geotargeted campaigns."

On the other hand, Castañón-Martínez said the COVID-19 pandemic has limited the growth of out-of-home, or OOH, advertisers like Octopus Interactive since people are spending less time engaging in public activities, like taking public transportation.

"[Out-of-home advertising] is also dependent on leisure and entertainment activities; given current inflation concerns this could translate into a slow recovery in 2022," he said.

Out-of-home advertising spending dropped 25.6% in 2020 and was expected to grow only 11.9% in 2021, according to MAGNA, a global media investment and intelligence company. This would put OOH global ad sales at just 83% of their pre-COVID-19 level at the end of 2021, according to the firm.

"The slower and more gradual recovery of OOH was expected due to the declines in consumer mobility, particularly in the heavily advertised transit segment, hurting OOH media audience and reach for most of 2021," MAGNA said in December 2021.

The firm does see an eventual recovery in the segment, however, saying it is "confident that ad sales will increase by double-digits again in 2022 and grow back to the 2019 level by 2023."

Once this happens, Castañón-Martínez said Octopus "could represent an important growth opportunity for T-Mobile's marketing and advertising unit."