Will Verizon's Big Yahoo Content Play Work?
Notes one digital media observer: "Verizon needed a new story and media is that story."
First Verizon was a telephone line operator. Then it reinvented itself as a provider of mobile and broadband internet services. Now it is carving out a future as a digital content company, and executives at the telecom giant see its acquisition of Yahoo as key to that plan.
Although Yahoo is not the $125 billion company it once was, its homepage and portfolio of media properties are still a powerful platform that attract hundreds of millions of people each month. Combine that with Verizon’s ambitions to control the flow of information from creation all the way down through distribution and it helps explain why Verizon agreed to pay $4.8 billion for the once-dominant internet company.
Top Verizon executives pledge the deal will help the company transform itself as more and more people clamor for content on their mobile devices. Analysts agree, but believe Verizon will have a big task ahead as it absorbs Yahoo and integrates its media portfolio into the company's vast customer base.
“Verizon as a wireless company is in a very challenged business,” says Peter Csathy, founder and CEO of digital media consultancy Creatv. “The economics are getting tougher and tougher. Verizon needed a new story and media is that story.”
The deal, expected to close in early 2017, comes 14 months after Verizon paid $4.4 billion for another early internet pioneer. The May 2015 acquisition of AOL gave Verizon a roster of media properties that include The Huffington Post and TechCrunch, as well as a large advertising technology business. A few months later, Verizon — in an effort to reach younger, mobile-focused consumers — released go90, a free ad-supported mobile app that features a mix of original web series, licensed television shows and sports clips. The company also has written checks to acquire a nearly 25 percent stake in AwesomenessTV (which it could seek to increase once the sale of owner DreamWorks Animation to Comcast is finalized) and to buy Complex in a joint venture with Hearst.
Now it will add Yahoo’s portfolio of media brands, including its popular finance, sports and news verticals, to its ranks. It’s a move that AOL CEO Tim Armstrong explains will help Verizon become a full-fledged media business. “Verizon’s real goal is to build a significantly-scaled mobile media company that runs on the Verizon network and that also runs on a global mobile network overall,” Armstrong tells The Hollywood Reporter, noting that Verizon is especially strong in distribution on “the most important media distribution type, which is mobile.”
Armstrong, a former colleague of Yahoo CEO Marissa Mayer’s from their days at Google, has had his eye on Yahoo for years. He helped lead the negotiations alongside longtime Verizon executive Marni Walden, who oversees product innovation and will lead the Yahoo integration. For him, the acquisition is all about scale. In June, Yahoo had the third-largest audience in the U.S. on desktop and mobile, just behind digital media juggernauts Google and Facebook, according to comScore. AOL came in at No. 7. Combined, their audience would have shot them to the top of the list, though the internet giants would still dominate the mobile ad market.
“They have some heavy lifting to do in shifting Yahoo from a mostly desktop to a mostly wireless platform,” says MoffettNathanson analyst Craig Moffett. “But they've got the right assets. By combining Yahoo’s content with AOL’s ad tech and Verizon’s own wireless customer data, they have the opportunity to transform the value of Yahoo’s value proposition to advertisers.”
Verizon and Yahoo executives have yet to begin exploring just how the company will fit into the existing infrastructure — after a several-month bidding process, executives hurried to finalize a deal before addressing the specifics of how to combine the companies. But Armstrong points to properties like Yahoo Finance, Yahoo Sports, Yahoo News and Tumblr, the blogging platform that Yahoo acquired for $1.1 billion, as interesting to AOL.
Meanwhile, sources inside Yahoo say that editorial staff is optimistic about the sale, noting that Verizon's strength in mobile and Armstrong's appreciation for content could help to solve some of their frustrations about Yahoo, where many felt their content was hard to find and lacked marketing support. This could help Verizon retain some of the high-profile media personalities, like global news anchor Katie Couric and Yahoo Fashion editor-in-chief Joe Zee, that Mayer lured to Yahoo during her initial push to expand its editorial efforts. Couric has been with Yahoo since 2014, and her contract is up next year after the sale is finalized. A rep for Couric declined to comment.
Armstrong said he was looking forward to working with Yahoo's talent. "Yahoo has a number of people on their team who are the world's best builds of culture and code," he added.
Many observers question just how Verizon can integrate Yahoo, which, despite its sizeable audience reported last week, declines in its search and display revenue, when little is known about how AOL has fared under the umbrella of the telecom company over the last year. The only mention of AOL in Verizon’s first-quarter report was that its quarterly revenue was the highest it had been in five years.
Others say they aren't convinced of the size of the upside of a media heavy strategy, especially given the high costs associated with producing or funding original content. "Investors are still trying to figure out exactly what Verizon is trying to accomplish, and the Yahoo deal does not exactly provide the answers," says BTIG analyst Walt Piecyk. "Management has been unwilling to size the opportunity that they are pursuing in this space, which would have to be big in order to have an impact on a company of Verizon's size."
While there could eventually be redundancies between the two companies — analysts have pointed to similarities between Yahoo News and The Huffington Post, for example — some of the shared DNA could also work to their advantage. Yahoo was early on the live craze, striking deals with Live Nation for a concert series and streaming one of the NFL’s London games live on its homepage last year. AOL, too, has invested heavily in the space and is currently building out a 13,000-square-foot studio in New York for its live show, Build. “I think the two companies are joined at the hip strategically from thinking about video and live and mobile all in one swoop,” says Armstrong.
But Yahoo had previously pulled back on some of its video efforts, shuttering its Yahoo Screen video hub and taking a write-down on its longform content plans, which included a sixth season of cult comedy hit Community and originals from Paul Feig and Mike Tollin. This comes as Verizon’s own mobile video effort, go90, has struggled to gain traction among the millennial and Gen Z audiences after investing millions to acquire original programming from web video producers like Funny or Die and StyleHaul. Verizon recently hired a Los Angeles-based content executive to help focus its efforts.
For Armstrong, however, the benefit as clear. As he guns for 2 billion AOL users by 2020, Yahoo brings with it a sizeable audience. “As I like to say internally, you can’t argue with a billion users,” notes Armstrong. “So I think we made the right move.”