Verizon CEO: "We Are Not Going to Be Owning Content"

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The telecom giant lost 37,000 pay TV subscribers in the second quarter and took a big charge for the shutdown of Go90, with outgoing CEO Lowell McAdam and successor Hans Vestberg discussing strategy.

Telecom giant Verizon on Tuesday said it lost 37,000 net pay TV subscribers for its Fios video service in the second quarter, compared with a loss of 15,000 in the year-ago period, with management reiterating that it wasn't on the hunt for acquisitions of content companies.

The company cited "pressures from cord-cutting of video bundles" as a reason for the decline in Fios video subscribers. The service competes with cable and satellite TV. Its Fios broadband service added 43,000 subscribers in the latest quarter, compared with 49,000 in the year-ago period.

Management has in the past said several times that Verizon wasn't eyeing any major acquisitions of media and content companies to increase its scale. 

Lowell McAdam, who is stepping down from his role as CEO next month and will be succeeded by chief technology officer Hans Vestberg, and who is also leaving his post of chairman at the end of the year, reiterated that on Tuesday's call, his last for the company. Asked about the role of video and content in Verizon's strategy, McAdam said, "We are not going to be owning content," adding that he and Vestberg agreed on that strategy. "We are not going to be competing with other content providers. We are going to be their best partner from a distribution perspective, and that makes a lot of great sense."

Added Vestberg: "I feel good about the assets we are having." The question of possible further deals in the industry after Walt Disney's $71.3 billion sweetened agreement for large parts of 21st Century Fox is expected to be a recurring one this earnings season.

Vestberg and McAdam on Tuesday stressed Verizon's focus on being a mobile powerhouse, with Vestberg saying that he was concentrating on providing the best mobile network. 

McAdam highlighted that video usage on mobile continues to grow, with video being the main driver of network traffic, also reiterating that "we are not fans of linear" TV. He added that the recent Allen & Co. media and tech mogul gathering in Sun Valley, Idaho, confirmed for him and Vestberg that the industry is excited about reduced latency in video streaming thanks to 5G. In demonstrations, "their eyes light up about what's possible," he said. 

Verizon late last month said it would shut down its go90 video app, less than three years after its launch. The telecom giant will end support of the free, ad-supported app on July 30. "Verizon will focus on building its digital-first brands at scale in sports, finance, news and entertainment for today’s mobile consumers and tomorrow's 5G applications,” the company said at the time.

Verizon on Tuesday took a charge for the go90 closure. Its second-quarter earnings per share came in at $1.00, compared with $1.07 in second-quarter 2017. That included an impact of 21 cents per share from tax reform and accounting changes.

On an adjusted basis, second-quarter earnings reached $1.20, compared with 96 cents in the year-ago period. The adjusted second-quarter earnings included "a pre-tax charge for product realignment of $658 million, mainly related to the discontinuation of Verizon’s go90 platform and associated content, severance charges of $339 million, and acquisition and integration-related charges of $120 million, primarily pertaining to Oath." The net impact of these items, after tax, was approximately $900 million, or 20 cents per share.

The company invested millions to license for go90 live-sports rights and content from dozens of shortform video producers, including AwesomenessTV (which is minority owned by Verizon), NewForm Digital and Funny or Die. But the app was slow to take off with the young audiences it was designed to reach, especially as deep-pocketed players like Netflix and YouTube began to invest more heavily in premium young adult programming. Only a handful of shows broke out, including T@gged from AwesomenessTV and competition series The Runner from executive producers Matt Damon and Ben Affleck.

Partners also became frustrated by the lack of promotional push behind their shows, and talent complained that the app-only experience didn't give them a way to share their work with their fan bases.Verizon, looking to keep pace with a new wireless generation of cord cutters, has for some time planned to launch a live TV streaming service, but it has seen a series of delays. "We're not looking to launch a me-too product but certainly expect to have an overall product offering...that will be compelling and meet their needs," CFO Matt Ellis said during an earnings conference call a year ago.

Vestberg on Tuesday mentioned Oath and the broader media business briefly, but he used most of his time discussing the opportunities of 5G, which is the latest, and faster, mobile networks technology.

Ellis earlier this year also touted deals like streaming video agreements for NFL and NBA games to maintain and grow Verizon's digital distribution partnerships while remaining an independent player, and without pursuing a major takeover like AT&T’s acquisition of Time Warner.

Through Oath, the unit created by merging Yahoo with AOL, Verizon remains in the content business. The division is investing in live-sports mobile rights, reupping its deal with the NFL to stream games across its platforms, including Yahoo! Sports. "There is no intention of spinning out Oath," McAdam said about some recent speculation on the future of the media business. "We are seeing the synergies we expected to see."

Oath revenue in the second quarter, excluding the impact of the new revenue recognition standard, came in at $1.9 billion, little changed from the first quarter.