July 4, 2017
The Allen & Company Sun Valley conference kicks off today, despite the July 4 holiday in the US, amid rumors that Verizon Communications Inc. (NYSE: VZ) is considering a bid for Walt Disney Co. (NYSE: DIS). Verizon CEO Lowell McAdam is expected to attend the investment bank's annual Idaho event, along with CEOs of most major telecom, media and technology (TMT) companies.
Given that Verizon has barely closed its acquisition of Yahoo Inc. (Nasdaq: YHOO), it does seem unlikely that it would immediately rush to make such a massive acquisition. Nevertheless, according to a report in the New York Post, the telecom giant is seriously considering a bid.
Verizon plans to combine Yahoo and previously acquired AOL assets into a new company, Oath, in an attempt to target the digital advertising market. But without content assets, it will be missing an important part of the ecosystem. Content properties like Awesomeness TV don't offer the company the kind of breadth and broad appeal of a large media conglomerate.
Verizon is also competing with companies like Comcast, which owns NBCUniversal, and AT&T, which is awaiting regulatory approval for its $85 billion acquisition of Time Warner. The combination of video/TV content and broadband distribution networks offers important synergies for companies, potentially leaving Verizon at a significant disadvantage in coming years.
The Post quotes a "media observer" as saying: "It feels like Verizon is playing checkers while AT&T is playing chess."
Verizon's content focus in recent years has been on creating services aimed at the millennial customer, essentially looking ahead rather than catering to more traditional behaviors. But its efforts have not been particularly successful, with the operator calling off a premium short-form video service described as a mobile HBO for millennials earlier this year.
And despite a reported $200 million investment in content acquisition and development for its go90 mobile video service, it has not been able to get it to take off. Using technology acquired from Intel's OnCue, go90 was supposed to be a short-form, mobile-first video destination aimed at millennials -- but, according to reports, it continues to struggle.
So it does make sense for the operator to rethink its millennial focus, and maybe develop a more conventional set of services for the broader market. Plus, Disney's content and brand can also be repackaged for short-form mobile services, and help drive adoption and usage for its go90 service.
But is this the right time for Verizon, which has only just struggled through the difficult Yahoo acquisition? And is this the right media company? Disney's brand and contest is strongest with children, rather than millennials or older segments. And with a $170 billion price tag, it's not exactly an impulse purchase.
In a Deadline follow-up to the Post's story, at least two financial analysts rubbished the story -- and none too gently.
According to Steven Cahall, an analyst at RBC Capital Markets , investors should assign the Post's report "a low probability.” Cahall claims the source of the story is "probably well-placed at 5th Avenue's Polo Bar in a pair of brightly colored pants."
And Wells Fargo Securities LLC analyst Marci Ryvicker said that when she saw the story, she laughed out loud.
"We do NOT believe [Verizon] is contemplating the purchase of [Disney]. Perhaps the NY Post mistook the 4th of July for April Fools," she said.
Ouch! That should pretty much close the door on that discussion.
Unless Verizon's McAdam is spotted having a drink with (Disney CEO) Bob Iger -- in the Polo Bar obviously, and wearing bright pants.
— Aditya Kishore, Practice Leader, Video Transformation, Telco Transformation
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