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Verizon Sports Big Plans for Yahoo

Alan Breznick
7/26/2016
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Watch out, Google and Facebook. Fresh off its $4.83 billion purchase of Yahoo's operating business, Verizon has ambitious plans to challenge your domination of the digital media market.

Verizon Communications Inc. (NYSE: VZ) Chairman & CEO Lowell McAdam made that intent clear this morning. Speaking on his company's second-quarter earnings call, McAdam said Verizon aims to leverage Yahoo Inc. (Nasdaq: YHOO)'s major online media assets to attract more viewers and advertising and drive both revenue and profits for the big US telecom operator, putting it on the same level as Google (Nasdaq: GOOG) and Facebook .

"We see tremendous opportunities in the digital media marketplace," McAdam told investors and reporters on the call. "Verizon intends to be a significant player in this space."

For one thing, McAdam said, Verizon plans to leverage the Yahoo Sports unit to build stronger partnerships with the major sports leagues, starting with the NFL and NBA. After having talked to both leagues, he likes the idea of streaming more pro football and basketball content across all four of Verizon's digital media platforms – Fios, AOL, Go90 and now Yahoo.

"We can work with them on strengthening their game," he said. "We view this as a waterfall of content."

Secondly, McAdam sees a big opportunity to leverage the Yahoo Finance property to stream more content to its wireline, wireless and online subscribers. He also sees great promise in combining the email platforms of Yahoo, AOL, Go90 and Verizon to drive more traffic to its properties.

With Yahoo now in its pocket, Verizon CFO Fran Shammo said the telecom operator will focus first on boosting media revenues through increased viewership and higher ad receipts, and then on raising profits. "We're looking at this as a portfolio of assets," he said. Besides its content brands, Yahoo also owns ad technology assets, including: a programmatic demand-side platform gained through its acquisition of Brightroll; mobile app analytics service Flurry; and native and search advertising solution Gemini. (See Yahoo Signing Off in $4.83B Sale to Verizon.)


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Verizon's big challenge now will be how to integrate all these assets, including AOL's New York City-based operations and Yahoo's Silicon Valley offices, into an entity that can compete at web-scale in a way that both AOL and Yahoo couldn't do on their own. McAdam acknowledged this challenge on the earnings call, noting that "we don't kid ourselves about execution."

Neither McAdam nor Shammo commented on the role that Yahoo CEO Marissa Mayer will play once the acquisition closes, which is expected to happen early next year. But AOL CEO Tim Armstrong, who will direct the integration process, has said Mayer will assist in the transition and could stay on longer with Verizon.

Verizon officials expounded on the video and other opportunities of the Yahoo deal after the company suffered through a ragged quarter heavily impacted by the bitter 45-day workers strike in the spring. With relatively few employees available to process new orders and install equipment in customers' homes, Verizon's wireline unit shed 41,000 Fios Video and 13,000 Internet subscribers in the second quarter, turning in one of Fios' worst performances to date. Total quarterly Fios revenue, however, still managed to rise 3.7% to $2.8 billion, compared to the year-ago period.

Verizon said it made significant progress in working through a backlog of Fios installations in June and has since returned to its normal run rate of Fios connection growth. In general, Shammo said, "we'll get back to normal growth in the third quarter." But he advised investors that while the current quarter will see positive growth, "it will probably be less than a normal third quarter."

— Alan Breznick, Cable/Video Practice Leader, Light Reading

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mendyk
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mendyk,
User Rank: Light Sabre
7/26/2016 | 1:15:26 PM
Let's put it to the test
If this works, does Verizon win some sort of prize for proving that two wrongs can in fact make a right?
wanlord
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wanlord,
User Rank: Light Sabre
7/26/2016 | 1:35:04 PM
I get it
I get why they are doing it. Desperation. They haven't been able to figure out how to create anything internally, or change the telecom culture that exists. The culture clash will be very interesting.  There is a big difference between how things are managed and how employees are treated in VZ vs. these companies. Just go to the VZ HQ and see how quiet the sterile office is and how sad it feels with everyone stuck in their little cubicles not communicating. Blocked from any use of social media or tools to communicate and be open.  They don't even see the value of providing free coffee in work areas, forcing employees to take 20 mins out of their day going to the cafe and standing in line. Huge productivity suck.  They want to be Google and Facebook, but don't want to pony up the perks that bring in the best talent and inspire employees to make them happy. The moment I see the VPs and XOO's sitting out with their teams instead of hiding out in their bunker offices, then I will believe they are serious.
mendyk
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mendyk,
User Rank: Light Sabre
7/26/2016 | 2:04:57 PM
Re: I get it
Good points -- they also reinforce the perception that Verizon's top management struggles with the issue of effectively managing both its legacy businesses and its new-growth opportunities. Also, it's hard to escape the conclusion that VZ's top management sees its workforce strictly as a cost burden, as opposed to a revenue-generating asset.
brooks7
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brooks7,
User Rank: Light Sabre
7/26/2016 | 2:12:39 PM
Re: I get it
Dennis,

I would argue that the residential assets are primariy a drain.

seven
mendyk
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mendyk,
User Rank: Light Sabre
7/26/2016 | 2:26:22 PM
Re: I get it
Yes, and McAdam has made no secret about his disdain for that business. Still, as the CEO of the entire company, it's his job to make that part of the business work as best as it can. And to wanlord's point, VZ isn't acting like an organization that understands what it takes to compete with the Webscale bunch.
brooks7
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brooks7,
User Rank: Light Sabre
7/26/2016 | 2:41:14 PM
Re: I get it
Dennis,

I completely and utterly disagree.  If you have a bad business, then stop doing it.  Don't throw good money after bad.  The challenge is that they can not just abandon the business from a regulatory standpoint.  They have been selling it off chunks at a time.  But you can not assume that it is possible to make the residential wireline business a good business into the future.  

I took Wanlord's point to be that you can't make a telco into Google.  I agree with that.  The best thing you can do is fire all the telco guys.  Problem is that this is not realistic.  So, the next best thing is to stop trying to build the business and to buy it.  When you buy it, run it separately and let your legacy business wither.

Let me use a bit more detail on the commentary from the post I did earlier in the other thread.  I see advertising as a 95% GM business.  If I can buy a cash machine that is there and cobble together good pieces of failed businesses, then I have a scaled business already.  The problem is trying to put telco people in charge of that business.  It never works.

They are treating Verizon as a giant P/E fund and repositioning the firm.  Seems most excellent to me.

seven

 
mendyk
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mendyk,
User Rank: Light Sabre
7/26/2016 | 2:47:31 PM
Re: I get it
So then why doesn't McAdam engineer a spinout and isolate what he and others consider to be dead weight? He's getting paid close to $20 million a year. Are shareholders getting their money's worth from that spend? As far as the cash machine goes, if things were that easy, more companies would be doing it. That's kind of the problem when top management gets lazy -- they start looking for giant piles of money that take little or no effort to secure. I see nothing to suggest that Verizon can execute the plan you suggest.
Joe Stanganelli
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Joe Stanganelli,
User Rank: Light Sabre
7/26/2016 | 2:50:57 PM
Re: I get it
@wan: I think there are numerous fair criticisms one can level at VZ, but their culture not being like that of a "hip" startup that provides free coffee is not, in my mind, one of them.  Dumb, desperate Millennials who overpaid for their college degrees and went into too much debt may fall for the "oh, boy, free snacks!" benefit as making up for low salary, but even modestly more seasoned workforce members understand that work doesn't have to be -- and probably shouldn't be -- like a giant playground.  (Indeed, a number of ex-employees of such "free food and fun times" startups have gone on to bitterly complain about their former employers' poor culture, poor hopes for advancement, poor benefits, and poor salary on such sites as GlassDoor.)

Sure, there is productivity to think about, but there is also practicality.  FB, Google, and the like in Silicon Valley pay TONS of money on benefits to keep their employees on campus and in the office working and collaborating as long as possible... but that environment isn't for everyone, and isn't worth it for everyone.

(Also, I've learned from personal experience that if you're interviewing for a job and you discover that the executives don't have real offices, run away.)
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
7/26/2016 | 3:05:23 PM
Re: Let's put it to the test
What's the overall strategy here? Verizon seems to have two businesses without an overall connection here: Service provider and ad platform. 
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
7/26/2016 | 3:06:16 PM
What next for Marissa Mayer?
Common wisdom is that she's a failure. 

But is she? Or did she keep the company going longer than others woudl have, and deliver maximum return for shareholders?
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