Verizon Sports Big Plans for Yahoo

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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