Verizon Sets Sights on Facebook, Google
July 26 2016 - 1:10PM
Dow Jones News
Verizon Communications Inc. is gunning for Facebook Inc. and
Alphabet Inc.'s Google.
Its $4.83 billion deal to acquire Yahoo Inc. announced Monday
will allow the nation's biggest wireless carrier to become a
meaningful player in the digital media industry, which could be as
large as $180 billion by 2020, CEO Lowell McAdam said.
"Verizon intends to be a significant player in this space," Mr.
McAdam said on a conference call.
The carrier is hoping that pairing Yahoo's one billion monthly
active users with its own 113 million subscribers will create a new
growing revenue stream at a time when its core business is slowing.
On Tuesday, Verizon reported slowing retail postpaid subscribers
and a 5.3% revenue decline for the quarter ended June 30. It was
the first quarterly drop in revenue since 2010.
Shares of Verizon fell 1.9% midday to $54.81.
The call with investors Tuesday was the first time Verizon
executives directly addressed its rationale for acquiring Yahoo,
explaining that some of Yahoo's most attractive assets were its
email, News, Sports and Finance properties.
"Yahoo brings viewers. Viewers bring advertising. Advertising
brings top-line growth," said Verizon Chief Financial Officer Fran
Shammo.
Verizon's thesis for the Yahoo investment is content creators
and advertisers are hungry for alternatives beyond Facebook and
Google as the market for digital media expands for both in-home and
mobile consumption. This year, Google collected an estimated 31% of
digital ad revenue globally and Facebook had 12%, according to
eMarketer. Yahoo and AOL combined have about 2.2%.
"There's been a lot made of are we going to challenge Google and
Facebook in this process," Mr. McAdam said. "We're a small player
today relative to them. All we need to do is take more than our
fair share of the growth of the market and this will be a success
for us."
Verizon said traditional 300-channel TV bundles are beginning to
fray, and more media consumption is moving to smartphones,
especially among millennials. Mr. McAdam pointed to how some of its
other investments, such as its recent acquisition of Complex
magazine and AwesomenesssTV, will help it ride that wave.
Mr. McAdam also said he recently spoke with NFL Commissioner
Roger Goodell and NBA Commissioner Adam Silver about ways to expand
sports content, including games, on Verizon's online and mobile
properties, such as its mobile video app go90. Mr. McAdam said the
carrier is also in talks with broadcast networks about how their
sports channels could also be streamed over AOL, Yahoo or go90.
"The big advertisers have come to us saying that they have more
ads to place than they have good places to put them," Mr. McAdam
said. "We will be one of the few that can deliver advertising and
content across the home, across the mobile device, and across the
internet."
Investing in mobile media will also allow Verizon to draw
revenue from a less capital-intensive business, Mr. McAdam said,
and one that doesn't have to deal with a labor union. Verizon spent
$7.3 billion in capital expenditures on its networks in the first
half of the year, and had to manage a 45-day labor strike.
For the period, Verizon added 615,000 net retail postpaid
wireless subscribers, a 46% drop from the prior-year period, while
revenue fell to $30.53 billion. Its landline internet and TV
business, called Fios, also lost customers, partly due to the
wireline strike.
Earnings, meanwhile, took a major hit from one-time
remeasurements to Verizon's pension and postretirement benefits as
well as higher costs incurred during the strike. In all, Verizon
reported a profit of $702 million, down from $4.23 billion a year
earlier.
In recent years, Verizon has offered heavy discounts on tablets
as a means of juicing subscriber metrics. This quarter, more than
350,000 of its net additions were tablets, and only 86,000 were
phones.
While the departure of more fickle tablet subscribers partly
caused monthly cancellations to tick up slightly to 0.94%, it also
has the benefit of seeding Verizon's customer base with a larger
screen where they can more comfortably watch its new online
content, Mr. Shammo said. About 11% of Verizon's 113 million retail
customers have tablets, he said.
"With go90, AOL, Yahoo coming into the portfolio fold, we are
trying to drive more usage and these devices I want those users to
consume content, which then ultimately drives advertising," Mr.
Shammo said.
Write to Ryan Knutson at ryan.knutson@wsj.com
(END) Dow Jones Newswires
July 26, 2016 12:55 ET (16:55 GMT)
Copyright (c) 2016 Dow Jones & Company, Inc.
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