Editor's Corner—Why Verizon is wise to move deliberately into media

Verizon’s media strategy enables the carrier to be more nimble as it once again wades into an uncertain mobile video market.

The nation’s two largest mobile network operators are both looking to build digital media and advertising empires as growth in their core mobile businesses has slowed dramatically. But they’re doing it in very different ways, and Verizon’s deliberate strategy may be the wiser play.

Last year Verizon bought AOL for $4.4 billion, and may soon finalize its $4.83 billion deal to acquire Yahoo (although the future of that agreement is still uncertain following the major hack of Yahoo’s customer information). Meanwhile, the telco recently bought the web-video startup Vessel for an undisclosed sum, and it continues to pursue Go90, an OTT video offering aimed at young mobile users.  

Those moves contrast starkly with AT&T’s strategy of making blockbuster deals to buy major media companies. The carrier recently launched DirecTV Now, an ambitious OTT offering built on last year’s $49 billion acquisition of the satellite TV provider, and it hopes to double down on that strategy with its proposed $85 billion takeover of Time Warner.

And it isn’t just the size of the deals that defines the difference in the two strategies—it’s also the size of the markets the two carriers are targeting. AT&T clearly hopes to bring traditional, high-profile video content to users on a variety of networks and devices, while Verizon’s sights are set on millennials—specifically, millennial males—who are more inclined to view customized content on their mobile devices.

“They’re both OTT products,” William Ho of 556 Ventures said in an interview with FierceWireless. “The difference is that Go90 is focused on millennials exclusively; the popular stuff is sports. DirecTV is mainstream content…. Within DirecTV Now they have exclusive stuff, they got the A-list stuff to bring mainstream and millennial viewers.”

That’s true, although it isn’t at all clear that AT&T can effectively monetize that content directly. Mobile network operators have historically failed to leverage on-the-go video—does the name MediaFlo ring a bell?—and AT&T is betting vast sums that it will be the first U.S. operator to be able to do so. (T-Mobile’s Binge On has been a hit, of course, but it doesn’t generate revenues directly—instead the carrier leverages the zero-rated video to differentiate its offerings from competitors.)

But Verizon’s more deliberate strategy enables the carrier to be more nimble as it once again wades into an uncertain mobile video market, as Barclays analysts wrote last month.

“While to some Verizon’s MediaCo strategy seems piecemeal, our deeper exploration suggests a deliberate multiyear initiative designed to 1) address how it believes media consumption will evolve, and 2) fit with its broader expectations around network evolution,” the analysts wrote in a research note to investors. “Specifically, the company’s goals are to embrace content tailored towards new forms of consumption/creation, open up additional revenues for revenue growth at the service layer (advertising, etc.), shift away from current content cost structures towards pay per use, embrace OTT distribution, and create a framework in supporting new content options that can possibly rival those provided by cable operators.”

As Ho noted, AT&T’s strategy is about much more than just creating a new revenue stream. The operator is zero-rating DirecTV Now content for its own customers, giving viewers a reason to switch mobile service providers. And offering multiple services to users provides the opportunity to ramp up ARPU.

“When you sell that, you can sell multiple things and you can now bundle in DirecTV as a package,” Ho said. “If you think about the average revenue per user going forward into 2020 and beyond, with the possibility to marry internet and video that bill is higher.”

Of course, Verizon risks giving AT&T a huge head start in mobile video if DirecTV Now takes off quickly, and it may indeed have to be much more aggressive to close that gap. But while soaring consumption of mobile video has lifted major online players such as Facebook and YouTube, carriers have yet to demonstrate that they can monetize that market. If carrier-backed mobile video offerings fail to catch on—again—Verizon’s deliberate strategy will end up looking smart by comparison. - Colin | @colin_gibbs