Verizon’s dashed hopes to become a media and entertainment powerhouse

Once upon a time the telecom juggernaut thought it might go toe-to-toe with Facebook and Google. Not any longer as the company returns to building competitive advantage via its network

Back when Verizon bought Yahoo and AOL, I suggested that it might be a real option for the firm on the burgeoning market for on-line entertainment, providing perhaps a defense against the commoditization of being a mere pipe and getting a little access to an “over the top” market. Didn’t work out that way – as the two companies are being sold at fire-sale prices to a private equity firm, it was just announced. Verizon is going to lose money on the deal, as the sale is for about $4 billion less than it paid.  

So was I wrong? Depends on how you look at it. The whole point of buying an option is to spend a little to give you the right to make a choice later when you have more information. Now, $4 billion sounds like a lot of money for you and I, and indeed it is, but for Verizon? Consider that the company had $128.3 billion in revenue in 2020 and was worth $239.79 billion in market cap terms as of today. So that loss? Not a biggie, perhaps to learn that it doesn’t have the capabilities or the instincts for the entertainment / advertising business. Or that it really prefers investing in its network and high-speed transactions.  

 Now, what is Apollo, the private equity firm, going to do with these properties? Most likely run them as declining cash cows – you can make a lot of money if you don’t have to invest for growth. Or they could, as leadership hopes, invest to grow them, as Yahoo’s president said, putting on a brave face and saying that “Yahoo will now have the investment and resources needed to elevate our business to the next level.”  [citation here: https://www.nytimes.com/2021/05/03/business/verizon-aol-yahoo-sale.html]. If the playbook of private equity is true to form, I don’t think I’ll be holding my breath.  

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