CMO Mondays: The New Telecom

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In 2015, Verizon agreed to purchase AOL for $4.4 billion. This was a key acquisition for Verizon, as it looks to deliver more video content (and advertising) on top of its network of more than 100 million wireless users. AOL brought with it an established and growing set of content businesses, including The Huffington Post, TechCrunch, Engadget, Moviefone and Makers – as well as the advertising technologies needed to monetize this content. Indeed, per a Fortune report, CommScore says AOL’s video advertising reaches more than 50% of the U.S. population. Verizon has also been working on an over-the-top video offering since acquiring Intel’s media assets in 2014 and video delivery network EdgeCast in 2013. This year, Verizon agreed $4.8 billion for Yahoo!, which has over 1 billion monthly active users, and also brings content and ad tech into the mix. During this same period, Verizon has sold off several regions of its lucrative FiOS business, and has not expanded into new regions since 2010. Since Verizon closed its $130 billion deal to buyout Vodafone’s 45% ownership over Verizon’s Wireless business unit, Verizon is all in on content and advertising delivered over its wireless network.

AT&T, meanwhile, completed its $48.5 billion acquisition of DirecTV last year. With DirecTV came some 20 million U.S. subscribers and the lucrative NFL Sunday Ticket offering. AT&T also has over 100 million wireless subscribers. Through its Otter Media joint venture with The Chernin Group, AT&T has been acquiring some over-the-top content providers, such as Fullscreen, but nothing has really materialized from this partnership in a meaningful way from what I can tell.

Now, AT&T has announced that it seeks to acquire Time Warner for $85.4 billion. Shares for both companies have already dropped today from the announcement. Shares of Time Warner fell 3.1% to $86.74, while shares of AT&T decreased 1.7% to $36.86. Some in the industry are up in arms about the potential antitrust issues that this deal could bring, AT&T is positioning that it wants the content from Time Warner, so that it can feed that content to AT&T’s wireless, broadband and satellite subscribers, AT&T would also be absorbing Time Warner Cable’s subscribers.

I won’t pontificate about whether or not this deal will go through. Rather, I’m more intrigued the two distinct strategies that Verizon and AT&T are taking. Verizon is acquiring its way into the future, integrating its superior wireless network with premium online content and the ad tech to drive new revenues on top of that wireless network. This is critical given that the mobile subscriber market is essentially saturated. Telecom’s can’t expect to be growing their subscriber bases meaningfully for years to come.

On the other hand, AT&T is taking a very different approach: consolidate with the legacy media businesses and platforms of satellite and broadband.

Which approach will work? If the goal is to capture younger, cord-cutting audiences such as Millennials and Gen Z, while also capturing older audiences of Gen X and Boomers, then it would seem that Verizon has the better shot. Their investing in online content and ad delivery, but AOL and Yahoo! also bring the older audiences from their early Internet days. AT&T, on the other hand, is skating to where the puck has been with little visible investment in where the puck is going – even if DirecTV has seen over 900,000 net new subscribers in the last year since the acquisition.

I’m interested to see how this all plays out over the next five years, as we’ll see the impact of these acquisitions and whether or not the different strategies worked.

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