Today, Verizon announced it is selling AOL and Yahoo to private equity group Apollo for a hefty $5 billion, backing off its foray into media and advertising technology (adtech) and retrenching to its core competence as a mobile telco. This news should come as no surprise.
When Verizon acquired AOL in 2015 and then Yahoo in 2017 for approximately $9 billion combined, the industry reaction was mixed (and rightly so):
- Pro: Verizon getting into the media business was a sign that some new big kids were on the block to take on Facebook and Google. (AT&T showed up, too.)
- Con: AOL and Yahoo? What was this? 2004? Did Verizon really think those properties were the future of media? It certainly didn’t instill much confidence.
So, when the nosedive came in 2018, and hard, I declared its efforts “a failure.” Yet Verizon insisted its media business would come back stronger than ever. Apparently not.
Here’s why today’s news isn’t unforeseen:
- The media business is competitive; AOL and Yahoo are not “premium media assets.” Certainly not in the modern sense. They are not titans of original programming like Amazon Prime or Hulu. And they are not leaders (or even rising stars) in the meteorically growing CTV space. What they are is legacy digital media properties loaded down by baggage going back years and years.
- Google, Facebook, and now Amazon are digital advertising freight trains. They just keeping taking the lion’s share of digital ad spend in spite of much wishful thinking to the contrary, including our own (Just look at their recent earnings! We sigh for the “open internet”). And these behemoths are strangling other adtech players, too: All three have in-house adtech tools, leaving the market for independents squeezed. The trade desk is managing it, but who else can and will in the long term? To overtake any one of these would be very difficult, leaving Verizon’s demand-side platform business playing second fiddle in terms of budgets.
- Telcos don’t make great media companies. Fun fact: Rumors have been circulating for months that AT&T was planning on divesting itself of its media business. We generally credited AT&T for smarter, more attractive media and adtech assets than Verizon, but HBO Max has struggled, both with its identity and with attracting subscribers in a booming over-the-top market. So, if AT&T can’t make a real go of it, which telco can?
We don’t have great hope that a financially focused firm like Apollo will have greater success in the media and adtech business than an engineering-focused firm like Verizon did. In the acquisition announcement, Apollo pins its hopes on subscriptions and sports betting. Subscriptions are a long shot — there are few examples of media businesses whose primary revenue stream is subscription. If they are serious about scaling their betting business, look for them to buy a platform like BetUS.
Apollo’s other path is a typical private equity play: Cut costs, apply a few minor cosmetic fixes, and flip it to another buyer. If this happens, this acquisition will prove to be just one more stop in an ongoing game of telephone with AOL and Yahoo, both once-respected digital media pioneers.