With an eye on mil­len­ni­als, Ver­i­zon goes big on mo­bile stream­ing

▶ It’s count­ing on its new Go90 ser­vice to pull in ad rev­enue ▶ “Ev­ery­one would be ea­ger to do a deal with some­one that large”

Bloomberg Businessweek (North America) - - News - Scott Moritz and Lu­cas Shaw

Ver­i­zon Com­mu­ni­ca­tions once as­pired to be the Com­cast of mo­bile, stream­ing movies and TV shows to its 107 mil­lion monthly sub­scribers. Now it wants to be Youtube, feed­ing short video clips to mil­len­ni­als, who spend more hours each day glued to the tiny screens of their phones than they spend sit­ting in front of a TV.

Amer­ica’s largest mo­bile car­rier has reached a key junc­ture. Its wire­less rev­enue tripled in the past decade, but growth has slowed as just about ev­ery­one in the U.S. now has a cell phone. That’s why Ver­i­zon is ea­ger to stake its claim in the nascent mar­ket for mo­bile video. More than 139 mil­lion Amer­i­cans watched video on a smart­phone at least once a month in 2015, a num­ber that’s ex­pected to jump 22 per­cent, to 169 mil­lion, by 2018, ac­cord­ing to es­ti­mates by re­searcher Emar­keter.

Ver­i­zon’s Go90, named af­ter peo­ple’s ten­dency to flip their phone side­ways to watch movies and videos, premiered as an app for Ap­ple and An­droid phones in Oc­to­ber and is avail­able to cus­tomers of other car­ri­ers. The ser­vice is aimed mainly at teens and twen­tysome­things, for whom video watch­ing is a so­cial ex­pe­ri­ence. There’s a “cut and share” fea­ture that lets users share clips with their Face­book friends and Twit­ter fol­low­ers.

Go90’s lineup in­cludes shows from ESPN, NFL Net­work, MTV, VH1, and the Food Net­work. To sup­ple­ment that, the car­rier has com­mis­sioned more than 50 ex­clu­sive se­ries from Col­legehu­mor, Vice, and En­de­mol Be­yond USA, among oth­ers. Live broad­casts of sport­ing events such as NBA games (sub­ject to ad­di­tional fees) and con­certs are also part of the mix. “If you look at mo­bile hand­set pen­e­tra­tion, in­creased data speeds, and the vi­a­bil­ity of video of­fer­ings on mo­bile, it’s just get­ting bet­ter with time,” says Tom Gorke, ex­ec­u­tive vice pres­i­dent for sales and con­tent dis­tri­bu­tion at Vi­a­com, which owns Com­edy Cen­tral and sev­eral of the other net­works sup­ply­ing Go90. “Ver­i­zon is the largest mo­bile op­er­a­tor in the coun­try. Ev­ery­one would be ea­ger to do a deal with some­one that large.”

In a move that may tip the play­ing field, Ver­i­zon an­nounced in early Fe­bru­ary that data us­age on Go90 won’t count to­ward cus­tomers’ caps. Ri­vals such as Netflix and Youtube Red, a $9.99-a-month sub­scrip­tion ser­vice in­tro­duced in Oc­to­ber, would have to pay the car­rier for their of­fer­ings to en­joy the same treat­ment. Ex­ec­u­tives at Ver­i­zon didn’t re­spond to re­quests for com­ment.

The com­pany’s ini­tial goal was to de­liver sub­scribers a full pack­age of live TV, on-de­mand shows, pay-per­view events, and games. It shifted gears last sum­mer af­ter it be­came clear that ne­go­ti­at­ing stream­ing rights with broad­cast­ers and me­dia com­pa­nies would be dif­fi­cult and time­con­sum­ing. Ap­ple and AT&T have post­poned their own video stream­ing ser­vices for sim­i­lar rea­sons.

Un­like Youtube Red and Netflix, Go90 is free. Ver­i­zon is count­ing on ads to pay for the ser­vice. In the U.S., mo­bile video ad spend­ing is grow­ing faster than any other type of dig­i­tal ad­ver­tis­ing: Emar­keter es­ti­mates it reached $2.8 bil­lion in 2015 and will dou­ble, to al­most $6 bil­lion, by 2018. Growth would be even stronger, Emar­keter said in a re­port in June, if there were more con­sen­sus be­tween ad buy­ers and sellers on au­di­ence met­rics and pric­ing.

Us­ing the trove of in­for­ma­tion it has col­lected on its wire­less sub­scribers, in­clud­ing age, gen­der, gen­eral in­ter­ests, and lo­ca­tion, Ver­i­zon says it can help mar­keters flash their ads to the right peo­ple at the right time. With its $4.4 bil­lion pur­chase of AOL in May, the car­rier ac­quired a well-es­tab­lished pro­gram­matic ad plat­form—where ma­chines, not peo­ple, make de­ci­sions about which ads run where. “AOL gives Go90 real-time ad sales,” says Roger Ent­ner, an an­a­lyst with wire­less in­dus­try strate­gist Re­con An­a­lyt­ics. “With­out that, Ver­i­zon would have to rely on some­one else like Google to pro­vide the ad plat­form.”

Dur­ing an earn­ings calls in Jan­uary, Ver­i­zon’s chief fi­nan­cial of­fi­cer, Fran Shammo, said the ser­vice had sur­passed ex­pec­ta­tions. He de­clined to give specifics other than that the app had been down­loaded some 2 mil­lion times. He tamped down ex­pec­ta­tions of a quick re­turn. “Go90 will not be a prof­itable prod­uct prob­a­bly within a oneyear to two-year hori­zon,” he said.

Walt Piecyk, an an­a­lyst with BTIG, an in­sti­tu­tional bro­ker­age, thinks Go90 may be even more of a long

“I know Ver­i­zon says they will be first, but we are right there with them.” John Dono­van, AT&T’S chief strat­egy of­fi­cer, on Feb. 12, when the car­rier an­nounced it was join­ing the race to build a faster, 5G wire­less net­work

shot. “Sure, you can have fewer, higher- qual­ity ads that com­pa­nies are will­ing to pay more for, but you are go­ing to need a lot of cus­tomers like that to even be­gin to move the nee­dle for a com­pany of Ver­i­zon’s size,” he says.

The bot­tom line With Go90, Ver­i­zon is look­ing to cap­ture a share of mo­bile ad spend­ing, which is fore­cast to dou­ble by 2018, to al­most $6 bil­lion.

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