Is it in Verizon's (VZ) DNA to unleash Yahoo (YHOO) for what it once was and could be again: the ultimate generalist site for television, movies, sports and business, the portal that can aggregate in a way that no other company can aggregate?
For that, it's up to Tim Armstrong and Lowell McAdam, the internet chieftain and the CEO of Verizon.
First, there's no question that if it is firepower that's needed, Verizon has it. This 4%-yielding leader in telecom knows more about cellphones than everyone but the cellphone makers and that's vital because, if I were Armstrong and McAdam, I would come at this $4.8 billion deal in a way that's totally counterintuitive to the current way Yahoo is doing business.
First, I would make deals, deals with high-quality content players that allow link-backs in return for content. But beyond that I would offer a non-advertising model driven by the taking of a Verizon contract and an ad-supported version for everyone else.
Why not? Verizon doesn't need the additional ad revenue from Yahoo. It's too small. What it needs is a competitive advantage vs. AT&T (T) , Sprint (S) and T-Mobile (TMUS) . If you make Yahoo good enough, you can do it.
Barring that model, Verizon can do something else: it can stop the revolving door among those who deal with Yahoo and set up steady relationships with exclusive content. It can also create streaming content -- even get into the movie and long-form business like Netflix (NFLX) and Amazon (AMZN) . Again to get subs, because remember, like Bloomberg terminals, the value for Verizon is getting those terminals -- those phones -- from which everything flows.
For sports it is possible to lure away the best of the best for commentary as well as bid for some very key programming that YouTube has shown no inspiration to do. Why not bid, for example, for the international rights for all the NFL, including China, which you know is coming? Why not get in the scrum for internet rights for all of the major sports events?
Then, if you really wanted to think big, why not buy Twitter (TWTR) and turn that, too, into a Verizon loss leader.
It's a totally new ballgame.
I think that the question is how much free rein will Verizon give to Armstrong? Let's say they stick with the advertising model, then you have to divide among the cost of acquisition of a sub and the ad dollars. The amortized costs are, to a degree, fungible. But you know that it's worth figuring out how much cost there is, for example, to snaring a sub via Yahoo-AOL and a player to be named later vs. the monster advertising budget Verizon has now.
Needless to say, you know that Verizon's going to make it very easy to get Yahoo-AOL by making a deal with Apple (AAPL) for placement. Why not? They have a great relationship.
I would do this all in steps.
First, I would want to see how much good Yahoo there is left. Maybe it's irrecoverable. Maybe ESPN has gotten so far ahead and this portal so far behind it doesn't matter. I know that the financial site can be improved given that I have been involved in it since creation. It has to work with, not against, the content developers and has to make up its own mind how much it wants to create itself, as content in the space is very expensive.
But it is in the entertainment world that I expect to see the most change. Yahoo needs to be the incubator of talent the way AOL was long ago, like when the days when Bob Pittman, who was running AOL, had a greenhouse to develop talent, something of which we availed ourselves.
Sadly, the current Yahoo became a chore to read and to work with. It never had to be that way. It was very black box and ivory tower and I know that you became a mendicant when you dealt with whoever was on the other end of the phone or the e-mail because it changed constantly. No sooner did you develop a rapport with someone than that someone was gone. No sooner did you try to develop something proprietary with them and you discovered that it wasn't proprietary at all.
When I started TheStreet I had a very close relationship with Yahoo, very symbiotic. We would rely on each other in a way that was pure joy. I hope once again that can be the case instead of the sense of ennui that was brought about at a time that should have been so much fun. Yes, fun.
It's time to bring back the fun. I know my role: not about friends, it's about money. But I always find myself enjoying Tim's company. He's a big thinker and a humorous observer who shares my love -- of all things -- meditation!
Anyway, I think that it's onward and upward for Verizon and its content division and so far, from what I have seen, the independence is working well for both parties. If the independence gets more robust, the better, not that Verizon isn't a great company. It's just a company, like Clint Eastwood in "Magnum Force," knows its own limitations.
And it knows it has a star with Armstrong and it wants to give him the ball on every play. Just as it should be.