- Last week Yahoo live-streamed its first ever NFL match.
- Yahoo! Screen is lagging behind YouTube in live streaming content.
- A long-term live-streaming agreement with the NFL could save the failing Yahoo! Screen service.
Two weeks ago Yahoo (NASDAQ:YHOO) announced in its earnings release that the company is closing down its original content initiative and writing-off $42M of assets that relate to the TV shows Community and Sin City Saints. The announcement amazed many investors who still remembered how proud Yahoo was when it launched the original content business that was supposed to give Yahoo! Screen that extra thing to fight back against YouTube and Alphabet Inc-C (NASDAQ:GOOG). However, according to CFO Ken Goldman, Yahoo failed to monetize their new business: “We thought long and hard about it, and what we concluded is certain of our original video content. We couldn't see our way to make money over time.”
Yahoo! Screen vs. YouTube
Even though Yahoo is shutting down its original content business, its ambitions to compete with YouTube still exist. They have shifted their focus to a slightly different model, but it might be too little too late. Four years ago, YouTube announced a new live-streaming service that started as a cherry picking of live-streaming events, continued to a selection of channels, and later was made available for all channels, mainly to boost Google’s failing social network Google+.
A few years back while YouTube took off and Yahoo still believed it could compete with Google, it launched Yahoo! Screen as a YouTube-like service that allowed users to upload their videos and share video content. However, the new service was not very successful, and Yahoo figured out that it couldn't win the war with YouTube by offering the exact same service. At that point, Yahoo shifted Screen’s focus, removed all user-generated content, and replaced it with branded channels like The Hollywood Reporter, Entertainment Tonight, Fox Business, Morningstar, etc. This change, together with the original content, was supposed to help Yahoo generate significant revenues from video, according to the company’s management.
Yahoo! Screen Shift
Last year, Yahoo collaborated with LiveNation (LYV) to bring the live-streaming of concerts to the platform, and last week Yahoo live-streamed an NFL Match, between Buffalo Bills and Jacksonville Jaguars, for the first time. The game attracted around 30 million streams, accounting for around 15 million unique viewers, which is an impressive figure for a live-streaming event. The right to live-stream the game cost Yahoo $20M, almost half of the amount it wrote-off for its original content, not including promotions. Of course, ads revenues from an NFL game are significantly higher than ads revenues for original content or other live streaming events. However, the profitability of such initiative is related to the number of future games Yahoo will stream. Buying streaming rights game-by-game might not be cost optimized, and when the NFL force the streaming service to cap ads sales price at $100K – profitability from such an event is not clear.
While Yahoo live streamed its first NFL match last week, YouTube has been live streaming music, sports, and user-generated content for years. However, when YouTube moves to offer an ad-free service for $10/month to create an additional revenue stream for the successful service, Yahoo still struggles with the right business model for its video service. Yahoo! Screen's vague business plan is just another symptom of Yahoo’s declining core business. If Yahoo wants to create a successful branded channel/streaming video service, it should sign a multi-year contract with the NFL. Such an agreement will allow Yahoo to lower its cost per game (in both fronts – NFL rights and promotions) and engage in long-term advertising deals with potential advertisers. This kind of agreement will create a stable platform with highly demanded content that will attract recurring visitors. In a later stage, Yahoo could even launch an ads-free service to leverage the NFL content.
Conclusion - What Can Drive Yahoo Stock
The NFL business case is, of course, just an example; Yahoo could execute such a deal with the NHL, NBA, MLB, MLS, or any other professional sports league in the US and leverage it for international sporting events. As Yahoo still fetches for the right model, it lags behind YouTube in the video business (including live streaming). To challenge YouTube, Yahoo needs to either embrace the direction I mentioned above or make a similar drastic move—the current stagnation is bad for the company. This is just one of the many failed businesses Yahoo has in its portfolio that could be transformed into a successful business. However, in the current course of events, I still don’t see any added value for Yahoo’s core business, and the only value in Yahoo’s stock currently represents the company’s holdings in Alibaba (NYSE:BABA), which it plans to spin-off, Hortonworks (NASDAQ:HDP), and Yahoo Japan.