- Yahoo has shuttered Yahoo Screen, its original content platform.
- Although Yahoo is trying to make it look like a mere re-organization, there is more to it than what meets the eye.
- What does the move imply for Yahoo's future?
Original content is the Holy Grail in the world of online media. Without original content, a media company simply cannot attract decent viewership and, as a result, its ad revenue is bound to suffer. Streaming video services such as Netflix (NASDAQ:NFLX), Amazon Prime Video, and Hulu compete fiercely for original content. So it appears strange that Yahoo (NASDAQ:YHOO) has decided to shutter Yahoo Screen, its home of original content. Yahoo launched Yahoo Screen about two years ago to unite its original and syndicated programming under a single hub. Yahoo Screen was home to popular series including NFL clips, Saturday Night Live episodes, and Community formerly owned by Comcast’s NBC.
Announcing the new development, Yahoo tried to give it a nice ring to make it appear like a mere re-organization:
"At Yahoo, we’re constantly reviewing and iterating on our products as we strive to create the best user experience. With that in mind, video content from Yahoo as well as our partners has been transitioned from Yahoo Screen to our Digital Magazine properties so users can discover complementary content in one place."
But prior developments at Yahoo suggest that this is anything but a simple re-organization. During its third quarter earnings call, Yahoo revealed a $42 million write down of its original video series. Yahoo made big bets such as Community which the company scooped after NBC cancelled the show after just five seasons, as well as other original shows including Other Space, Sin City Saints. But Yahoo’s earlier comments when it shut down community is a giveaway to the real gravity of the company’s original content business:
‘’We thought long and hard about it and what we concluded is certain of our original video contents we couldn't see our way to make money over time. And so, I'm thinking of Community, I'm thinking of Sin City Saints and so forth. And so, there what we had basically had spent money and had some assets on our balance sheet, we elected to write those off. That actually helps us going forward in that we won't have that expense to amortize going forward.
In thinking through that, we thought about not only what is the cost but also what is the cost to market and create the streams you need to make it successful. And so, again, we're not saying we're not going to do these at all in the future, but what we are saying is in three cases at least it didn't work the way we had hoped it to work and we decided to move on and basically write-off those assets to balance sheet and therefore preclude us from having to amortize that going forward.’’
So basically Yahoo cannot figure a way to make money from its original content, and is no longer willing to spend more money on the same. Yahoo Screen was at the center of Marissa Mayer’s MaVeNS (an acronym that Yahoo coined for mobile, video, native advertising, and social) investments. Yahoo has been counting on MaVeNS to pull it out of its revenue tailspin. Yahoo’s revenue ex-TAC (Traffic Acquisition Costs) was down 8% Y/Y to $1.004B during the last quarter. The fact that Yahoo is willing to sacrifice its original content in order to cut costs suggests that the company is more interested at this point in making itself more attractive to a potential buyer than reversing its dwindling fortunes. Yahoo seems to have given up on trying to grow its business again.
Yahoo stock price is down 10% over the past one month as investors grow increasingly disgruntled about the way the company is dragging its feet.
Yahoo is looking to spinoff its core Internet business as per the demands of Starboard activist. For Yahoo to become an attractive takeover target, it has to improve its cash flows and generally put its house in order. Verizon is on record saying that it would be interested in buying Yahoo’s core business while other companies have expressed their interest in bits and pieces including BrightRoll, Tumblr, and Flurry.
There is a lot of speculation regarding a fair value of Yahoo’s core business with some analysts assigning the business an unusually low valuation. Due to this uncertainty, it would not be prudent to buy the seemingly cheap Yahoo stock on the basis of a future spinoff. Unless you are one of those investors with a high risk tolerance, Yahoo shares should be given a wide berth.