Photographer: Robyn Beck/AFP via Getty Images

Verizon’s Foray Into Hollywood Is Already Getting a Reboot

  • Executives said to acknowledge shortcomings in meetings
  • Video service remains foundation of media strategy, CFO says

Over the past few months, senior executives from Verizon Communications Inc. sat down with producers, agents, filmmakers and studio executives to issue a mea culpa. Go90, the mobile video streaming service the company introduced in the fall of 2015, had fallen well short of expectations -- and Verizon knew it. 

Go90 didn’t have as many users as Verizon intended, and it was time to reset, according to people familiar with the conversations who asked not to be identified discussing private meetings. The nation’s largest wireless provider, eager to start a new business as growth slows in the mobile-phone industry, had gone boldly into media investments in the past few years, buying Intel Corp.’s OnCue and AOL Inc., but its strategy hadn’t always been clear.

An overhaul is now in full swing for go90, whose name is derived from the idea that users should turn their phones 90 degrees to watch widescreen video. On Tuesday, the company said it had fired 155 employees who oversaw the technological side of the service, replacing them with the staff from Vessel, a recently acquired startup. The dismissals follow the hiring of a trio of former media executives to oversee the next attempt at a strategy for original video content.

The need for a new source of growth was apparent on Tuesday, when Verizon reported that subscriber additions fell by almost two-thirds in the fourth quarter from a year earlier. That sent shares down 4.4 percent, the most in a single day since 2011. FBR Capital Markets, Raymond James and RBC Capital Markets downgraded their recommendations on the stock. With the market for mobile phones in the U.S. largely saturated, Verizon is struggling to grow at the rate Wall Street would like. In 2016, sales declined 4.3 percent, the first drop since 2010.

‘Tricky Position’

Verizon has already spent tens of millions of dollars on short-form series, like sports mockumentary “The 5th Quarter” and high-school comedy “Mr. Student Body President,” even as producers privately snickered at a phone company trying to make it big in Hollywood. In the coming weeks and months, the go90 team will try to turn that derision into admiration.

“It’s a tricky position to be in for Verizon,” said Amy Yong, an analyst with Macquarie Group Ltd. “They either sink more money into content on the chance it doesn’t bear fruit, or they don’t invest enough and the service never catches fire.”

Go90 was intended to be Verizon’s YouTube. Introduced in the fall of 2015, Verizon hailed the service as a video platform for all its customers. It licensed video from established media players ESPN and Comedy Central, as well as media upstarts like StyleHaul Inc. It even bought a stake in AwesomenessTV from DreamWorks Animation SKG Inc., deepening its commitment to digital content.

Verizon doesn’t disclose viewership data for go90, but it’s clear the service hasn’t yielded buzzworthy hits like Netflix’s “Stranger Things” or Crackle’s “Comedians in Cars Getting Coffee.” Still, go90 remains the foundation for Verizon’s media strategy, Matt Ellis, the phone company’s chief financial officer, said in an interview.

“I see go90 as a core part of our overall video and content strategy,” Ellis said. “It has AOL and hopefully it will include the Yahoo properties. We expect it to grow and be a key part of our strategy going forward.”

Growing Pains

While go90 is part of a giant corporation, it should be viewed as a startup, which naturally goes through growing pains, said Stephanie Horbaczewski, chief executive officer of StyleHaul. Go90 has made the right adjustments, such as standardizing the terms of its content deals so they can promote videos across different platforms, she said.

“What they’ve done is very quickly realized what they needed to correct in order to be able to maximize resources,” Horbaczewski said. “For being a startup inside an operation, they reacted quickly and made big changes quickly.”

Alternate Approaches

Verizon has taken a different tack in its media strategy than chief rival AT&T, which is plunging headlong into Hollywood with the $85.4 billion deal for Time Warner Inc., one of the world’s biggest makers of movies and TV shows. 

Instead, Verizon has focused its big investments on digital advertising technology and internet properties with large audiences, acquiring AOL for $4.4 billion in 2015 and agreeing last year to buy Yahoo’s internet business for $4.8 billion. AOL and Yahoo own popular sites for news, sports and finance, as well as video production and distribution capabilities. The popularity of these articles and videos was supposed to help Verizon win customers away from rivals AT&T and Sprint Corp.

Last year, Verizon placed go90 in the hands of Chip Canter, a former NBC Universal executive whose primary background is in distribution. He then hired Ivana Kirkbride, a business-savvy executive who previously worked at YouTube, to serve as go90’s chief content officer. Former Yahoo! Inc. executive Erin McPherson joined in December to oversee content strategy, acquisition and programming.

The struggles of go90 won’t deter Verizon from investing in media -- far from it. Verizon has already acquired Complex Media Inc. with Hearst, and is said to be targeting additional investments in media and entertainment, said the people familiar with the matter.

“We continue to see good user engagement,” said Ellis, the Verizon CFO. “We redid the platform early last summer, and we’ve seen better user experience. We are continually adding more content. Obviously it has further to go but it’s all been positive.”

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