Oath better off spun off as Verizon ushers ad unit deeper into refuge

Surely it’s pure coincidence that Verizon has given its Oath media unit a costume change so soon after AT&T came out with its own Oath rival? Not a chance.

When Verizon finally unveiled the polished Oath business in mid-September, which was supposed to restore order after years of arduously piecing together business fragments, Faultline Online Reporter highlighted how the ongoing consolidation of Oath screamed of instability within the advertising and publishing marketplace – while also predicting more consolidation to come.

The additional “unification” – as Verizon prefers to describe it – came much sooner than expected. The operator has now begun phasing out the Oath brand and will migrate services and technologies, comprised primarily of Yahoo and AOL assets, to the newly formed Verizon Media Group sector, serving as one part of a reorganized three-pronged Verizon – focusing on Consumer, Business, and Media.

A major question mark now looms over Verizon of whether Oath and its addressable advertising platform might actually be a more successful business outside of the company rather than inside it. On the company’s Q2 earnings call earlier this year, then CEO Lowell McAdam said, “There’s no intention of spinning out Oath in any particular format.” Given the current pace of events, we would not be shocked to see Vestberg make an about-face.

New Oath CEO Guru Gowrappan told staff in an email this week, as leaked by the Huffington Post (part of Oath), that a “transition timeline” would be delivered by the end of the year. Gowrappan was brought in last month to replace AOL boss Tim Armstrong, the surgeon in charge of stitching Oath together who might have sensed the scars failing to heal before anyone else, after reports of a spat between Armstrong and newly appointed CEO Hans Vestberg over the lack of content commitments.

Verizon’s Q3 report doesn’t arrive until next week, while last quarter’s results showed relatively flat Oath revenue of $1.9 billion. Although its earnings call did mention acquisition and integration costs pertaining to Oath in the region of $120 million, contributing to a $900 million net loss when combined with the discontinuation of Go90 and other product realignment charges. The latest changes to Oath will not be reflected in Verizon’s financial reports until Q2 2019.

In comparison, AT&T’s new Xandr division impressed in the third quarter with revenue up 13.5% to $445 million. CEO Randall Stephenson has mentioned making smaller acquisitions in the advertising sector in the coming months to bulk up Xandr, most recently adding the Adnexus platform in June in a reported $1.6 billion buy.

Oath’s reshuffle is merely a single cog in a much broader business reorganization, centered primarily around 5G. Unsurprisingly, it signifies yet another shift away from OTT video by Verizon, following Go90 falling by the wayside along with an estimated $1 billion.

The prospect of one last hurrah for Verizon in OTT video is now all but permanently extinguished following this week’s changes. It gets worse, as AT&T recently talked about a mobile-first strategy centered around the new $15 a month skinny bundle offering WatchTV, first unveiled in June, possibly with a free ad-supported tier coming soon.

Despite being a media business, the acquisition of Time Warner by AT&T is a fundamental threat to Verizon’s dominance in wireless and the company is now going all-out in 5G as a result, in an attempt to prevent its share price shrinking to the point where its MVNO cable partners have to bail it out in the coming years. “We’re not going to compete with content. We’re going to be the best partner for the content distribution business,” McAdam said on the company’s Q2 earnings call earlier this year.

So Vestberg has put in place plans to transform Verizon into a three-headed dragon, of which Media will be the smallest and least ferocious unit, while the Consumer segment and its 150 million subscribers is being positioned as a force to be reckoned with, supported by its Business sidekick. Part of Oath’s phasing out is due to the sector sitting at the “intersection of media, entertainment, gaming, news, commerce and other services,” said a company statement.

Verizon’s Consumer Group will cover the wireline and wireless segments, including wireless wholesale, headed up by current EVP and President of Verizon Wireless Ronan Dunne. The Business Group will house operations for wireline and wireless on the enterprise side for small and medium sized businesses, as well as government operations, plus the telematics division Verizon Connect, led by current EVP of Wireless Operations Tami Erwin.

The whole shebang will be overseen by current CTO and Chief Network Operations Officer Kyle Malady, who will head up Verizon’s Global Network and Technology organization.

These types of reorganization projects occurring at AT&T and Verizon are, in turn, about all about operators making cost savings by bringing technologies in-house. Operator R&D developments have long been a thorn in the side of vendors targeting tier 1 deployments, with many aggrieved about the inferiority of the technology compared to their own tailor-made products. Of course, Verizon also operates the separate content delivery technology unit Verizon Digital Media Services.

In summary, recent moves by the two US giants have created an inception-esque situation to which they will continue adding layer after layer, continuously patching over failing parts of their businesses and emphasizing growth areas.