Verizon (VZ) CEO Lowell McAdam made some waves on Tuesday, and moved markets, with comments he made in an unfilmed interview at Bloomberg headquarters in New York.
McAdam indicated that he would be open to merger talks with the likes of CBS, Comcast, and Disney. “If Brian [Roberts, CEO of Comcast] came knocking on the door, I’d have a discussion with him about it,” said McAdam, though he cautioned, “I’d also tell you there isn’t much that I wouldn’t have a discussion around if somebody came and said, ‘Here’s a compelling reason why we ought to put the businesses together.'”
In other words: McAdam didn’t say such talks are actually happening, or even that he plans to initiate such talks. He simply indicated that he’d be open to them. And as CEO, it’s his duty to shareholders to take such talks if they arise. So there is a risk here of taking his comments too seriously.
But if you explore these theoretical couplings, at least one of them makes some real sense: Verizon and Disney.
Verizon has made a lot of moves in digital content. It bought AOL and its suite of news sites (including Huffington Post and TechCrunch), and it’s buying Yahoo (including Yahoo Finance). Verizon plans to name the media division that houses these news sites Oath.
But it has the budget to buy more. The $9 billion Verizon spent on AOL and Yahoo amounts to just 5% of its fat M&A wallet. And within content, what Verizon specifically wants right now, like all content distributors, is digital video. Verizon’s own millennial video-streaming platform, Go90, went through massive layoffs in January and has not been successful.
Disney (DIS) has oodles of video content, and after it spent $1 billion last summer to get a 33% stake in BAM Tech, the video arm of Major League Baseball, it has a widely respected back-end partner that has built streaming services for clients like PGA Tour Live and HBO Now. (It was Apple that recommended MLBAM to HBO, by the way.) MLBAM is so well-regarded that the NHL sold its digital rights to MLB.
Disney has a lineup of bankable franchises thanks to its smart purchases of Pixar (2006, $7.4 billion), Marvel (2009, $4 billion), and Lucasfilm (2012, $4 billion), not to mention its own Disney animated and live-action films. In 2016 Disney grossed more than $7 billion at the global box office, a record for one studio.
But ESPN has dragged on Disney’s financials, leading to speculation that Disney could look to unload the sports network it has owned since it bought ABC in 1996. Disney CEO Bob Iger has publicly defended ESPN and, many believe, would rather not part with it, but something needs to change.
What ESPN needs is leaner management and a revitalization on the tech side—and it’s already beginning to get that through Disney’s new relationship with MLBAM. Disney announced in August that it plans an OTT (over-the-top) streaming service for ESPN, built by BAM Tech: “BAMTech will also collaborate with ESPN to launch and distribute a new ESPN-branded multi-sport subscription streaming service in the future. The direct-to-consumer service will feature content provided by both BAMTech and ESPN, and include live regional, national and international sporting events.”
Enter Verizon. It’s easy to imagine what Verizon could do if it had a hand in the endeavor: invest in digital content from ESPN and other Disney networks, free of cable, and distribute it via mobile phones. Picture this: Verizon customers get exclusive clips from upcoming Disney films, exclusive scores and updates and instant game highlights from ESPN, pushed to their Verizon phones.
A union of Verizon and Disney would create a telecom-entertainment behemoth, with glittering intellectual property and big digital video power. Verizon would become an instant power-hitter in mobile video streaming at just the right moment, and it would rival a merged AT&T-Time Warner (if that merger goes through). When you can’t build it yourself, these days, you buy it.
No one is saying that a tossed-off comment from Lowell McAdam means that any of these mergers is really in the works. But there may have been more to his comments than just casual theorizing. If there wasn’t, perhaps there should be.
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Daniel Roberts is a writer at Yahoo Finance, covering sports business and technology. Follow him on Twitter at @readDanwrite.
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