Yahoo! has struck some savvy deals to ramp up its video advertising platform. Yahoo!'s content partnership with the world's largest live events company, Live Nation (LYV 1.85%), is a great positive for both the companies and will help Yahoo! to grow its video advertising dollars.
Valuable video ad dollars
Yahoo! is making bigger bets in the online video business, as it ramps up its efforts to grow its video advertising business. Yahoo! wants a piece of the $70 billion TV advertising market in the U.S. -- one that is going to grow bigger in the years ahead. The company has seen its display advertising revenue decline in recent years as bigger players in the space including Google (GOOG 1.25%) and Facebook have gained significant momentum in monetizing their web properties.
Yahoo! will create original shows and will curate content from other TV channels and live events in an effort to boost its share of the large online video ad marketplace. Among all this will be two original comedy shows, as well as the series Other Space and Varsity Blues in 2015, and it should add more in the future. Considering that Yahoo! has more than 800 million monthly users, these shows can potentially boost the company's revenue from video advertising.
Competitive space
Yahoo!'s content offerings will be the kind of original programming that is typically for premium TV and streaming services like Netflix and Amazon. And this space is getting crowded, with many companies having significant ad revenue from original and syndicated shows.
While some of these shows are going to be costly, Yahoo! can market shows to the different vertical platforms that it has. Appetite for TV-like content is there -- the number of U.S. consumers watching TV stood at 286.7 million, according to Nielsen.
Nielsen estimates that the average American spends about 27 hours a month browsing through the Internet, and thus Yahoo! content will have a market for these video enthusiasts. Yahoo! has added older seasons of shows like Saturday Night Live in an effort to bolster its video offerings, and more original shows will go a long way in getting users more engaged on Yahoo's platforms.
Yahoo! is trying to gain ground on leading online video companies that include YouTube and Facebook. YouTube was the leading online video content platform in the U.S. last month with 156 million viewers, whereas Yahoo! was the fourth-largest with 52 million viewers, according to comScore. So, Yahoo! has substantial ground to make up with leading online video names.
Partnership with Live Nation
Yahoo! struck a video-sharing partnership with Live Nation. Starting in July, Yahoo! will stream a daily live concert produced by Live Nation. And Live Nation produces a lot of high-quality concerts. In 2013, Live Nation held 23,000 live events, including shows from big-name artists like Jay-Z and Madonna.
Bringing such high-quality content from such a partner is a strong positive. Yahoo! has the eyeballs, and Live Nation will provide the content. Live Nation's CEO stated in an interview that Yahoo! will pick up the cost of distribution and the revenue will be split between the partners 50/50.
According to ZenithOptimedia, the average online video ad was priced at double that of a national TV commercial. And advertisers are continuing to chase eyeballs; online video ads in the U.S. are expected to rise by almost 50% to $10 billion by 2016, according to ZenithOptimedia. Yahoo! entering such a deal with Live Nation will provide a big opportunity to grow its revenue by grabbing a piece of that pie.
The takeaway
If Yahoo! can be a more formidable player in the online video ad market, the company can see some growth in its display advertising revenue. The majority of upside in Yahoo! has been driven by Alibaba's surging valuation and, to a lesser extent, share buybacks. The company has increased its user base substantially to 800 million users, including 430 million users on mobile. Betting on the growing trend of online video could an be very fruitful for Yahoo!.
