A Glimpse Of Yahoo Screen's Trajectory

| About: Yahoo! Inc. (YHOO)


Yahoo! Screen had a lousy start, but offers a lot of growth potential.

Video on demand, can scale commercially as eCPM nears prime time ad pricing.

Yahoo may be creating an application that focuses purely on live programming, putting it in a very solid niche when compared to competitors.

Yahoo (NASDAQ:YHOO) launched Screen back in September of 2013. My response is a little mixed to the service, as the content collection is lacking when compared to alternatives like YouTube and Vimeo. However, Yahoo has a positive earnings catalyst coming soon, through the Alibaba IPO (which Yahoo owns a 22.6% stake in). Yahoo is required to sell a certain percentage of its stake on the day of IPO. Carlos Kirjner, from Sanford C. Bernstein & Co. estimates that Yahoo will generate $12 billion in cash from the Alibaba IPO.

$12 billion in cash can go a long way, and while the company mentions that share buybacks are among its priorities. I think that Yahoo will use the cash generated from selling 2/5th of its current stake in Alibaba to buy content for its video streaming service.

Earnings per thousand impressions for video is significantly higher than other categories. eCPM for video is $10.97, display eCPM on the other hand is $1.28. This indicates that Yahoo should focus on building one specific product, and that is its video streaming service. Also, there's further growth potential, as Network Primetime TV cost per thousand impressions is currently priced at $24.76, according to Nielsen Media Research. This means video eCPM can increase to $24.76, or even more given enough time.

Yahoo hasn't generated enough critical mass to create a crowd sourced platform. According to Android Play Store statistics, there are 100,000+ downloads for the Yahoo Screen App. In comparison, Vine has 10 million+ downloads, Netflix (NASDAQ:NFLX) has 50 million + downloads, Hulu Plus has 5 million + downloads, and YouTube has 500 million + downloads. This puts Yahoo Screen in a very tenuous position. The installed base is puny when compared to alternatives.

However, to be fair Yahoo Screen has only been around for three quarters. So it may take more time for Yahoo Screen to generate critical mass. But even so, Yahoo doesn't have the luxury of time, the company is going to have to invest really aggressively if it wants any shot at gaining viewership share from many of its well established competitors.

Yahoo has inked deals with Live Nation to live steam concerts. Furthermore, Yahoo Screen users can watch content from VEVO. Yahoo Screen recently announced that its application will be on various entertainment boxes like Roku, and Apple TV.

Yahoo is setting the foundation to become a competitive video-on-demand application.

In comparison, Amazon (NASDAQ:AMZN) is on track to spend more than $8 billion on content and content development in its 2014 fiscal year. Netflix spent $869 million in its most recent fiscal quarter, and is on track to spending more than $4 billion in content and content development costs by the end of its 2014 fiscal year. Amazon's content spend is nearing that of major movie studios like Walt Disney (NYSE:DIS), and major cable network providers like Comcast (NASDAQ:CMCSA). Netflix is expanding its international movie base to Europe, and will have foreign content available on its streaming service, giving premium subscribers more variety.

Yahoo Screen doesn't even come remotely close to the billions that are being waged by two of the most well established video on demand services. However, Yahoo can establish its niche in live programming.

Yahoo can become the primary destination for sports, music, and news. The three combined will cost a massive fortune in terms of licensing costs to upkeep over the years, but it can establish Yahoo as another alternative to the massive streaming libraries that both Netflix and Amazon seem to possess.

Putting together a video on demand application that includes ESPN, FOX Sports, CNN, CNBC, Live Nation, VEVO, and a couple additional standard channels could give Yahoo an edge when compared to other more well established competitors. The channels can integrate with Yahoo's news, finance, sports apps, which will allow cross-selling of relevant content.

Imagine, the Spurs and Heat game live on ESPN, with a live Twitter feed going through the bottom, and relevant articles from Yahoo sports tiled on the side? You see, there's a lot of synergy in a video strategy that looks something similar to that. Plus, it plays to Yahoo's strengths.

Yahoo will have $12 billion sitting in its bank account, putting it in a fairly advantageous position to pay for massive content deals. Assuming Yahoo continues to build on its concept of live programming, we may have a winner. Ad prices for online video are higher than every other category, therefore the concept might actually generate a profit.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.