Verizon's $4.4B AOL Buy a Digital Media Play

Verizon is making its biggest bet yet that digital media and advertising will be its newest revenue sources, announcing today that it will buy AOL for $4.4 billion in a stock tender offer expected to be completed this summer. The once proud Internet brand is being acquired for its digital media and video platforms, on which Verizon plans to build future multi-screen applications including mobile video, over-the-top video and Internet of Things applications. (See Verizon to Acquire AOL.)

The announcement is the latest -- and biggest -- salvo in Verizon Communications Inc. (NYSE: VZ)'s emerging strategy to focus on delivering more content via over-the-top broadband and mobile networks, while not relying as heavily on the revenues the networks themselves generate. Verizon has been steadily building an OTT video content strategy and indicated in an earnings call earlier this year that it was focusing on determining how to cash in on its LTE network with new services including IoT and video offers. The company has, for the last four years, been building a digital media services delivery network based on distributing content at the edge of its network. (See Verizon Focuses on Cashing In on LTE, Verizon Likes OTT Video Prospects and Verizon, Sony Primp for OTT Debuts and Verizon Fires Up Digital Media 'Factory'.)

The AOL Inc. (NYSE: AOL) deal had been rumored earlier this year -- in fact Verizon CEO Lowell McAdam had earlier denied the rumors, saying AOL was a potential partner. In announcing today's deal, McAdam said in a statement that AOL has "once again become a digital trailblazer" and that buying AOL helps realize Verizon's vision of providing "customers with a premium digital experience based on a global multiscreen network platform. This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience." (See Verizon CEO Denies AOL Acquisition Interest.)

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AOL Chairman and CEO Tim Armstrong is to remain with the company and head its continued operations as it becomes a subsidiary of Verizon.

The deal is an indication of just how important digital content and advertising is becoming to Verizon's long-term revenue plans. According to McAdam's statement, "AOL's advertising model aligns with" Verizon's investments in its digital media services and OTT plans, which include its own mobile video service, new over-the-top video content deals and a "skinnier" FiOS pay-TV offer aimed at cord-cutters.

Wall Street appears unimpressed by Verizon's strategy as its stock fell about 2% after the deal was announced, while AOL's stock was up by about 17%.

— Carol Wilson, Editor-at-Large, Light Reading