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

Carol Wilson
5/12/2015

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

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JessicaJones121
JessicaJones121
7/10/2019 | 6:06:39 AM
Re: Strategic direction
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Duh!
Duh!
6/25/2019 | 3:14:55 PM
Re: It's not about the network anymore, apparently
Some spammer dug this up from the Wayback Machine. Re-reading it after four years, I've got to say that I called this one. The media strategy was doomed. The digital media business  has been a consistent loss. This should have been obvious; it sure was to me.

With Vestberg taking over from McAdam, they've re-directed the strategy to focus on what they do best (plus a few side bets in the adjacent spaces). And despite all the doom and gloom about the telecom services business, they've still managed steady growth in EPS and EBITDA margin, and reduced their debt and increased their dividend. If I were an investor, I'd be a lot happier now.

 
rebeccamorris
rebeccamorris
6/25/2019 | 5:37:34 AM
Re: It's not about the network anymore, apparently
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MikeP688
MikeP688
5/18/2019 | 3:39:48 PM
Re: Fascinating Times....
Thanks for the thought--what is interesting iw how Verizon has now pretty much "zero'd out" this play--hasn't it?  Cheers...
Jacobarch02
Jacobarch02
1/31/2019 | 9:43:54 AM
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12/11/2017 | 3:14:29 AM
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mhhf1ve
mhhf1ve
5/26/2015 | 10:09:24 PM
Re: Strategic direction
The dialup users will eventually be forced to upgrade someday... but the real value of this deal is in the ad tech that AOL has and the digital video ad market. AOL has built up some competition to Google's Youtube and other digital ad platforms -- and the value of that tech could pay for itself in just a few years... assuming advertisers aren't given other options from other players, that is. The network effect of having an early video ad platform could be well worth Verizon's $4B bucks.
kq4ym
kq4ym
5/13/2015 | 12:36:23 PM
Re: Strategic direction
A story on radio this morning noted that's there's apparently still lots of folks who are paying AOL fees but not using them. I still have a bunch of AOL email addresses but haven't used them in years. But, it's still amazing to me that it's worth $4.4 billion in stock to Verizon. AOL folks should be maybe jumping with glee.
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