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

Carol Wilson
5/12/2015
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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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cnwedit
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cnwedit,
User Rank: Light Beer
5/12/2015 | 8:47:27 AM
It's not about the network anymore, apparently
This looks to me like McAdam and crew don't believe they can build a profitable business selling network services, either wireless or wireline, and so they need to develop their own content play and a way to monetize that. He said earlier in the year that AOL was a good partner but obviously, he decided they needed to be more than that. 

 

 
mendyk
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mendyk,
User Rank: Light Sabre
5/12/2015 | 9:30:53 AM
Re: It's not about the network anymore, apparently
At least this deal will be get a slam-dunk approval from regulators -- assuming they stay awake.
Duh!
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Duh!,
User Rank: Blogger
5/12/2015 | 10:34:47 AM
Re: It's not about the network anymore, apparently
What is wrong with this picture?

VZ took on debt to acquire the balance of VZW from Vodaphone.  They just took on more debt to cover their bids in the most recent spectrum auction.  They can't seem to invest in LTE infrastructre quickly enough to meet demand.  THey've been selling off profitable wireline assets.  They've frozen investment in FiOS, which has been a successful growth business.  Wireline disinvestment is poisoning their brand. 

And they're about to drop $4.4B on a has-been Internet company with a tarnished brand and a long history of missed opportunities? 

If I were a Verizon shareholder of record, I'd be mightily annoyed. 

When is McAdam due to retire?
brooks7
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brooks7,
User Rank: Light Sabre
5/12/2015 | 11:06:40 AM
Re: It's not about the network anymore, apparently
I don't know, I am surprised this hasn't happened sooner. 

We talk here on this site talking about the Digital Transformation of the Carrier away from being bit pipes into being Cloud Service Providers.  We see the Carriers lament on the RoI from the softer services.

Doesn't it make sense to buy companies that have a foothold in those businesses?  If you want Ad Tech, then buy an Ad Tech company.  Seems to me ultimately the way things are going to go.  That the telcos can't develop their IT/Services/Content smarts,they will have to buy them and move the company that way by lopping off pieces that don't fit.

seven

 
Duh!
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Duh!,
User Rank: Blogger
5/12/2015 | 9:42:27 PM
Re: It's not about the network anymore, apparently
After reading some of the analysis, I see the logic, kinda.  I'm a bit too old-fashioned to buy into that strategy. But then again I'm not a shareholder of record, so I don't have a vote.

Next question: since reclassification did not forbear from Section 222 (CPNI), how many of the purported synergies can be realized unless the Open Internet Order is overturned?

Also: do they run the risk of tarnishing their brand by appearing too intrusive?

 

 
rebeccamorris
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rebeccamorris,
User Rank: Light Beer
6/25/2019 | 5:37:34 AM
Re: It's not about the network anymore, apparently
Well, you can now come to us and let us take all your homework writing service UK related worries away! 
Duh!
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Duh!,
User Rank: Blogger
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.

 
MikeP688
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MikeP688,
User Rank: Light Sabre
5/12/2015 | 8:51:01 AM
Fascinating Times....
It is a bold move for sure.   But beyond the "tactical" as I see it, for me it is a fascianting story of leadership and tenacity as Tim Armstrong's sheer will transformed AOL into what it is today.  Beyond the "Digital Media Play", though, I'd be keen to see what they do with the Media Properties they have invested so much in.    
cnwedit
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cnwedit,
User Rank: Light Beer
5/12/2015 | 9:36:56 AM
Re: Fascinating Times....
In later comments at the Jefferies conference, Verizon is saying this is mostly about the ad tech platform that Armstrong built. I assume that's why he's staying on and Verizon thinks it's found a way to monetize all the multi-screen content. 

 
MikeP688
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MikeP688,
User Rank: Light Sabre
5/12/2015 | 2:51:02 PM
Re: Fascinating Times....
That's my take as well--not per se the content (which is good).    I don't see any regulatory issue w/this either at this stage.    AOL is to be congratulated in my view (and I noted this briefly in a tweet) because Armstrong transformed a dinosaur.  
wanlord
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wanlord,
User Rank: Light Sabre
5/12/2015 | 1:40:51 PM
Re: Fascinating Times....
His sheer will of being an a$$hole. I guess he will fit well in telecom culture...
MikeP688
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MikeP688,
User Rank: Light Sabre
5/12/2015 | 2:46:41 PM
Re: Fascinating Times....
The perception is not that favorable @wanlord--but in the rough and tumble world we live in, it should not be of concern.  He delivered value by transforming a dinosaur.   People will disagree (as was just noted), but that is to be expected.   
Mitch Wagner
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Mitch Wagner,
User Rank: Lightning
5/12/2015 | 12:16:25 PM
Strategic direction
Verizon is getting back into dial-up? Wait, what?
MikeP688
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MikeP688,
User Rank: Light Sabre
5/12/2015 | 2:48:25 PM
Re: Strategic direction
I can understand why you are amazed @Mitch since it is hard to believe there are actually still dial-up customers out there.    Supposedly Verizon wants the technology AOL has developed.  Whether it has traction is a whole different question which I look forward to deliberating here. 
kq4ym
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kq4ym,
User Rank: Light Sabre
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.
mhhf1ve
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mhhf1ve,
User Rank: Light Sabre
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.
JessicaJones121
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JessicaJones121,
User Rank: Light Beer
7/10/2019 | 6:06:39 AM
Re: Strategic direction
Your article provided us with valuable information to work with. Each & every tip of your post is awesome. 

 

paraphrasing - personal statement for college - book report
wanlord
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wanlord,
User Rank: Light Sabre
5/12/2015 | 1:19:44 PM
How many connections?
Where did Tim Armstrong get this number he was quoted saying "noted the telecom has 1.5 billion connected devices in the United States". Consider VZ Wireless, FIOS, Broadband, Enterprise, etc., I can't imagine it's close to 1.5 Billion globally let alone the US. Maybe he was thinking of Facebook? Tim is probably ROTFLHAO at Verizon's stupidity here. 

 

Oh, didn't the VZ CEO say recently "we are not a content company"? I guess he meant "not yet". Let's see how this works out...maybe as well as the VZ/Redbox Deal. They couldn't get OTT video right, so instead they invest in dial up :-)
steve q
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steve q,
User Rank: Light Sabre
5/12/2015 | 2:59:24 PM
Re: How many connections?
I see Verizon thinking in what may happen if the mobile market does go a little better then that of fios. But most home user customer are looking into the speed of a service provider and a good branded name. And with Verizon looking into the mobile they hope is lost, there only way to win is better fios pricing and faster internet speed . With the new cell phone like iphone and the samsung that use the wifi as a different way of talking verizon will miss those customer .
cnwedit
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cnwedit,
User Rank: Light Beer
5/12/2015 | 2:30:45 PM
Consumer anguish
Free Press Research is bemoaning this deal, claiming Verizon should be investing that money into building out FiOS and bringing broadband to more people. It's clear to me that McAdams and his board don't see that as a strategy that delivers profits. 
jorshmarsh
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jorshmarsh,
User Rank: Light Beer
3/29/2018 | 1:38:08 PM
Re: Consumer anguish
The observation isn't that ideal Paper Writing Help however in the unpleasant and tumble world we live in, it ought not be of concern 
wanlord
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wanlord,
User Rank: Light Sabre
5/12/2015 | 11:11:06 PM
Shingy Shake Up
So I think this all adds up to Verizon needing Shingy to help shake up the company and reboot it. It's not about the numbers, it's about Shingy. Insiders have reported his corner office in the VZ HQ is being set up just down the hall from McAdam, Stratton and Armstrong. He is going to fit in well in the sea of white male bell heads in ties in Basking Ridge. I think this is the start of a new Verizon. http://www.latimes.com/business/la-fi-verizon-aol-shingy-20150512-story.html http://www.shingy.com
cruzjohn
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cruzjohn,
User Rank: Light Beer
12/11/2017 | 3:14:29 AM
Digital marketing
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Jacobarch02
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Jacobarch02,
User Rank: Light Beer
1/31/2019 | 9:43:54 AM
portion of the examination
Subsequent to perusing a portion of the examination, I see the rationale, kind. I'm a bit too out-dated to become tied up with that system. Be that as it may, of course, do my assignment uk I'm not an investor of record, so I don't have a vote.
MikeP688
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MikeP688,
User Rank: Light Sabre
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...
petterson
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petterson,
User Rank: Light Beer
7/9/2019 | 6:16:41 AM
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