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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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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
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?

 

 
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 .
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.  
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. 
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.   
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. 
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...
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 :-)
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?
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