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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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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 | 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?
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. 

 
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.
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 | 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. 

 

 
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