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Verizon CEO Denies AOL Acquisition Interest

Iain Morris
1/6/2015

Verizon CEO Lowell McAdam has denied reports the US operator is interested in buying Internet player AOL.

Speaking at a Citigroup conference Tuesday, McAdam shot down an earlier report from Bloomberg that Verizon Communications Inc. (NYSE: VZ) might look to buy AOL Inc. (NYSE: AOL) as a way of strengthening its mobile video offering, although he did not rule the possibility of a content partnership between the two companies. (See Verizon CEO: We Are Not a Content Company .)

"We're more likely to partner than acquire," he said. "To say we're having significant acquisition discussions [with AOL] is really not accurate."

According to Bloomberg's story, Verizon could be interested in combining AOL's programmatic advertising technology -- which automates the process of buying and selling online ads -- with some kind of online video service.

Also of interest would be the selection of popular websites that AOL currently owns, including The Huffington Post, as well as around 2.3 million AOL members.

Table 1: AOL Operating Metrics

Q3 2014 Q3 2013 YoY change Q2 2014 QoQ change
Subscriber information
Domestic AOL subscribers (in thousands) 2274 2508 -9% 2338 -3%
ARPU $21.35 $20.15 6% $20.86 2%
Domestic AOL subscriber monthly average churn 1.4% 1.4% 0% 1.6% -13%
Unique visitors (in millions)
Domestic average monthly AOL multi-platform unique visitors 179 156 14% 171 5%
Source: AOL

AOL has been phasing out the old-fashioned dial-up Internet access services it still provides to a number of its customers, but Verizon could aim to migrate some of these Internet laggards to its FiOS broadband technology.

Even so, Verizon probably has more interest in AOL's content and advertising capabilities, which could augment the mobile video services it has been developing.

In September last year, it revealed plans to launch a new service in partnership with major content providers in mid-2015, taking advantage of the OnCue assets it bought from Intel Corp. (Nasdaq: INTC) in January 2014 and its acquisitions of EdgeCast Networks Inc. and upLynk in late 2013. McAdam reiterated the plans today, but pushed the launch date to late 2015. (See Why Did Verizon Buy OnCue?)

Speaking at an investor conference in September 2014, McAdam claimed that over-the-top (OTT) players had warmed to the idea of providing services over mobile networks and that Verizon's new offering would combine elements of FiOS and wireless technology. (See Verizon Plans Mobile TV Service in 2015.)

It will also be completely separate from the LTE Broadcast service that Verizon plans to launch this year.

Verizon is clearly desperate to ensure it does not slip too far behind arch rival AT&T Inc. (NYSE: T) in the market for mobile video services.

AT&T last year announced a $48.5 billion takeover of satellite TV player DirecTV Group Inc. (NYSE: DTV) and formed a partnership with The Chernin Group aimed at creating and rolling out OTT video services. (See AT&T Joins OTT Video Parade and AT&T: We'll Bundle Fixed Wireless & DirecTV.)


For more coverage of the strategic pressures and opportunities facing operators and vendors in the communications market, see our business transformation content channel here on Light Reading.


AOL previously gained notoriety as a result of its ill-fated mega-merger with media conglomerate Time Warner Inc. (NYSE: TWX) in 2000.

The $124 billion tie-up failed to generate profits or compete effectively with high-speed broadband rivals and Time Warner eventually decided to spin off AOL in 2009. (See TWC Preps AOL Extraction.)

The Internet company has recently flourished, however, reporting a 12% increase in revenues in the third quarter of 2014, to $626.8 million, compared with the same period of 2013.

Although its subscription business continued to lose customers, and suffered a 5% year-on-year drop in sales, its global advertising and other units registered growth of 18%, to $473.4 million.

AOL also managed to record a 6% rise in the average revenue per user it generated from its subscribers over the same period.

— Iain Morris, News Editor, Light Reading

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mhhf1ve
mhhf1ve
1/7/2015 | 4:54:11 PM
maybe Yahoo is a better target?
If Verizon did get AOL, I wonder what would happen to all the dialup subscribers -- I think there are still millions of them around, amazingly....

Yahoo might be a better target if its downward spiral continues. It at least has some kind of mobile strategy for the future AND eyeballs.
mendyk
mendyk
1/7/2015 | 10:18:16 AM
Re: Eyeballs
Given Mr. McAdam's other comments about being glad to be rid of low-ARPU mobile subscribers, it's not at all clear why AOL's last-gen base would be of interest to Verizon Wireless. There are eyeballs, and there are eyeballs.
iainmorris
iainmorris
1/7/2015 | 6:52:42 AM
Eyeballs
AOL was apparently the fifth most popular website in the world in 2013, according to a story from the UK's Guardian newspaper (http://www.theguardian.com/business/2015/jan/06/verizon-mulls-aol-bid-media-telecommunications), which would give Verizon a lot of extra eyeballs for advertising. 
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