Verizon, the country’s largest wireless carrier, yesterday announced that it intends to purchase AOL for $4.4 billion in cash, pending regulatory approval. The deal, which is the latest marriage of convenience between U.S. media and wireless companies, comes a year after rival AT&T agreed to buy satellite TV provider DirecTV for $48.5 billion in an ongoing transaction.
As part of the acquisition, Verizon is getting AOL’s websites, which include The Huffington Post, TechCrunch and Engadget, with a combined 200 million unique monthly visitors. It’s also inheriting AOL’s programmatic advertising technology, which the company has invested heavily in (AOL itself purchased Adap.tv in 2013, a platform that connects buyers and sellers of online video advertising).
As Snapchat’s reported 100 million monthly users might attest, media consumption is moving to mobile and to video. The clincher in this deal for Verizon is AOL’s video and original content, which include the Emmy-nominated series Park Bench with Steve Buscemi and The Future Starts Here.
If the deal goes through, Verizon will absorb AOL’s 2 million subscribers. Verizon customers, for their part, likely won’t see any major changes – at least not right away.
Verizon has said that it plans to launch a streaming video service for mobile devices this summer, similar to Hulu and Netflix apps which let consumers watch videos on their smartphones and tablets. The service is expected to offer a mix of paid, free and ad-supported content. It might also include multicast programming to deliver live content like sports and concerts.
When Verizon’s streaming service does appear, users can expect to see tailored adverts and content, says M.S. Krishnan, a Professor of Technology & Operations at the University of Michigan’s Ross School of Business.
“Verizon has a strong presence in the millions of customers that they have in the mobile platform,” explains Krishnan. “AOL has a very useful digital advertisement platform where advertisers can go bid for advertisement slots. Now, think about how they could use that to personalize advertisements and contextualize it based on what they know about [Verizon] mobile customers – they would move towards the personalization of ads and content.”
As cord cutting proliferates, customers can also expect to see increasing variety in the levels of cable service offered by Verizon, which has already started providing options to its bundle package.
“In many ways, this is vertical integration,” Krishnan concluded. “Verizon and AT&T are carriers, but they want to get into media and content to increase the opportunity for revenue.”
Lauren Elkin, co-director of the Tech, Media & Telecom team at Nasdaq, believes customers can expect to see more mergers and acquisitions in the space. “Traditional providers are needing to adapt and seek out new revenue streams,” Elkin explained.
While Verizon’s acquisition is a relative bargain – AT&T is spending over 10 times more on its video play – we could see incumbent carriers picking up little-known companies that could bolster their digital advertising dollars. “Digital advertising spending is growing at a fast clip,” said Elkin. ”We will likely continue to see deals with larger names eating up smaller ad tech companies.”
(Two small, digital advertising companies, Rocket Fuel and Millenial Media, saw their stock rise 8% and 3% respectively following the Verizon/AOL news yesterday.)
It remains to be seen whether the consolidation of content creator and distributor will impinge on net neutrality, since Verizon’s customers give AOL a potential captive audience on an unprecedented scale. Still, regulators will likely ensure that the network provider gives all services equal opportunity.
Krishnan says that is not a pressing concern: “The monopolistic hold that carriers had before has already shifted to mobile device manufacturers – Apple and Android put a dent on the power these carriers had.”
Whatever happens, here’s hoping Verizon customers don’t wake up to a new U2 album on their iPhones without their consent.