Verizon's surprise $4.4 billion acquisition of AOL, looks like mostly a bet on video, mobile, and programmatic, with content likely the odd man out.
The deal gives Verizon a bigger play in 3 of the biggest trends in the media business - the explosion of personalized, on-demand video viewership, the massive adoption of mobile lifestyles via smartphones, and the shift to automated, data-driven ad buying through programmatic platforms. AOL has been pursuing all of these over the past few years through internal growth and acquisitions.
The apparent unifying strategy for Verizon is to become a more important, behind-the-scenes infrastructure/technology provider to video content providers. This is the same strategy Verizon has pursued with Verizon Digital Media Services, which acquired the CDN EdgeCast and the video adtech provider upLynk in 2013. As a result, VDMS has positioned itself as an innovator in helping content providers prepare, deliver and monetize video.
AOL brings capabilities that actually fit quite well with VDMS, helping Verizon pitch itself as a more complete tech and monetization stack for video content providers. Although AOL CEO Tim Armstrong is staying with AOL through the acquisition, no doubt there's a foreseeable expiration date on his deal, and when he departs, I could easily see AOL's technology being combined into VDMS's organization.
Long before online originals and the NewFronts became the rage, syndication put AOL on the video map. This involves cleverly distributing short 3rd party video clips to thousands of outlets and taking a small piece of the resulting ad revenue. AOL's syndication roots trace to its prescient acquisition of 5Min back in 2010, which was further enhanced via AOL's acquisition of GoViral and more recently of Vidible.
AOL instantly became a big player in programmatic video advertising via its 2013 acquisition of Adap.tv. Programmatic is opening up whole new opportunities for advertisers to target highly specific audiences using data while gaining operational efficiencies and pricing flexibility. AOL has also been emphasizing mobile and reported in its Q1 '15 earnings last week that 60% of its traffic now comes on mobile devices. If Verizon overlaid its mobile user data with programmatic, it could make targeting even more robust and valuable to both content providers advertisers.
Video distribution and mobile video programmatic would be 2 important additions to Verizon's solution for video content providers. It would have taken years (if ever) for Verizon to build these capabilities in-house, so getting them all from AOL jump-starts things. Lots of other big companies have recognized the same big shifts occurring in video and adtech, which have catalyzed numerous transactions over the past couple of years.
What's less clear in the deal is how AOL's various content properties, such as TechCrunch, Engadget, Huffington Post and its annual slate of original video programs, fit into Verizon's strategy. Verizon is clearly not a media company, so there are no new scale advantages by combining AOL content with existing properties.
The more likely result is a sale of AOL's content portfolio to a large media company that CAN gain further scale. In this respect, the timing may be very good for Verizon and it could recoup a good chunk of its $4.4 billion outlay. Lately big tech/business media and consumer content providers such as Vice, Vox Media, BuzzFeed, Business Insider and Mashable have all raised significant financings, highlighting the value of emerging franchises. AOL's portfolio stacks up well in this context and would be a great fit for many larger players.
Verizon is clearly positioning itself for major changes in the video landscape going forward. It has become a top-tier provider of traditional pay-TV services via FiOS as well as a big broadband ISP. Whereas AT&T is doubling down on the traditional pay-TV model with its pending $50 billion DirecTV acquisition, Verizon is instead looking to become much more important in online video.