Verizon (NYSE: VZ) has clearly stated that its $4.4 billion acquisition of AOL is, to a great extent, intended to bolster its quest to establish a leading mobile video programming service targeted to younger consumers. But with the move the company has also positioned itself as a leader in the pay-TV market in terms of advanced advertising.
Operators including Dish Network (NASDAQ: DISH) and Cablevision (NYSE: CVC) have been developing advanced-advertising products, largely in-house, to offset declining margins in video services. Analysts say, however, that the acquisition of AOL's lauded programmatic technologies gives Verizon an immediate advantage in the pay-TV market in terms of monetizing mobile video.
Most notably, Wells Fargo's Jennifer Fritzsche writes, acquiring AOL's advanced-advertising mojo gives Verizon an edge over AT&T (NYSE: T) in the race to capture this mobile video market and make money off of it via ads.
"While [AT&T] believes there is a greater need to own more physical infrastructure (through [DirecTV]), Verizon is building up more assets to strengthen its 'mobile first' initiative--with advertising playing a key role," she wrote Tuesday.
The deal, Frtizsche says, will better enable Verizon to capture data on its video users--an ability other pay-TV service providers are already leveraging, as evidenced by the advanced-advertising pact between Cablevision and Disney/ESPN, also announced Tuesday.
"This should provide Verizon a strong bargaining position in the connected TV, mobile media and advertising sectors," she wrote.
In a press release announcing the deal, Verizon CEO Lowell McAdam said that his company has been "strategically investing in emerging technology, including Verizon Digital Media Services and OTT, that taps into the market shift to digital content and advertising. AOL's advertising model aligns with this approach, and the advertising platform provides a key tool for us to develop future revenue streams."
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