Wondering how far Verizon (NYSE: VZ) will go to build an online video empire focusing on its wireless division? Wonder no more: The carrier is buying AOL for $4.4 billion in an all-cash deal that will give Verizon access to the Web company's video and programmatic advertising technologies.
AOL's Chairman and CEO Tim Armstrong will continue to lead the company after the deal closes. AOL will become a wholly owned subsidiary of Verizon when the deal closes.
The merger should massively boost AOL's cachet--something it's been building during the past several months as it combined its programmatic properties into its ONE platform and invested in much more original content for AOL On. But it will also impact the market in general as the combination of the two companies could create a programmatic advertising and mobile video powerhouse.
Verizon touches 70 percent of Internet traffic in some way, whether through desktop computers, smartphones, tablets or other devices. The merger with AOL will bring both companies "to the scale of Facebook and Google," a spokesperson noted.
Verizon has been investing in infrastructure to support over-the-top video for some time, building its Verizon Digital Media Services (VDMS) business globally and talking openly about launching some sort of OTT mobile video service in the second half of 2015. VDMS has partnered with various companies to boost its digital delivery capabilities, such as a recent partnership with Imagine Communications that will integrate Imagine's cloud services into Video Lifecycle, VDMS' encoding and CDN product.
"AOL has once again become a digital trailblazer, and we are excited at the prospect of charting a new course together in the digitally connected world," said Verizon CEO Lowell McAdam in a statement. "At Verizon, we've 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."
Rumors had surfaced in January that Verizon had AOL in its sights, something that CEO Lowell McAdam denied at the time.
But with mobile video taking up at least 55 percent of all mobile traffic, according to a Cisco report released this spring, analysts expected wireless carriers to start making mobile video plays a priority. Verizon's move is likely just the first of many M&A efforts by U.S. carriers. Indeed, AT&T last year inked an OTT partnership with The Chernin Group called Otter Media.
Armstrong noted in the release that the merger with Verizon will create a "unique and scaled" OTT and mobile platform. "The visions of Verizon and AOL are shared; the companies have existing successful partnerships, and we are excited to work with the team at Verizon to create the next generation of media through mobile and video," he said.
The transaction is expected to close this summer.
- see this release
- WSJ has this story
Verizon to acquire AOL for $4.4B
AOL revenues climb 7% to $625.1M on strength of video advertising, programmatic strategy
Imagine partners with Disney/ABC, Verizon and HP to fill in puzzle pieces of IP video ecosystem
Desperate, white-hot M&A talk trumps idle chatter over skinny bundles, OTT at INTX
Fox's Rice: We won't join ESPN in suing Verizon over skinny bundles
Wireless providers make OTT strategy key to future profitability, report says