With the purchase of AOL, Verizon no longer is a true "phone" company, but is in the process of transforming into something else. Exactly what is a good question since it could have done a lot more with the $4 billion other than buy a has-been brand name. I'm betting Netflix and Yahoo are also on the shopping list, as the company starts to accelerate the shedding of anything landline.
By the books, AOL is getting $50 a share, a deal valued at $4.4 billion. Verizon gets a (supposed) leader in the digital content and advertising platforms space with the combination (allegedly) creating a scaled mobile-first (Not that Microsoft hasn't already used a part of that strategy, but then again, Microsoft doesn't own a large wireless footprint) platform.
By some magic handwaving, Verizon says the acquisition will further drive its LTE wireless video and OTT (over-the-top) video strategy, as well as support and connect to Verizon's IoT (Internet of Things) platforms—because it makes sense for someone at Verizon to connect IoT into advertising.
If the following two paragraphs aren't already cynical enough, Verizon also buys a large media portfolio including Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com. Hmm, I wonder how all these outlets feel about Title II broadband regulation. I can guess how they will feel after the purchase is completed. More realistically, there's noise that the Huffington Post group might get spun out or Arianna Huffington might buy her company back from Verizon, especially if she can't get expansion money.
Let's be real. AOL's greatest feat is not having curled up and died over the past decade after the dot.com bust. To be fair, it's got an interesting portfolio of digital advertising for video, MapQuest, and a multi-decade brand.
And there are still over 2 million people using AOL dial-up, according to the company's first quarter 2015 earnings report released last week. Given Verizon doesn't like copper, you have to wonder what's going to happen to most of these folks. A bundled upgrade to a Verizon Wireless phone?
Verizon, on the other hand, has a long and sordid history in digital video. Last year, Verizon shelled out a bunch of cash to purchase the assets of Intel media. The purchase was supposed to make Verizon stronger with the ability to provide cloud TV products and services. Before that, Verizon purchased EdgeCast and upLynk.
Let's not forget that Verizon has been hyping LTE multicast and made noise last year that it could go commercial with a product sometime this year. So it will have a lot of underlying infrastructure to deliver wireless video, plus FiOS, plus the ability to offer a "cordless" broadband OTT video offering.
But infrastructure is nothing without content to deliver, a fact Comcast knew when it bought NBC Universal. If Verizon is serious about retaining and building content, the canary in the coal mine is the disposition of the Huffington Post group at AOL. If it tries to keep HuffPo, Verizon executives "get it" that content is vital to a money making video strategy.
Regardless of the outcome of HuffPo, I expect Verizon to be looking for more things to beef up its content portfolio. Buying Netflix would be an earthshaking move, but at a market cap of over $35 billion in trading on May 12, it might be too expensive and would certainly trigger extra regulatory scrutiny because of its standing in the marketplace.
Yahoo might be an option. While Yahoo is worth more on paper at $41 billion, it has the wounded number two duck image that might enable Verizon to pick it up without a fight. It's got a huge legacy online presence—bigger than AOL by far (cough-cough)—with assets including a lot of websites, video, and a search engine.
Stay tuned, because Verizon is going to continue to try to buy itself a growth strategy built around video.
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