U.S. mobile operator Verizon is in private discussions with internet service provider AOL over a potential acquisition or partnership to enable Verizon to provide more mobile video services to subscribers. That is according to two individuals with knowledge of the situation, who spoke to Bloomberg News. They also stated that Verizon is interested in pairing the video offerings with AOL’s programmatic advertising technology, which automatically buys and sells ads online, tailored to users’ preferences. If Verizon were to take over AOL, it would also gain subscribers and various internet properties including the Huffington Post, TechCrunch and Engadget. However, Verizon CEO Lowell McAdam said his company is not engaging in “significant acquisition discussions” but rather that “AOL, along with lots of other media companies, are potential for us to do partnerships.”
Tarifica’s Take
AOL, an internet pioneer, started declining 15 years ago, when it entered into an ill-fated US $124 billion merger with Time Warner. Since then, it has steadily lost customers to faster services. But while the company is widely seen as a has-been, it has over the past few years been developing certain businesses that are clearly attractive to a large MNO such as Verizon. Programmatic advertising technology is one of these. With the rapid worldwide growth of the mobile advertising sector—an increase of 150 percent expected in the next four years—operators see the potential for a great deal of revenue to be derived from ads they can target to their subscribers, and automation of targeting and selling will allow this business to grow exponentially.
A partnership is all that is necessary for Verizon to get access to this technology and to distribute AOL’s video content in conjunction with it. If, however, an outright acquisition were to take place, Verizon would also stand to benefit by gaining AOL’s 2.3 million members as subscribers, plus AOL’s online properties, which between them get some 200 million unique visitors each month. It would also have the opportunity to convert AOL’s legacy dial-up subscribers to its FiOS service. Finally, acquisition of a content provider would be a strong move to achieve parity with rival AT&T, whose announced acquisition of satellite provider DirecTV is likely to be approved early this year. It remains to be seen, of course, what Verizon and AOL executives have in mind—if anything.