Fifteen years ago, when AOL effectively took over Time Warner in a deal often described as the worst in history, the gamble was that the internet was the future of communication. That bet was right even if it cost AOL and Time Warner almost everything.
Given AOL’s subsequent collapse, Verizon’s $4.4bn purchase of the fallen internet star is a terrific deal for AOL. Finally, proof that AOL has something to offer besides your grandmother’s email address, and it’s something Verizon needs as it competes with other telecoms carriers and cable operators: mobile ad technology.
As media goes ever more mobile Verizon is less developing a video service than piecing one together from acquisitions. Last year it bought OnCue, an internet TV platform Intel was developing. With the AOL purchase, it owns the third-largest online video ad content network in the world behind Google and Facebook. The company said last month it was launching a video service for mobile devices. Verizon will be building its business on TV and video services delivered over its own networks, and with the purchase of AOL, it owns the ready-made infrastructure to do so.
In an age of consolidation between telecom companies, the purchase seems forward-looking to Craig Moffett, industry analyst with MoffettNathanson, who contrasted it to AT&T’s $47bn stake in satellite service DirecTV. “AT&T will now be in the position of having to hold back the forces of change,” he wrote. “Verizon is to be commended for embracing them.” Moffett observed that the investment was tiny compared to Verizon’s capacity to spend, putting the company’s enterprise value at $350bn.
AOL has been experimenting with video content over the last few years, making cut-rate reality shows to air through their portal while competitors like Yahoo experiment with buying canceled broadcast sitcoms and employing stars such as news anchor Katie Couric.
Verizon is probably a lot less invested in unconventional investments like those shows and, for that matter, the Huffington Post. A number of names and sites associated with the company – TechCrunch, EndGadget, controversial chairman and chief executive Tim Armstrong – may or may not be a part of the company’s future as a Verizon subsidiary, depending on how well Verizon sees them driving traffic in its lanes of the information superhighway.
The decision didn’t sit well with everyone. “For the price it’s paying for AOL, Verizon could deploy its FiOS broadband service across the rest of its service area,” wrote Tim Karr of internet lobbying organization Free Press. “Instead, the company is spending a fortune to step outside of its core competency into the advertising and content production markets, the latter where it has already shown a willingness to block content and censor news coverage. It’s hard to see how this transaction is good for anyone but a few brokers and lawyers.”
Still, the $4.4bn price tag is a bargain compared to what AOL commanded 15 years ago in its disastrous merger with Time Warner, which ended in a $99bn write-off. Verizon has $350bn in cash to play with, and the mobile giant is engaged in a high stakes game for the future of communication. That this time around AOL is a penny-ante side bet just shows much that game has changed.
This article was written by Sam Thielman in New York, for theguardian.com on Tuesday 12th May 2015 18.02 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010