Verizon announced that it has signed an agreement to acquire AOL for $50 per share, in a deal valued at roughly $4.4 billion. Verizon is painting the acquisition as a "significant step in building digital and video platforms to drive future growth" and " as driving its LTE wireless video and OTT (over-the-top video) strategy.
The deal, Verizon says, will also support and connect its Internet of Things platforms.
“Verizon’s vision is to provide customers with a premium digital experience based on a global multiscreen network platform. This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience," said Verizon chairman and CEO Lowell McAdam. "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. 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.”
According to Verizon, the combination of the two companies creates a "scaled, mobile-first platform" targeting the $600 billion global advertising industry. The deal of course includes AOL content brands like The Huffington Post, TechCrunch, Engadget, MAKERS and AOL.com, as well as millennial-focused OTT, original video content; and its programmatic advertising platforms.
TIm Armstrong will remain chairman and CEO of AOL for the foreseeable future.
He said, “Verizon is a leader in mobile and OTT connected platforms, and the combination of Verizon and AOL creates a unique and scaled mobile and OTT media platform for creators, consumers and advertisers. 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.”
AOL's TechCrunch shares an internal memo from Armstrong:
As you have heard me say many times over the last 5 years since we became an independent AOL, we are building toward becoming the largest media technology company in the world. While there are search platforms, social platforms, and commerce platforms, we have built a very meaningful media platform and AOL today is a media platform company powering our brands and the brands of over 30,000 partners.
If there is one key to our journey to building the largest digital media platform in the world, it is mobile. Mobile will represent 80% of consumers’ media consumption in the coming years and if we are going to lead, we need to lead in mobile. Over the last 18 months we set a goal of moving AOL into a leading position in mobile, mobile video, and mobile registered consumers. We are approaching 400 million global consumers, we have built one of the best advertising platforms in the world, and we have one of the most talented teams in the world – and now it is time for us to fully open up the mobile frontier.
Today, we are announcing that the largest and most innovative wireless and cable company – and the one investing the most in high quality mobile content – is acquiring AOL with the strategy of building the biggest media platform in the world. The company is Verizon and the deal will game-change the size and scale of AOL’s opportunity. Just as AOL has propelled The Huffington Post, Adap.tv, TechCrunch, and other companies we have acquired, Verizon will propel AOL and comes to the table with over 100 million mobile consumers, content deals with the likes of the NFL, and a meaningful strategy in mobile video.
The decision to enter into an agreement with Verizon was made over a long and thoughtful time period and both companies see significant opportunity to service consumers and customers in a differentiated and exciting way. On a personal level, the decision to go forward with an agreement was predicated on giving our talent the best opportunity to build a multi-decade business that would be deeply growth oriented and aimed directly at the platform shift that video and mobile are offering the world – today and 20 years from now.
There are two important questions you might have at this point in the letter:
1. What does this mean?
2. What does this mean for me (meaning you)?
The deal means we will be a division of Verizon and we will oversee AOL’s current assets plus additional assets from Verizon that are targeted at the mobile and video media space. The deal will not change our strategy – it will expand it greatly. The deal will give our content businesses more distribution and it will give our advertisers more distribution and mobile-first features. The deal will add scale and it will add a mobile lens to everything we do inside of our content, video, and ads strategy.
For you this means growth, it means mobile, and it means compensation that will be equal or better to your AOL compensation. Your benefits will not change in 2015. We will eventually go on Verizon’s benefit plan, but that won’t happen until 2016 or later and we will work with Verizon to make sure the benefits are strong and cover important areas of people’s lives. Your job and what you do on a daily basis should be enhanced by the market opportunity this deal is targeted to capture. The simple answer to the question of “what does this mean for you?” should be, “I just got more resources, more support and more growth opportunity.”
The leadership at AOL is staying and I am staying – enthusiastically, and we made that part of the deal. We have the opportunity to build a unique and globally scaled media technology company with the scale and resources we need to make that happen. Verizon and AOL are very large partners today – in content, in ads, and in the technology. We know their team well and they know our team well. The cultures share very similar values and are both working on very similar ways to do good while doing well. Diversity and women’s leadership are at the top of both companies’ agendas and we look forward to having a consumer and industry impact on those important issues.
The future in front of AOL and the industry requires scale, mobile, and video – and partnerships. In our lifetime, we will see the connection of the world on very large and very fast networks – and to play in that world with our strategy requires us to take the natural steps to secure our ability to shoot for the stars. This deal is aimed at the stars and we are going to pursue the joint vision of building the most significant media platform in the world.
I have been a buyer of AOL over the last 5 years – and that is an investment in one thing – our talent. We have reviewed every hire coming into the company over the last 5 years and we have taken extraordinary risks and faced extraordinary challenges over the last 5 years. There is nothing more meaningful than watching our team turn-around this great company and restoring it to growth when most people had left it for dead.
AOL is back and now we are joining forces with Verizon to build the best media technology company in the world. Let’s mobilize. – TA
So what are people saying about the deal?
The Wall Street Journal says it "suggests a crumbling empire more than it shows the power of the network," making the case that while telecom giants like Verizon and AT&T aren't going away, "their place in the world seems ever more insecure" as companies like Google and Facebook launch Internet from the air services and lay fiber in the ground, cable companies deploy Wi-Fi workarounds, mobile phone carriers push Wi-Fi as the default.
"Verizon is certainly aware of the cross-device marketing opportunity," writes Zach Rodgers at AdExchanger. "The company has an addressable advertising division, Precision Market Insights. That unit has experimented with - and gotten into some hot water over - a persistent mobile tracking mechanism that leveraged a unique ID header as a mobile cookie of sorts. After an outcry from privacy advocates over the improper use of that ID, the company changed the mechanism to be more privacy friendly.
"The backlash may have been due in part to Verizon's 'service provider' relationship, which in the eyes of consumers and regulators may be too weak to justify data collection," he adds. "By accessing direct relationships with media consumers through AOL, Verizon's mobile audience data business may not draw the same negative attention, and its work around mobile data collection may become as acceptable as it has for Facebook."
Re/code's Peter Kafka suggests that Verizon may decide to spin out AOL's content operations with a third partner, noting that Armstrong didn't address such a scenario in an interview, but that he "seemed to leave the door open."
The New York Times reminds us that AOL "also manages a dwindling but profitable dial-up Internet business, providing online access for those who live in areas too remote to have broadband, or who never canceled their subscriptions."
The actual transaction will take place as a tender offer followed by a merger, with AOL becoming a wholly owned subsidiary of Verizon, though the deal is obviously subject to regulatory approval and closing conditions. The companies expect the deal to close sometime this summer.
AOL reported its quarterly earnings last week. Highlights included: fastest multi-platform user growth among top 5 internet properties; accelerating ad revenue growth; 80% programmatic growth surging to 45% of global brand ad revenue; strong growth in video, mobile, programmatic, and native ad revenue; and global ad pricing growth of over 10%.
Image: Tim Armstrong via Wikimedia Commons