Verizon Will Buy AOL For $4.4 Billion In Media And Ad Tech Expansion

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Kelly Liyakasa contributed.

Verizon will acquire digital media and ad tech platform company AOL in a cash transaction valued at $4.4 billion. The deal vaults the telecommunications company into the media and ad tech sectors and gives it a "three screen" relationship with consumers across desktop, mobile, and television.

"It's really one of the moments in time where mobile and video are really going to impact the future of advertising and obviously AOL has been a big investor in mobile and video ad tech," Tim Armstrong, chairman and CEO of AOL, told AdExchanger. He noted AOL's launch of unified ad platform ONE combined with Verizon's access and reach to 1.5 billion connected devices.

"It allows us to have a big seat at the big table with mobile and OTT [over-the-top] video and everyone here is really excited about it and excited to work with Verizon."

AOL has been at the receiving end of rumors about its possible takeover by Yahoo. Although Armstrong said he wouldn't comment on other players in the industry, he said the company has had tunnel vision with regard to AOL's turnaround.

The writing may have been on the wall here when Armstrong hinted Friday during the company's Q1 earnings call that AOL could become a No. 3 competitor to digital and mobile giants Facebook and Google.

"We outperformed the S&P 500 over the last five years and for us to perform effectively in the future, it really meant getting mobile scale and video," he told AdExchanger.

The move is the latest and most aggressive incursion by a telco into the digital ad monetization space usually occupied by consumer Internet companies, and will place Verizon into more direct competition with Internet players such as Facebook, Google, Yahoo and Microsoft.

The deal is also a reflection of the looming convergence of television with the Internet. Verizon claims to touch 70% of all connected digital traffic, across more than a billion PCs, TVs and mobile devices.

"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," Verizon CEO Lowell McAdam said in a statement.

"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."

The transaction is a testament to the vision and execution of Armstrong, who in six years transformed his firm from a first generation Internet company still burdened by its dial-up legacy into a social media and machine-driven advertising company for the programmatic age.

His early focus on building out AOL's media holdings, by acquiring websites like HuffingtonPost and TechCrunch, was replaced by a focus on ad platforms, including Adap.tv, Convertro and Vidible. Armstrong will continue to lead AOL operations after the deal's closing, the company said.

AOL said during its recent advertiser NewFront it planned to combine the best of what TV and digital had to offer to reach new mobile audiences. It expressed a major priority was reaching the "holy grail of the rebundle," merging programmatic advertising with the OTT-device opportunity.

AOL backed up those aspirations with video acquisitions all around, from buy-side marketplace Adap.tv to video distribution platform Vidible and TV ad-targeting company PrecisionDemand. These developments spurred AOL's launch of tRatio, a platform that allows marketers to perform anonymous matches to TV audience profiles across program, network or day part.

It also invested heavily in original content with plans to up its digital video output to 3,600 new titles this year in addition to collaborations with vertical interest publishers like Derek Jeter's digital sports rag Players' Tribune to produce short, snackable videos designed for mobile viewers.

For Verizon, the opportunity with AOL lies in part in establishing consumer linkages across a plethora of devices. Speaking at AdExchanger's Industry Preview this year, Armstrong described this opportunity.  tim

“We have 100 million-plus IDs with cross-device targeting right now,” he said. “People-based targeting, or what we do with cross-device linking, is the first generation of commoditized targeting. I think we’re looking at a 20-year cycle to getting to non-commoditized targeting. All of the targeting stuff going on right now is really interesting, and it will work in a much larger network world, but my guess is that almost everyone’s spending their time on similar types of targeting that will get commoditized.”

Verizon is certainly aware of the cross-device marketing opportunity. 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.

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.

Verizon will pay $50 per share for AOL's stock, representing a healthy premium over the $33.20 - $49.86 range where AOL has traded over the last year. The deal is subject to regulatory approval and is expected to close this summer. Read the press release

1 Comment

  1. Ely, Interesting video though there are some tgihns that you might want to consider First and foremost, I am uncertain if you are able to give legal advice (contract and statutory interpretation).Interpreting that Verizon contract can be tricky, especially when you emphasize the conditions that you read. Next, it is important to know if these are conditions precedent, conditions subsequent, or conditions concurrent. (Knowing which type will determine what party is in breach thus establishing their rights, responsibilities and remedies).Next, it is important to remember that cell phone contracts are contracts of adhesion - there is no real bargaining power between the parties. As such, there are several legal claims that an individual can make.The first, and least effective is that there is no mutuality of obligation between the carrier (verizon) and the subscriber. Thus if an individual wants to cancel the K, he is supposed to pay the ETF, but if the carrier wants to cancel early, are they obligated to pay the subscriber a fee? (Probably not). If this is the case, this may be a theory to show that the contract is somewhat unconscionable (substantive and procedurally).Additionally, ETF's can be interpreted as being penalty clauses. Courts are reluctant to enforce a liqudated damages clause if it is seen as a penalty unless the damages were difficult to calculate from the time of contracting, and the fee's are reasonable. In the given circumstance, if the cell phone providers wanted to write an enforceable liquidated damages fee into their contracts, they would just have to come up with a simple formula. (Note: The effects of this might actually hurt the consumer more.)You loosely refer to the term materially alter. Traditionally, that term has been looked at by courts to determine that if the prices were (at the time of contracting) what they are now, would this party have entered into the agreement (subjective), or, would a reasonable party still have entered into this agreement (objective). The modern trend is to follow the objective test. Increasing the rates by 1 or 2 cents is not likely to materially alter or burden the party in light of how this term has been interpreted by the courts. And while verizon can't tell you what does and does not materially alter - the courts can.My advice, if the contract says that using the service after getting a written notice, is a waiver of your right to cancel, stop using the service after you get your written notice. It's that easy. NO ETF, NO PROBLEM.Remember, you cannot have you cake and eat it too.

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