Verizon Communications announced on Tuesday that it is planning to acquire media company AOL in a $4.4 billion deal.
According to USA Today, Verizon is offering $50 a share, 17 percent more than what AOL closed on Monday. While AOL closed at $50.52, an increase of almost 19 percent, Verizon closed at $49.62, down by 1 percent.
Tim Armstrong, AOL chief who in charge of the company since 2009, told his employees in a memo, “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.”
Through the acquisition, Verizon is looking to expand its video streaming services. AOL is known for its host of new websites, including The Huffington Post, TechCrunch and Engadget, and its streaming technology with which it provides high quality videos over the Internet.
In a statement, Verizon CEO Lowell McAdam said, “At Verizon, we’ve been strategically investing in emerging technology, including Verizon Digital Media Services and OTT [over-the-top video], 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.”
However, with pivotal acquisitions in the recent years, AOL’s largest source of revenue has been its advertising technology business. Their platforms unit, the sales of ads delivered to publishers’ sites using automated advertising technology, escalated to $280 million in the first quarter, an increase of 21 percent. The brand group, including its media sites, witnessed a growth of 8% in its revenue, reaching $193.4 million.
According to Quartz, Verizon is the largest domestic wireless provider with 130 million subscribers throughout the country. However, with the advent of alternative ways to connect to the Internet like Wi-Fi and mesh networks and new services offered by Google, Verizon finds its business in jeopardy.
To neutralize this setback, Verizon is planning to provide its customers media in addition to connectivity. Verizon Wireless, for instance, is the exclusive provider of National Football League games on mobile phones. They have also been planning to come up with an Internet television service.
By acquiring AOL, Verizon would be able to rely more on advertising than subscriptions for generating revenue. Research firm MoffettNathanson said in a note to investors that Verizon will get a “mobile advertising platform that is truly unique.”
MoffettNathanson’s report said, “We can envision a scenario in which Verizon leverages AOL’s ad tech platform to target consumers and measure their engagement across traditional and digital video and measure and deliver interaction across its multiple devices, platforms and properties.
“That would allow for better ad serving, conversion and ultimately attribution … and they can deliver all that across the largest wireless business in the U.S.”
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