US telecom giant Verizon announced plans Tuesday to buy faded Internet pioneer AOL for $4.4 billion and hopefully corner a bigger share of the online advertising market.
The deal was described as a way to help Verizon — one of the largest US mobile carriers and a major broadband provider — build its offerings in video and other digital content, especially for wireless.
“Verizon’s vision is to provide customers with a premium digital experience based on a global multiscreen network platform,” said Verizon chairman and chief executive Lowell McAdam.
Once the leading provider of Internet access, AOL has reorganized primarily as a digital media company with a portfolio of well-known news sites such as The Huffington Post, TechCrunch and Engadget.
It also produces its own video content, operates its own advertising platform and continues to serve a small number of dial-up Internet customers.
– ‘Dumb pipes’ –
Analysts said the deal gives Verizon a more diverse array of offerings as consumers look to online platforms like Netflix and Amazon instead of traditional television.
“The issue for all the telecom companies is they don’t want to be turned into dumb pipes,” said Roger Kay at Endpoint Technologies Associates.
“We don’t know what their plans are but they need differentiated content to get people to come to their platform.”
Rebecca Lieb, an analyst who follows digital media for Altimeter Group, said the primary motivator for this deal is video.
“Verizon has the pipes, AOL the ability to monetize streaming video with advertising,” she said.
“In that respect, the alliance makes a great deal of sense for both players as digital video continues to gain traction and viewers, and as cord-cutting accelerates as a trend.”
Sarah Kahn at IbisWorld Research said the deal was motivated by AOL’s experience in advertising and the growing importance of mobile Internet.
AOL, Kahn said, “offers a range of advertising technology products and services to advertisers, publishers and other technology companies individually or on a bundled basis.”
“Ultimately, the purchase will help Verizon — which owns about a third of the wireless market — to expand its mobile-video offerings, retain customers and attract new ones from its competitors.”
Jan Dawson at Jackdaw Research said, despite AOL’s struggles, it is “one of only a handful of companies that reaches over half the US online population with its content each month.”
Dawson said AOL via Huffington Post and TechCrunch “is a much more powerful content player than Verizon on a national and especially international basis than Verizon.”
The online news site Re/code reported that, as part of the deal, AOL may spin off the Huffington Post for as much as $1 billion and that talks had been held with German publisher Axel Springer.
– New chapter for AOL –
AOL rose to fame in the 1990s as the dominant provider of Internet access for Americans. The company distributed CDs allowing computer users to access the Internet for a monthly fee via dial-up, before consumers turned to cable or fiber for high-speed access.
The firm took over media giant Time Warner in 2001 at the height of the dot-com boom, with AOL using its inflated stock as a currency for the transaction. The deal valued the companies at $165 billion and was among the largest corporate mergers ever.
But Time Warner was forced in 2002 to massively write down the value of AOL and the two firms split at the end of 2009.
AOL has been long rumored to be seeking a merger partner, but talk of a tie-up with Yahoo which never materialized. Verizon could bring in the financial resources for a push into online advertising.
AOL took just 0.74 percent of the $145 billion digital advertising market worldwide in 2014, according to eMarketer, trailing Google with some 31.4 percent and Facebook’s 7.9 percent.
AOL shares jumped 18.6 percent to close at $50.52 while Verizon shares were down 0.36 percent at $49.62.