Modern vintage: Verizon buys AOL for $4.4B

Verizon and AOL tied the knot on a $4.4 billion contract.

AOL, which started as one of the most prominent pioneers of the early Internet, is now a subsidiary of Verizon Communications, the parent of the largest wireless carrier in the US. Despite that lesser role, Verizon’s acquisition of the company could be seen as a victory for AOL Chief Executive Tim Armstrong, who helped make his firm a desirable target for purchase after it suffered a long decline into irrelevance.

Time Warner embarrassed itself when it attempted to buy AOL in 2009 with a nine-year, $160 billion tag, qualifying the deal as one of the biggest deal-making blunders in U.S. corporate history.

For Verizon, the AOL deal allows it to take control of a set of online advertising tools obtained through acquisitions in the past few years.

As smartphones saturate the US market, Verizon is in search to expand its presence and, therefore, dip its toes in web-based streaming. AOL’s online ad platform and media websites could help Verizon do just that. Last year, Verizon acquired Intel’s internet TV business after Intel’s independent effort.

Verizon executives say that AOL will be key to its much-anticipated mobile video service launching this summer. AOL will give Verizon global scale to offer a truly mobile video service, Marni Walden, executive vice president of product innovation and new businesses for Verizon, said on a call with reporters Tuesday.

Armstrong said that the opportunity for mobile video in the global market is huge. He added that AOL already has a network in place that Verizon will be able to leverage to extend its service to a global audience.

Walden didn’t divulge too many details about the company’s new mobile video service, but offered an overview. The new service will include live content, such as sports and concerts. It will also include what Verizon calls “emerging” content or original Web-based content, which Walden said is especially important for the millennial generation and offers opportunities for multicultural programming.

She confirmed that the new service will offer a free version supported by advertising, as well as a premium service available to subscribers. She said that the company is confident its plans for offering video will not run afoul of new federal net neutrality rules that prohibit wireless operators from favoring their own content over competitors’ content.

AOL owns a handful of media sites, including The Huffington Post, TechCrunch and Engadget, though there has been plenty of speculation since the tie-up was announced that The Huffington Post – and perhaps AOL’s other media sites – won’t remain with Verizon.

The legacy dial-up business at AOL, which is how the company first became a Web giant, is another lingering issue. While most of its former customers already switched to faster broadband connections, AOL revealed in its earnings report last month that it still has 2.1 million subscribers connecting to its dial-up service. AOL charges customers $20 per month for that service.

Corporate Communication Structure

Now under Verizon, Armstrong continues to lead AOL operations, and Bob Toohey, president of Verizon Digital Media Services, will report to Armstrong. Armstrong will report to Walden.

Other Cable and Telecommunications Mergers

In 2014, AT&T unveiled a $48.5 billion deal with Direct TV.

Dish and T-Mobile are also considering a merger. A merger would bring together T-Mobile’s 44.7 million retail customers with Dish’d 13.8 million TV subscribers and 591,000 Internet customers.

At the end of 2015, Charter Communications will buy Time Warner for $78 billion. Time Warner and Charter have faced uphill battles in cementing the deal, but if it’s to not go through, Time Warner is entitled to a regulatory breakup fee of $2 billion.

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