US telecommunications giant Verizon is to acquire AOL for $4.4 billion, in a deal to enhance Verizon’s upcoming mobile first over-the-top (OTT) video service, amongst other things. The key component to Verizon’s OTT service will be AOL’s advertising platform, furthering the company’s pursuit of digital content and advertising along with a means to incorporate TV and online video advertising.
In recent years AOL’s product portfolio has been expanded beyond dial-up provision in a drive by the company to become one of the top destinations on the web (measured through unique visitors by comScore), as well as achieving a foothold in the digital media ad space. In addition to AOL’s advertising platform, the acquisition will also bring Verizon AOL’s media properties Engadget, TechCrunch and The Huffington post along with the company’s original web series programming. Verizon will also acquire, AOL’s programmatic capabilities, most notably from its 2013 acquisition of the video programmatic platform, Adap.tv.
Verizon’s upcoming OTT service, which is expected to be a mix of paid, free and ad-supported content, is scheduled to launch in the summer with NBC, ABC, FOX and CBS on board. Verizon has recently signed more content providers including: AwesomenessTV, ACC Digital Network, Campus Insiders, CBS Sports, ESPN and 120 Sports.
The AOL acquisition will also support and connect to Verizon’s Internet of Things platforms and the transaction is expected to close in the summer of 2015.
After Verizon's purchase of Intel's failed online streaming platform, OnCue, early 2014 there has been much speculation about an upcoming OTT service from the company. The purchase of AOL represents another milestone toward that end. Unlike traditional pay TV video services, OTT plays have the ability to address some of the fundamental problems with TV, the most notable being measurement.
Whilst AOL is no Google, the company’s advertising business is still significant and likely to play a key role for the fledgling service. Furthermore, with this addition Verizon will no longer be bound to the likes of Nielsen or Rentrak for audience measurement; effectively acquiring the ability to provide real time viewership data to customers. It should also be noted that AOL has a significant base of clients who are likely to transition to the new service.
For existing AOL advertisers, the chance to reach new audiences will be appealing, especially as the service represents a departure from the traditional internet audience. The new service will be able to command a premium in its CPMs owning to the general perception that the audience it captures is more affluent. CPM increases will be further enhanced because the content offered is very compelling, network shows and sports being some of the most watched content on television.
In the on demand space Verizon's OTT service has enhanced its ability to target ads, and importantly, provides access to AOL's existing databases of existing users. The new service should be able to pair up the addressability of online advertising with a traditional pay TV on demand experience, something that pay TV providers have typically struggled with.
Similarly, the local 30 second spots of live linear feeds will take on a level of addressability that has yet to be achieved on traditional cable, satellite or IPTV platforms. Pay TV operators have spoken of the era of addressable advertising for over a decade, with fulfillment never materializing. The move by Verizon to acquire AOL may not be the ultimate solution, but it does represent one of the first marriages between OTT measurement technology and a "more traditional" pay TV experience.
AOL has also made significant progress in its programmatic capabilities. Since its acquisition of Adap.TV in 2013, it has invested heavily in programmatic both from a technology and marketing perspective. It has introduced the idea of ‘programmatic upfront’, where clients commit a fixed amount of spend into its programmatic channels in advance. This has been very popular among advertisers, who want to ensure brand safety when experimenting with programmatic. In Q1 2015, growth in advertising revenue on the AOL platforms was driven by AOL’s programmatic platforms, which grew 35% year-on-year. As Verizon moves more aggressively into advertising, it will leverage the programmatic tools built by AOL, which will help the mobile operator compete with the current mobile advertising market leaders: Google and Facebook.
The Verizon acquisition of AOL is not unprecedented. Telstra, an Australian telco bought Videoplaza, a video programmatic platform, through its subsidiary, Ooyala, in late 2014. As mobile operators carry on exploring their role in the mobile advertising ecosystem, IHS expects to see more activity from telcos in the advertising technology space.
Google and Facebook continue to grow their mobile advertising share. In 2015, IHS forecasts the two online media companies to command a 79.0% share of all mobile advertising revenue (display and search). AOL is still relatively small in comparison, but will strengthen its position in mobile with the Verizon funding and data, following this acquisition. The question that arises from this news is what is next for Yahoo?