What Verizon’s $4.4bn AOL purchase means for media-focused advertisers

By Seb Joseph | News editor

May 13, 2015 | 7 min read

Words by Minda Smiley and Seb Joseph

Both Verizon and AOL have talked up how their union will swell the mobile video and TV market, signalling how ad tech - not content - will be at the fore of the merged media offering for advertisers.

The purchase, while massively short of the $165bn AOL dished out for the Time Warner business in 2000, indicates how much online media has changed and the great gains the online business has made under Tim Armstrong’s stewardship. AOL has made very profitable strides in ad tech - where the next war for budgets is - and the prospect of its shopping, browsing and behaviour data being added to Verizon’s critical home, mobile and viewing data could create an alluring media offering for advertisers.

Nearly half (47 per cent) of AOL’s global ad revenue is driven by programmatic, an advantage that would prove a fillip if paired with Verizon’s upcoming video streaming service. Both alluded to the potential for video in the immediate aftermath of the announcement, suggesting how important Verizon sees the transformation of smartphones into a primary channel for TV content.

The telecoms firm said the acquisition would “further drive its over the top (OTT) video strategy, showing that it wants to make a profit from content instead of just serving it.

For AOL, the move gives its end-to-end ad stack that includes Convertro and more skin in the game on Verizon devices that support 70 per cent of internet traffic in the US across 1.5 billion PCs, TVs and mobile devices. Agencies have welcomed the holistic offering as reflected by the 10 per cent jump in global advertising prices they were willing to pay in its first quarter.

Verizon will need to tread carefully in the wake of the deal as it already shares its data with ad tech players. If it does choose to sever these ties, like those with the Publicis-owned RUN, then it could sour relationships with key advertising partners moving forward as well as slash revenues from a lucrative data set.

The notion that ad tech not content was the key proponent for the buy is compounded by rumours about the future of the Huffington Post. Re/code reports that AOL has been in talks to sell its flagship content portal while it negotiated its deal with Verizon. The difference between the company’s content and automated ads growth potential was spelt out in its latest quarter when the former saw revenue climb eight per cent year-on-year, while revenue from ads it pushed on other publishers’ sites rose by 21 per cent despite losing $10m.

Media agencies respond

Media agencies have similar reservations about the future of AOL’s content under Verizon’s ownership though welcomed the deal’s prospect of better audience tracking across devices.

Adam Kasper, chief media officer at Havas Media North America, said the “combination of the data both of these companies own is pretty significant”.

"This new AOL jumps a few ticks on the top five or so largest online properties; they have definitely gained in scale as well as channel/device diversification through Fios,” he continued. Also, the ad tech that AOL has been acquiring and developing seems like kind of the lynch pin to this because if you can activate the cable TV tech with the ad tech in AOL, especially around video, I would expect it to be powerful. Google and Facebook are still significantly bigger and growing though so it may be smaller players who Verizon and AOL cannibalize from."

The race for digital media companies right now is to position themselves as well as possible for a future in which the majority of their users are mobile. Combining Verizon and AOL creates a scaled, mobile competitor to Google and Facebook. Indeed, an AOL spokesman said its acquisiton by the telecoms business “brings us the scale of Facebook and Google, creating a “powerful force” in mobile, video, social and programmatic.

“AOL wrapped their content around a robust ad stack with core capabilities in programmatic, video and multi-screen attribution,” said Josh Engroff, chief digital media officer of The Media Kitchen. “It turns out that all three of these things are incredibly important when it comes to mobile. And, for its part, Verizon’s large and very profitable mobile subscriber base generates a great deal of granular user data that extends beyond just mobile into living rooms with FiOS TV.

“Because we do not yet have the mobile equivalent of that great enabler of desktop display advertising – the third-party cookie – mobile ad dollars are moving most quickly to those first parties with huge, authenticated cross-device audiences: Google, Facebook, Alibaba. With this lockup, Verizon + AOL now clearly intend to play in the same space."

While a lockup could prove good business on the publisher side, the increased fragmentation of the scaled Verizon/AOL offering could increase fragmentation on the supply side.

Michael Collins, chief executive of Adelphic, said: “We’re at a point in the industry where there isn’t a shortage of cross-device linking or device graphs. While Verizon’s purchase of AOL is good for AOL, it represents one more step towards supply-side fragmentation.

“While fragmentation on the supply-side makes sense to protect inventory value, if you’re a brand you need a unifying mechanism and more audience fragmentation means less efficiency. Fragmentation gives publishers' a stronger hand over setting pricing versus the supply side influencing pricing based on what they feel the value of the buy is.”

Verizon’s acquisition of AOL bares similarities to 2000 when the latter snapped up Time Warner. Parts of the market and the businesses are very different which might bode well but other aspects are the same and that may lead to the same outcome as before.

Lesley Pinckney, vice president of digital and social at Walton Isaacson, said: “In 2000 content was the core of the AOL/Time Warner Deal and 15 year later I¹d be surprised if this has anything really to do with the content and I kind of hope it doesn't. I love Huffington Post but its growth/revenue trajectory is always going to be in question as publishing has yet to truly solve how to create more great content more cheaply. I hope Verizon will continue to let the content portion live as is, but I'm not so sure.”


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