Verizon to buy AOL for over $4bn. Uh... cool?
Verizon plans to purchase AOL for $50 per share -- a 23 percent premium over the company's historical stock price -- and a grand total of roughly $4.4 billion.
The acquisition is meant to create a "scaled, mobile-first platform offering directly targeted at what eMarketer estimates is a nearly $600 billion global advertising industry." Verizon, in other words, wants to be a media company.
That doesn't come as a surprise. The Wall Street Journal notes in its report that Verizon is already working on a mobile video service that will "offer a mix of paid, free and ad-supported content and won’t try to replicate traditional TV."
AOL can help Verizon by offering established media brands like the Huffington Post in addition to the programmatic advertising technologies required to support a freemium video service entering an increasingly crowded market.
There are still plenty of questions about how that video service, or Verizon's other content initiatives, will work. Perhaps the most important is how the company plans to convince people to watch its videos on their smartphones.
Videos tend to consume a lot of wireless data. Thanks to the data caps imposed by wireless carriers -- you know, like Verizon -- this means watching anything over a cellular network is an expensive proposition for many smartphone users.
That leaves Verizon with two options: make content good enough that people won't mind the hit to their monthly data allowances, or find a way to give them free access to the video service and monetize their eyeballs with advertisements.
The first option seems unlikely. The second would lead Verizon to violate the concept of net neutrality, which states that data from one source can't be given any priority over data from another source, whether that priority is shown by increasing the speed with which that data moves or by making it free to access.
Not that you'd be likely to watch anything about net neutrality on Verizon's service. The company's last media property was a tech blog whose authors were forbidden from writing about subjects like digital surveillance or net neutrality.
Which brings up the issue of AOL's editorial independence. Some of its largest properties -- TechCrunch and Engadget -- are devoted to covering technology. Will they still be free to cover topics that aren't in Verizon's best interests? I'd assume the answer is "Yes," but Verizon already showed that might not be true.
Verizon might be able to use everything it's getting from AOL to take on companies like Google and Facebook in the advertising space. Hell, it might even manage to create a worthwhile content division. But, as I showed above, it's not hard to see how those efforts might turn out to be bad for consumers.