May 24, 2015    3 minute read

The Verizon-AOL Merger: Redefining the Media Industry

   May 24, 2015    3 minute read

The Verizon-AOL Merger: Redefining the Media Industry

Fifteen years after America Online (now known as AOL) acquired Time Warner for $164bn at the climax of the dot-com bubble in January 2000, the nature of the relationship between technology and content has changed in a turn of events worthy of an Oscar. It was announced that the union of AOL and Time Warner, which were respectively leading the Internet and Media sectors, was a match made in heaven. Time Warner’s portfolio of content providers ranging from CNN to HBO could access AOL’s many dial-up Internet subscribers, and AOL could tap Time Warner’s cable arm and its broadband. So how did the largest tech acquisition of all time turn out? As Time Warner’s present CEO put it, it was:

“The biggest mistake in corporate history”

This month, Verizon acquired AOL for an all-cash deal of $4.4bn, or a 17% premium. Guggenheim Partners and Lion Tree Advisors advised Verizon, and AOL hired Allen & Co. While this new transaction lacks the drama of the previous Time Warner deal, it is remarkable in many respects. First of all, it marks the re-birth of AOL after it spun-off from Time Warner in December 2009. Against all odds, the company pivoted from its position as a pioneering leader in technology to that of a major content provider. AOL now owns The Huffington Post, TechCrunch and many other popular media websites. Besides, the company’s advertising, online streaming, and mapping services (MapQuest), all have value and growth potential. And once again, the Holy Grail lies at the intersection of distribution and content. However, this time, Verizon is ushering in a paradigm shift in the nature of Television and Broadcast.

Verizon is one of the largest wireless, cable, and broadband Internet providers in the United States. As such, it has been sitting first-row on the mobile revolution, which brought content to smartphones at anytime, anywhere. In fact, mobile is the fastest growing device for watching video. This phenomenon has been termed “OTT” – Over The Top – to describe the trend away from television that makes the Internet the centre of all entertainment innovation. Youtube, Hulu, and especially Netflix have understood it and have truly disrupted the industry in yet unfathomable ways. Whereas Time Warner feared missing out on the Internet in 2000, Verizon anticipates its role as the structure enabling this content revolution, and its acquisition of AOL is meant to accelerate the decline of television as we know it.

Therefore, we can expect a flurry of M&A activity among Technology and Media companies in the coming months. Although the Comcast-Time Warner Cable (note that Time Warner cable is not to be confused with Time Warner – it has belonged to Time Warner but retained the name upon its spin-off in 2009) has failed amid much anti-trust scrutiny, companies in the industry understand that now is the time to bring content and distribution together. In the age of smartphones and tablets, content still reigns as king.

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