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Verizon said to be kicking the tires on AOL acquisition

Merger could boost the wireless operator's video offerings, according to Bloomberg.

Verizon is reportedly considering getting together with AOL. Here: a Verizon ad in New York City in 2013. Spencer Platt/Getty Images


Verizon's new slogan could become "We've got AOL."

Verizon Communications is exploring the possibility of a tie-up with AOL, Bloomberg News reported Monday. The move would strengthen Verizon's video offerings and give it a platform to manage online advertising technology.

No formal proposal has been made and no deal is imminent, Bloomberg said. Representatives from both companies declined to comment.

An acquisition or joint venture could help Verizon compete more aggressively against AT&T, the second largest wireless carrier in the United States. Both companies offer a range of services, from television and Internet connections to software and apps for businesses. Both are also branching into new markets, particularly as smartphones have saturated the wireless market and television subscriptions are threatened by Internet streaming services like Netflix, Hulu and Amazon.

Game of media thrones

Verizon has shown a willingness to jump into the media business, augmenting its traditional pay-TV service with online video. The company acquired Intel's defunct set-top box business a year ago, but has been quiet ever since. AOL, which has invested in numerous online properties, could give Verizon that content. Verizon CEO Lowell McAdam said in September at an investor conference that his company has the technology to launch an online video service, potentially this year.

Verizon also has reason to seek this type of partnership. Other online video streaming services, including Netflix, Hulu and Amazon, are already investing in their original shows and movies.

Rival AT&T in May said it agreed to acquire DirecTV, allowing it to bolster its own home television business. The company also started a joint venture with the Chernin group to fund unique content that would encourage customers to pay for more services.

As the two telecommunications giants expand into content, they'll also be competing with Comcast, which acquired NBC Universal in 2013. The cable behemoth is attempting to expand yet again, with a blockbuster $45.2 billion acquisition of Time Warner Cable.

A partnership or acquisition between Verizon and AOL, however, wouldn't merely be about content. Verizon is also interested in AOL's technology, which automates the buying and selling of online ads, according to Bloomberg.

No perfect media company

A deal between Verizon and AOL wouldn't be a marriage of equals.

While Verizon is one of the leaders in its field, AOL has struggled for years to regain its footing. In 2001, AOL -- then known as America Online -- acquired Time Warner in an effort to create the world's largest media company. Within a year, however, it became apparent that the union of new and old media was not as "supercharged" as its backers had promised.

By September 2003, things had gone so poorly with the merger, and specifically with AOL's dwindling dominance as an online destination, that AOL Time Warner dropped "AOL" from its name. In 2009, Time Warner announced it would spin off AOL as a standalone company.

Since AOL's spinoff, Chief Executive Tim Armstrong has transformed AOL from a slumping Internet gateway to an ad-driven media company, buying companies like the Huffington Post, Patch and Adap.tv, a video-ad tech company. The company reported a strong third quarter for advertising revenue, with sales rising 18 percent to $473.4 million. Its revenue from selling ads on third party sites rose 44 percent to $215.1 million. The company also reported increased profits of $28.5 million, or 35 cents per share; AOL has forecast that trend will continue.

As AOL changed course, it has attracted potential suitors. At least two of Yahoo's top 10 stockholders reportedly suggested AOL merge with and run the combined company. They suggested such a merger could challenge Google and Facebook, which dominate the online advertising landscape.

Despite all of this, AOL is only valued at $3.5 billion by Wall Street. That would make an easy buy for Verizon, which has about $7.8 billion in the bank and is valued at $194 billion.