Verizon CEO throws cold water on AOL deal rumors
Lowell McAdam says Verizon doesn't want to become a content company and denies serious acquisition talks. But he leaves open the possibility of a future partnership.
Think teamwork, not takeover, when you think of Verizon and AOL.
That was the message from Verizon Communications CEO Lowell McAdam, who denied rumors that the telecommunications giant is in serious talks to buy online media giant AOL. But he left open the idea that the companies may form a partnership in the future.
Speaking at the Citi Media Conference in Las Vegas on Tuesday, McAdam laughed off rumors that Verizon is in talks to buy AOL.
"If I had a dollar for every company we are supposed to buy, I'd be in good shape financially," he said. "We will be more of a partner with media companies rather than doing an acquisition. AOL along with lots of other media companies are potential partners for us. But to say we are having significant acquisition discussions is really inaccurate."
Bloomberg News reported Monday evening that Verizon was in talks with AOL to either buy or possibly form a joint venture with the company to strengthen its video offerings and to better manage its online advertising technology.
McAdam said that Verizon, which owns and operates the largest wireless network in the US and has an extensive fiber broadband deployment covering much of its traditional telephony footprint, is more interested in distributing content than in creating it.
"I don't see us as a content company, but rather a platform company," he said.
The idea behind the acquisition rumor is that a tie-up between the two companies would allow Verizon to compete more aggressively with rival AT&T by giving Verizon access to AOL's extensive video and online content and its successful ad platform.
AT&T and Verizon, which both offer landline broadband and wireless services, are broadening into new markets as growth slows in those more established businesses. The delivery of video content over their networks is one avenue the companies have explored.
Last year, AT&T announced plans to buy satellite TV provider DirecTV.
Verizon, meanwhile, has expressed interest in becoming what is called an over-the-top (OTT) Internet video distributor, which delivers video via the Internet rather than over dedicated video lines, as in a cable or satellite TV network. A year ago, Verizon bought Intel's defunct set-top business. And at an investor conference in September, McAdam indicated that the company had the technology to create such a service. He added that Verizon may launch a mobile video service in 2015.
AOL, which owns online media brands including the Huffington Post and Patch, could not only give Verizon content for such a service, but also offer an advertising platform that could help Verizon target customers across different devices. In 2013, AOL bought Adapt.tv, a video ad marketplace, which has helped transform it from a slumping Internet gateway to an ad-driven digital media powerhouse.
A good fit, or not Verizon's style?
Peter Stabler, a senior analyst for Wells Fargo, said in a research note Tuesday morning before McAdam spoke at the investor conference that he sees "strategic sense in a partnership and/or acquisition of AOL by Verizon."
"We believe Verizon's OTT mobile video ambition and cross device targeting asset would fit well with AOL, where management has built an end to end ad tech stack, including deep video capabilities," Stabler wrote in the note. "In our view, an asset combination or formal partnership would provide Verizon a leading in-house video serving capability as well as the potential -- we believe -- to offer AOL an enhanced cross-platform targeting mechanism."
But analysts following Verizon were skeptical of the reports even before hearing McAdam's denial. Kevin Smithen, an analyst with Macquarie Securities, said in a research note to investors Tuesday "that buying a legacy business such as AOL's just to gain access to an emerging technology has not been Verizon's style."
Additionally, Smithen thinks that Verizon will likely be spending too much money in the US government's AWS-3 wireless spectrum auction to afford a big deal that could cost the company at least $5 billion.
Indeed, McAdam's comments point toward Verizon not looking to spend a lot of money to buy a media giant like AOL at this moment. But to Stabler's point about possible synergies, McAdam's comments indicate that the company could also reap benefits from some sort of partnership with AOL.
"I don't see us owning a lot of content," McAdam said. "We will be an aggregator and distributor of content over our platform. And in the few instances where we have some content, we are already inserting advertising, and we'll continue to do that. How far we move upstream depends on the economics. We'll see how it shapes up in the next three to five years."