Competition & Cord-Cutting Push Old/New Media Hook-Ups – More To Come?

By: JJ Kinahan

Did AOL AOL get its savior or did Verizon VZ find a potential white knight? Perhaps both.

And who will swoop in next?

Verizon Communications is buying AOL, pending regulatory approval, in a $4.4 billion deal announced this week that gives the biggest U.S. wireless carrier access to AOL's video platform, ad technology, and content, including the The Huffington Post, TechCrunch, and more.

For investors, the tie-up urges bigger questions about “old” media and “new” media ultimately becoming today’s media, where more and more consumers are cutting the cord for good and companies want the content, wireless and video technology, and ad platforms all in-house.

The deal also speaks to an industry rethink about content—including original material like AOL’s Emmy-nominated "Park Bench with Steve Buscemi" and Netflix’s NFLX "Orange is the New Black." Netflix shares pushed to uncharted territory after May 15 reports said the streaming media and original content company is in talks with Chinese online broadcasting companies about bringing its content there.

Details weren’t immediately clear. We do know that Netflix execs have recently expressed plans for an aggressive global push as subscriber growth slows in the U.S.

All this deal chatter also centers on the push to acquire, and not necessarily build, the platforms necessary to deliver via mobile and more, plus the ability to pay for it all with monetized content and ad technology. When an acquiring company gets the media buffet in one step—as Verizon is betting on with AOL—then all the better.

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“Certainly the subscription business and the content businesses are very noteworthy. For us, the principal interest was around the ad tech platform,” Verizon’s president of operations, John Stratton, said at an industry conference when the financial press asked about the deal. AOL, which snatched up smaller firms including Adap.tv in 2013, had already aggressively built up its online video ad capabilities over recent years.

Right Time? Maybe. Good Price? You Bet.

What’s more, digital video-over-wireless connection (think Hulu or Netflix apps) has been a target of Verizon, which has said it plans to launch an over-the-top (OTT) video service focused on mobile devices this summer, an already crowded field by most industry metrics.

AOL will give it the help it needs to monetize the new service with an ad model, a premium subscription model, or pay-per-view, but it still will be one of several providers of OTT.

By the way, several analysts are quick to applaud the much smaller tab that Verizon (with a market cap of $203 billion) has to swallow compared to AOL’s $103.5 billion acquisition of Time Warner 14 years ago and AT&T’s $48.5 billion takeover of DirecTV. So never mind the timing as few analysts can find fault with the price. Some do think it may not be enough for a greater foothold in wireless.

And Next?

So, is the Verizon story this week really about catch-up in the space, particularly against rivals like AT&T T, who’s already made its own video play, or a harbinger of similar deals to come?

For investors trying to position for what’s coming in media, telecom, technology and that space in which they all collide now, timing does matter. You may recall several analyst notes, including Starboard Value, urging Yahoo’s YHOO Marissa Mayer to go after AOL. Too late.

As for direct wireless rivals, AT&T might have to go back to the deal drawing board. Sprint S, too. And does that put social platforms like Pinterest and Twitter TWTR or video- and photo-sharing site Snapchat in the sights of these old phone companies, presumably to snag online advertising revenues without the expensive operating costs associated with original content production?

With this week’s deal, HBO-parent Time Warner TWX now has a content rival with “old economy” muscle. I’ll also venture to say that Verizon has put Google GOOGGOOGL, Apple AAPL, and Facebook FB on notice.

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