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Why Did Verizon Buy AOL?

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Verizon bought AOL

Verizon (VZ) highlighted why it bought AOL (AOL) for its—to be launched—OTT (over-the-top) product at J.P. Morgan’s recent Global Technology, Media and Telecom Conference. It was held on May 19, 2015. According to Verizon’s CFO and executive vice president, Fran Shammo, “The piece that we were missing was the ability to have an ad tech platform to insert the advertising. When we looked across the footprint for such a platform, we determined that AOL had probably one of the state-of-the-art, best-in-class platforms. That’s what drove us to the AOL acquisition.”

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Acquisitions that benefit Verizon’s new OTT service

Verizon is expected to launch its OTT service during the summer in 2015. This service will generate revenue from advertisements. According to the company, its acquisitions in companies like upLynk, EdgeCast, OnCue, and AOL will help develop its OTT offering.

Verizon bought upLynk and EdgeCast in 2013 to boost its Digital Media Services division. Together, these acquisitions added capabilities to Digital Media Services to efficiently distribute its online video content. upLynk is primarily a video encoding service for multiple devices. It’s used by media companies like Walt Disney (DIS). EdgeCast is a CDN (content delivery network).

Verizon also bought OnCue—an Internet TV service—from Intel (INTC) in 2014. According to the company, this is the user interface that will be used in its new OTT offering.

The company expects to utilize AOL’s advertising capabilities in the new OTT offering.

Instead of directly investing in the stock, you can get diversified exposure to Verizon by investing in the Technology Select Sector SPDR Fund (XLK). XLK held ~5.1% in the telecom company on April 30, 2015.

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