Verizon/AOL - 5 Reasons Justifying the $4.4B Mega-Deal

Verizon -- You've Got Mail! Massive breaking media news today -- Verizon has agreed to buy AOL for $4.4 billion cash.

Remember back in 2000 when AOL bought Time Warner for $162 billion?

My how fortunes have changed over the course of those 15 years. AOL, the previous behemoth, lost its way along the way and held on too long to its dial-up bread and butter -- and ultimately failed to capitalize on its massive distribution on the content side.

Verizon hopes to change that. And, it might just be able to do that.

Here Are 5 Reasons Why:

(1) With AOL, Verizon becomes almost Comcast/NBCUniversal-like -- vertically-integrated, with a massive distribution platform to pipe heaps of content;

(2) Even more, Verizon's mobile distribution platform is the one that matters most in these transformed media times. Mobile is no longer the "second screen" -- it is absolutely the first screen (absolutely) with the millennials who matter most to marketers.  And, don't forget, Verizon plans to roll-out its mobile-focused OTT video service soon, very soon -- so it needs to feed "the beast" with compelling content.  Make no mistake, mobile is absolutely driving this deal; 

(3) Speaking of marketers, AOL is still a powerful force. Its sales force is proven -- and, in Verizon, it now has a massive new advertising platform to sell (and, again, for the young eyeballs that matter most).  Let's also not forget that AOL has invested significantly in ad-tech over the years, including Vidible and Adap.tv;

(4) Verizon needed to do something significant to counter AT&T's increasingly bold media moves, which include its mobile-focused $500+ million Otter Media joint venture with The Chernin Group. This is that significant move -- although AOL's success in the generally shorter-form mobile-driven video space is unproven (whereas AT&T's Otter Media J.V. owns leading mobile and millennial-focused multi-channel network (MCN) Fullscreen which already has a massive audience with billions of monthly views); and

(5) Verizon can now also use its heft via its FiOS network to supercharge its in-home OTT media ambitions with existing and increasingly well-funded video content from AOL. Netflix "Killer"? Maybe not so drastic, but certainly FiOS just got a lot more interesting.

Fascinating development. Bold. That's precisely the kind of strategic mega-moves that these times deserve. At first blush, my "blink" reaction is that I like it.

Pay TV Packages, Re-Imagined -- “The Great Unbundling” of Fall 2014

2014 is a transformative year for the media and entertainment business.  We will look back several years from now and fully realize this.

And, it’s not just about MCNs and the continuing litany of massive M&A and strategic investment.  Its about fundamental changes in the underlying forces (including the ascension of millennial mobile video consumption and engagement) that drive consumer behavior. 

Case in point Pay TV bundles.  These remarkable past 6-8 weeks mark THE moment in time at which previously sacred traditional cable/satellite pay TV programming bundles -- and the decades old business models behind them -- came under serious fire by concrete strategic actions by central players amidst this accelerating mobile and OTT video reality (and the consumers -- especially millennials -- behind it).  Yes, there has long been talk of such moves.  But, now major players in the overall ecosystem are taking real transformative action.  (For a great discussion about potential “winners” and “losers” in this great unbundling of pay TV packages, read Todd Spangler’s piece in Variety linked here.)

In October, HBOand CBSeach announced in rapid succession that they would offer their own stand-alone over-the-top (OTT) services.  No cable or satellite subscription required.  Competing Starz network later confirmed its own major international-focused strategic initiative to that same end.  And, AT&T – which just recently was integral in the acquisition of leading MCN Fullscreen via its $500 million Otter Media joint venture with The Chernin Group – also just recently entered the unbundling fray.  A few weeks back, AT&T announced a new $39/month U-Verse programming bundle that includes HBO and Amazon Prime video, together with basic cable programming PLUS broadband.  Via this new stripped down efficient package, AT&T smartly targets cord cutters -- and, importantly, the increasing number of “cord nevers” (those, especially young adults, who never subscribed to programming packages in the first place). 

Other cases in point.  Viacom recently licensed 22 of its live and VOD premium networks to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  Verizon joined these others and announced an early 2015 launch for its long-anticipated “virtual” MSO that is so virtual, it is wireless -- specifically designed for mobile.  And, critically, core to its new service, Verizon announced a down-sized “bite-sized” cable-lite programming package that features mobile-friendly MCN AwesomenessTV short form video, in addition to big 4 broadcaster content and NFL games (via its existing exclusive smartphone deal).  When announcing its new service, Verizon Chairman and CEO Lowell McAdam expressly pronounced what was almost unthinkable not long ago – i.e., that “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”

Welcome to “The Great Unbundling” of 2014. Transformative times in the media and entertainment business – particularly in the past few weeks.  

Bundle together these disruptive deals of just the past month or so and you have yourselves a digital media revolution ....

TV v.2014 -- “When The Walls Come Crumblin’ Down ..."

John Mellencamp’s campy song is back with a vengeance in the world of television.

Just in the past two days -- and in rapid succession -- two fairly remarkable announcements that should be rocking the media business even more than they likely are.  Make no mistake -- these are big deals, in every sense of the word.  

First, Viacom licenses 22 of its live and VOD premium network to Sony for its new OTT service for PlayStation, Sony TVs and other Sony connected devices.  And, second, Verizon announces an early 2015 launch for its long-anticipated “virtual” MSO which is so virtual, that it is wireless.  This ain't no FiOS TV -- this is TV re-imagined for your 24/7 companion.  In other words, your small screen ....  

Yes, Verizon announced that its down-sized, “bite-sized” cable-lite programming package will include the big 4 broadcasters and NFL games (via its existing exclusive smartphone deal).  But, even more symbolically and, therefore, significantly, Verizon -- in the same breath as referencing the traditional content of those august institutions -- also announced the featuring (yes, featuring!) -- of new-fangled “bite-sized” AwesomenessTV programming.  And, with that acknowledgement, Verizon elevated (rightfully!) YouTube economy premium short-form content to the ranks of “mattering” to at least some in the most senior ranks of media (a process that started earlier this year with Disney’s landmark $500-$950 million acquisition of Maker Studios -- a deal which, I believe, will be seen as a shrewd move a few years from now ... Google buying YouTube anyone?).

When making his announcement yesterday at Goldman Sachs’ annual mega-media conference (funded, no doubt, by the bank’s own special form of technical prowess during the past decade), Verizon Chairman and CEO Lowell McAdam proudly exclaimed the almost unthinkable -- that (as reported by intrepid reporter Todd Spangler of Variety, one of my favorites) “among cable programmers, there’s been an attitude shift among cable programmers toward accepting a new over-the-top model for delivering pay TV.”  In McAdam’s own words -- perhaps a bit unfortunately chosen in terms of its NFL-like imagery at this particular moment in time -- “It’s moved from almost a stiff-arm to much more of an embrace.”

And, Verizon’s McAdam was not alone.  CEO Jeff Bewkes of Time Warner emphasized the company’s growing interest in offering HBO Go as a stand-alone OTT service -- absolute heresy ... until now.  

In other words, the times, they are a-changin’ ... and consumers soon will be able to choose never-before-available smaller, more affordable premium programming packages.  

Doubt we are seeing much “embracing” about this transformation in the ranks of traditional media.  But, we are seeing acceptance.  And, acceptance is the first step in the road to recovery.  Eyeballs -- especially coveted young eyeballs -- are increasingly off traditional MSO services and on YouTube and leading MCNs (and increasingly viewing that content on mobile).  That means those younger eyeballs are increasingly less likely to pay in a “traditional” way (a reality underscored by a new study concluding that cord cutting will rise in the next 12 months -- also reported by Spangler -- and the words of Disney’s CFO Jay Rasulo).  That disruptive reality calls for non-traditional thinking -- and that is precisely what we are seeing here.

The long anticipated -- and inevitable -- dismantling of the traditional cable “bundle” is happening right before our eyes.  And, once the dam opens, it can never be closed.

2014 will be seen as a pivotal year in the world of media -- and not just because all of us are here at this moment and in this time.

Just look around you.  Watch how others around you are watching.  Especially the kids ....