AOL's advertising platform was the primary target behind Verizon Communications' (NYSE: VZ) $4.4 billion purchase of AOL today--but the company's bigger aspirations are to deliver a mobile-first video experience targeted at millennials.
Speaking to investors at the Jefferies TMT 2015 conference, John Stratton, Verizon's newly appointed EVP and operations president for its wireless and wireline division, emphasized that the main impetus behind Verizon's purchase of AOL is the company's ad platform that Verizon believes will help it generate revenue "above the network layer." In addition, he said that the company is laser-focused on delivering a mobile-first video experience targeted at millennials because it believes they consume video very differently. He said AOL's ad platform, as well as other Verizon acquisitions including its January 2014 purchase of Intel's OnCue platform, will help Verizon fulfill this vision.
Verizon earlier today announced plans to purchase AOL for $50 per share, or approximately $4.4 billion. The all-cash deal is expected to close this summer, pending regulatory approval. AOL CEO Tim Armstrong will remain with the company and AOL will become a wholly owned subsidiary of Verizon.
Interestingly, Stratton also said that while there is some overlap with the company's FiOS linear video business, he believes the company's forthcoming mobile OTT service will be consumed very differently. "We are in the TV business," he said. "Triple-play still matters a lot, but there's a shift in how consumers consume video. That is why we are doing this OTT stuff." [click to tweet]
Stratton also talked about the company's LTE Broadcast service. He said the company is now embedding LTE broadcast technology in many of its devices. He noted that this is another incentive for customers to upgrade to new devices. "I suspect that customers will continue to be motivated to upgrade devices because of the cycle of hardware and software improvements," he said when asked about whether the company is pushing its Edge equipment installation plan (EIP). The plan offers some customers discounted service pricing and also lets customers upgrade to a new phone after they pay off 75 percent of a device's cost. The company reported an increase in customers selecting its Edge EIP plan in the first quarter, with 39 percent of phone activations in the quarter happening on Edge.
Stratton also addressed recent uproar over the company's new channel bundling plan introduced in April. The company's Custom HD plan, dubbed a "skinny bundle," allows its FiOS pay-TV customers to get a base package of about 45 broadcast and cable channels, and they can choose add-on "Channel Packs" of 10-17 networks, themed around "sports," "kids," "lifestyle" and other topics. Programmers have pushed back against the offering, claiming that these types of packages are not authorized by Verizon's existing licensing deals. ESPN has even filed a lawsuit against Verizon claiming that the company is not adhering to its licensing agreement with ESPN.
Stratton said Verizon is trying to work with its content providers to figure out how to move through this transition and still meet customer expectations. "We want to honor our content providers," he said, adding that the content providers need to be flexible in order to find the right model for consumers.
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