Verizon is buying AOL for its video content and ad technology

[Commentary] Announcing the deal, Verizon said the acquisition "further drives its LTE wireless video and OTT (over-the-top video) strategy." Un-jargoned, that means video that Verizon Wireless subscribers can access on their phones, and streaming video that cord-cutting Verizon wired Internet (via DSL or Fios) can watch without a cable television subscription. On that account, this is basically a content acquisition. AOL's portfolio of media brands -- which includes the Huffington Post and other things that don't have AOL logos slapped on them -- produce videos that could be delivered to Verizon customers through Verizon's infrastructure, allowing Verizon to either charge a premium relative to competitors or extract extra value through ad sales. Verizon making a content deal makes some sense. But the price paid here seems awfully high. As a professional content man myself, I don't want to devalue what content brings to the table. But the price offered here is more than the combined valuation of BuzzFeed and the New York Times, which sounds like a much more formidable content portfolio.

That said, one asset AOL brings to the table that no other media company has is its ridiculous legacy dial-up business. There is absolutely no point to buying dial-up internet from AOL, but a cohort of confused individuals do it anyway, and this brings in profits. Given the nonexistent growth potential in this business, nobody is going to buy AOL because of the subscriptions, but from a valuation point of view the revenue is real, which means you have to pay for it. That explains some of the premium here, but it's still a bit fishy. The deal could be about ad technology. The answer to the riddle probably lies in something the press releases didn't really deal with: AOL's growing ad tech business, which lets advertisers automate ad buying and distribution.