Why AOL Matters Again

[Commentary] Verizon is not buying AOL for its legacy dialup business or its middlebrow content operations. It wants AOL’s ad- and video-delivery platform to advance “the telecom giant’s growth ambitions in mobile video and advertising.” Why on earth does Verizon have such ambitions?

Verizon is primarily a supplier of telecommunications services, mostly its No. 1 wireless business, plus its FiOS fixed-line business and a legacy landline business that it has steadily jettisoned. Verizon is only the fifth biggest pay TV provider, with its FiOS TV package, which like all such TV businesses is increasingly a low-margin or even profitless sweetener for its connectivity business. The question raised by Verizon-AOL is whether players count too much on loss-leading video sweeteners to give them a leg up. Are they overestimating video’s ability to save them from becoming low-margin dumb pipes? Their dumb pipe is actually a smart pipe: They should be getting paid by Google, Netflix, Amazon, Apple, etc. to ensure clean, crisp connections to end-users while economizing on bandwidth. Unfortunately this opportunity will be a hard sell, politically and commercially, as long as operators insist on competing with the new ecosystem of video bundlers.