Verizon has decision to make on AOL media sites
AOL's ownership of The Huffington Post, TechCrunch and Patch media sites get much more attention than its less public businesses, but the company that put America online has shifted its focus in recent years to advertising technology.
That shift, largely led by AOL CEO Tim Armstrong, paid off handsomely on Tuesday, when AOL announced it has agreed to be bought by Verizon for $4.4 billion.
And while Verizon is buying all of AOL for now, Verizon executives weren't shy about letting it be known that it is AOL's ad technology that drew them to strike the deal.
"Certainly the subscription business and the content businesses are very noteworthy," John Stratton, Verizon's president of operations, said at an industry conference Tuesday. "For us, the principal interest was around the ad tech platform."
That leaves AOL's media sites in deal limbo. Verizon — the telecom giant whose vast portfolio includes a national wireless network and FiOS-TV and broadband that will benefit from the ad tech — has a decision to make on what to do with a slew of content sites that may not mesh with its plans.
"My sense is that they're after the ad tech side," says Andrew McNellis, an analyst who covers AOL for investment bank Evercore Partners. The media sites "weren't really a burden for AOL. But it's not a huge growth area."
In the first quarter, AOL's "brand" group, which includes the media sites, reported an 8% revenue gain to $193.4 million. With desktop display ad sales shrinking and content production costs that remain high, the group generated $13 million operating profit before interest, taxes and other items.
Revenue for AOL's "platforms" unit, which includes sales of ads delivered to publishers' sites using its automated advertising technology, grew 21% to $280 million in the first quarter. The unit has grown aggressively in recent years as AOL bought niche tech companies, such as Adap.tv and Vidible, and developed their technology.
AOL's various businesses had a certain synergy as it sold video and display ads on mobile devices, phones and computers. AOL could offer its media sites as attractive destinations that its advertising platform could uniquely deliver.
"The brand group needed the platforms, and the platforms needed the brand group," McNellis says, but he adds that the need to retain the media sites wanes with Verizon in the picture.
AOL already may have explored selling its media businesses. According to tech news site Re/code, AOL executives have had talks with investors, including private equity firms and German media company Axel Springer, to sell The Huffington Post unit and the affiliated sites.
The Huffington Post, which AOL bought in 2011 for $315 million and which AOL says generates 94 million monthly views, would be valued at "above $1 billion in this scenario," Re/code reported.