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Multiple phone cameras record a man in Phuket.
Reuters/Damir Sagolj
The future of phones includes video. Lots and lots of video.

A Verizon-AOL deal would be a bet on the dominance of mobile video

Verizon, the US telecom giant, has approached AOL about a “potential acquisition or joint venture,” Bloomberg reports today, citing anonymous sources. While the companies overlap in several places, the most logical explanation for any possible deal is that Verizon sees mobile as the future of video, and AOL represents a useful—and affordable—bet on mobile and digital-video advertising.

Consider the situation:

  • Verizon Wireless had 106 million “retail” mobile service connections at the end of September 2014, roughly one-third of the US market. (Verizon separately also had 6.5 million subscribers to its FiOS broadband internet service, and 5.5 million FiOS video subscribers.)
  • Watching video on mobile is a large and growing activity—representing more than half of mobile data traffic—and mobile stands to gain advertising share from other media types.
  • AOL, under CEO Tim Armstrong—previously a top executive at Google—has focused on building out its video and advertising technology portfolio via a series of acquisitions. In October, AOL was the third-largest desktop video company in the US by users, according to comScore. (Numbers one and two are Google and Facebook—two companies that aren’t for sale.) AOL was also the broadest online video-ad network, reaching more than half of the US population.
  • Many believe automated (or “programmatic”) advertising represents a key part of the industry’s future. On AOL’s last earnings call, Armstrong spoke about the “mechanization of Madison Avenue,” noting “all of the customers I know are moving to programmatic more quickly than they were a year ago, and the changes are dramatic overall.” AOL acquired the programmatic video-ad platform Adap.tv in 2013.
  • Meanwhile, Verizon has already aggressively started offering advertisers new ways to target ads to its wireless customers.

No deal is imminent, according to Bloomberg. But AOL shares jumped on the news, up 12% in after-hours trading, which would give it a market capitalization of roughly $4 billion. (Verizon shares were up slightly after hours; its market cap is around $194 billion.) Both Verizon and AOL representatives, reached by Quartz, declined to comment.

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