Verizon's $US4.4 billion bid for AOL isn't just another whimsical moment in web investment weirdness. It's serious. The deal creates a huge media-communications giant, just like huge evil media conglomerates before it — and, if you consider the facts, it's possibly worse.
What the hell did Verizon just buy
Though you probably remember AOL as the dial-up internet you had in the 90's — a business that still has millions of subscribers today — dial-up has been on the way out for well over a decade. AOL today owns a number of content brands you probably recognise, like the Huffington Post, Engadget, TechCrunch, and MapQuest. Behind the scenes, it's developed a growing advertising operation, and specifically, a business that helps other businesses deliver advertising. That last part sounds boring, but is actually key to the company's strategy: its "platforms" business is growing almost three times faster than its "brands" business.
In short, Verizon just bought a publicly-traded content creation and advertising company.
From Telco giant to media conglomerate
Verizon is already a huge telecommunications company that controls the country's largest mobile network, with 108 million retail subscribers and a huge broadband business, FiOS, with 6.7 million internet subscribers and 5.7 million video subscribers. It's massive. As Aol CEO Tim Armstrong pointed out on CNBC today, 70 per cent of internet traffic passes through Verizon's holdings.
With the acquisition of AOL, Verizon becomes a huge player in media as well. It already controls the pipes that deliver media and content, and now it also owns the content that pours down those pipes. This includes advertising, yes, but also a massive online news and reporting operation. According to the Poynter Institute's latest "State of the News" report released just last month, The Huffington Post is most trafficked online news destination in the country, to say nothing of AOL's other properties and advertising holdings. (There are rumours that AOL may spin off the Huffington Post as part of this deal, but the point remains that Verizon, a communications company, just threw down hard on media.)
Verizon's starting to look more and more like a media conglomerate. Compare it to Comcast, which owns cable, broadband, and the NBCUniversal media empire. Another example: iHeartMedia (formerly Clear Channel), which is the county's largest owner of radio stations, music performance venues, and outdoor advertising.
As an aside, it's interesting to think about how much Google is starting to look like a media conglomerate, too. It just started offering communication services like Google Fibre and the newly launched Project Fi wireless carrier, on top of its existing online content/advertising business.
From the business point of view, consolidation makes sense. You own the pipes so you might as well make money off all of the content that's going down them. And Verzaol is particularly well suited for The Way Media Is Going. AOL is an internet-based content business that's well adapted to the consumer shift towards broadband, and more specifically, mobile consumption. In short, the shift away from cable only helps AOL. Meanwhile, Verizon is a huge mobile and broadband provider. Is "media conglomerate" even the right word for a business like this? Maybe we need a new name for companies that are mobile, internet, and content monoliths.
Yes, we should be worried
That Verizon is getting bigger is already cause for concern. Big media communications companies like Comcast suck competition out of the market and as a result are shitty for consumers. Google, which Verizon-AOL may have more in common with, long ago abandoned its "don't be evil" mantra, and as we cautioned with the launch of Project Fi a few weeks ago, the company's telecommunications ambitions are a privacy nightmare waiting to happen.
Verizon itself has a track record of underhanded dealings that cost consumers money, and on many important issues, Verizon is an opponent of progress. Specifically, Verizon continues to be one of the staunchest corporate opponents to net neutrality.
During the net neutrality debate, Verizon attempted to launch a tech site that completely ignored net neutrality as well as NSA spying. It was ugly and it didn't last. Then, when the FCC officially announced that it would reclassify broadband as a utility, Verizon printed it's response in Morse code to try to show that net neutrality is somehow regressive. That's dumb, and it misses the point, but the optics, as they say, are effective. The expansion of one of the biggest anti-net neutrality corporations could set up significant roadblocks to maintaining an open internet.
Then there's the issue of editorial independence. We don't know that Verizon will meddle with the content of the influential new operations it owns, but I think it's worth noting that if I was sitting at the desk of my competition — my friends — at Engadget or TechCrunch, well, I wouldn't really be sure what to say when Verizon fucks up. Do I really want to compromise my career by talking shit about Verizon?
In a lot of ways, an AOL-emboldened Verizon could be the beginning of the scariest conglomerate we've ever seen. It's like Comcast, except you have to worry about your privacy in addition to worrying that the cable guy won't show up. Verzaol will be a company that makes money by selling you bandwidth, tracking your consumption of the content over that bandwidth, and then selling advertising against what it has tracked over that bandwidth. It's like a giant squid, wrapping itself around you, feeding you what you consume, and then eating the whole thing after the fact.
Picture: Michael Hession