So Verizon said on Tuesday that it intends to acquire AOL for $4.4 billion to become the “world’s biggest media platform,” a story that was first reported—fittingly enough—by one of the media entities that Verizon will soon own, the news site TechCrunch. But does Verizon really want to be the kind of media company that runs a property like TechCrunch or the Huffington Post? That seems unlikely, which is why I think we will see them spun off or sold fairly quickly.
In fact, having a telecom company like Verizon (VZ) running a publisher like the Huffington Post doesn’t just seem unlikely—it seems like a terrible fit for a number of reasons, and there are probably many journalists at both HuffPo and TechCrunch who are fervently hoping that Verizon sees it that way as well.
One of the first references that popped up after the deal was announced—other than the obvious comparison to the disastrous Time Warner-AOL merger—was to Verizon’s recent attempt to create its own tech-news site, a short-lived effort known as SugarString. After reports that the telecom company had forbidden writers from covering the topic of net neutrality, the site went dark and has never been heard from since. Not a great advertisement for Verizon as a media owner.
Verizon buying AOL http://t.co/i28ujqJxmt must leave editorial at TechCrunch & Engadget thinking about SugarString http://t.co/KWpHV89pFI
— Anil Dash (@anildash) May 12, 2015
But even beyond that kind of cultural dissonance between the two businesses, it’s difficult to see what Verizon would gain from operating TechCrunch or the Huffington Post. Although the Post commands fairly impressive traffic by comparison to some other online news outlets, that’s unlikely to make much of a financial difference to a company like Verizon, nor is it going to help the company with its main line of business.
Offering access to TechCrunch or HuffPo media content to Verizon wireless customers feels like the kind of “vertical integration” nonsense that was popular around the time of the Time Warner-AOL debacle, which still stands as one of the most horrific destructions of shareholder value since ancient Rome. Since neither site has a paywall or proprietary content, giving Verizon subscribers access to their content is like the bank throwing in an offer of tap water with your mortgage.
As my colleague Erin Griffith points out, the one aspect of AOL’s (AOL) media business that probably does interest Verizon is the company’s ad-serving technology, which CEO Tim Armstrong has spent years developing with a specific focus on mobile. That’s something Verizon could at least theoretically use to boost its own mobile offerings for brands.
In fact, there’s an argument to be made—as Dennis Berman does at the Wall Street Journal—that the Verizon bid for AOL says more about Verizon’s difficulties than it does about any intrinsic value that its target might have. Paying $50 a share for AOL is so far above any realistic value for that company that it feels more like a Hail Mary pass than a strategy that comes out of some consistent vision of the company’s future.
So what happens to Huffington Post and AOL now? The former seems like a natural fit with a number of existing media players, including German giant Axel Springer—and Re/code’s Kara Swisher reports that the two have already been in talks about such a potential deal, one with a theoretical value as high as $1 billion.
AOL CEO on second-spin idea: “We’ve seen a lot of interest in the content brands we have. So over the course of the summer, stay tuned.”
— Peter Kafka (@pkafka) May 12, 2015
Yahoo (YHOO) is another potential acquirer of either HuffPo or TechCrunch or both, since it is trying desperately to bulk up on the media side. Yahoo was also seen at one point as a potential buyer of AOL itself, although it felt at the time as though that was more of a desperate attempt by Tim Armstrong to generate some kind of value from the company. Yahoo CEO Marissa Mayer was apparently never as interested as Armstrong wanted her to be in such an arrangement.
The other option would be to spin off both the Huffington Post and TechCrunch as a single unit. But that would be a difficult business to justify as a standalone entity, at least from a financial perspective. (My colleague Dan Primack offered his own evaluation from a financier’s point of view.) While the Post has large traffic numbers, it doesn’t spin off very large amounts of cash, and TechCrunch’s best days are arguably behind it. The unit of AOL that both belong to generated income of just $13 million in the first quarter of this year.
Both would make more sense as parts of existing media companies, where synergies could come into play between more traditional assets and the online businesses of those two sites. The only question is who would want them, and why?