May 12--REPORTING FROM WASHINGTON -- With its $4.4-billion purchase of AOL Inc., telecommunications giant Verizon Communications Inc. expands its empire with new online video offerings, advertising technology and a stable of well-known sites, including Huffington Post and TechCrunch.
Of those, video might be the big draw, said Angelo Zino, senior equity analyst at S Capital IQ. AOL ranks third behind Google (mostly YouTube) and Facebook in unique desktop video viewers, according to ComScore.
"There's definitely a shift going on on the consumer side to video content, and Verizon wants to take advantage of that," he said.
While the rest of the deal involves "some pretty good assets," Verizon might not hold on to all of them, Zino said. The Huffington Post could be one that gets sold, he said.
In announcing the deal early Tuesday, Verizon said AOL would boost its wireless video offerings, online content, advertising and burgeoning world of Internet-connected devices.
"AOL has once again become a digital trailblazer, and we are excited at the prospect of charting a new course together in the digitally connected world," said Verizon Chief Executive Lowell McAdam.
Verizon will pay $50 per share to purchase AOL, a 17% premium over Monday's closing price.
AOL shares surged to a little more than $50 in trading on Wall Street on Tuesday. Verizon stock was down about 0.25%.
Originally known as America Online, AOL was one of the first subscription-fee, dial-up services in the early years of the commercial Internet in the 1990s.
With its email service, online chat rooms and news-filled homepage, the company grew under then-CEO Steve Case to become one of the Internet's first success stories.
Subscribers were greeted by the cheery message "You've got mail!" when they signed in to the service. The signature phrase even became the title of a 1998 film about an Internet romance starring Tom Hanks and Meg Ryan.
AOL became such a powerhouse during the dot.com boom that it acquired media giant Time Warner in 2000, forming AOL Time Warner Inc. in a $105-billion merger that created the world's largest media company at the time.
AOL had 28 million dial-up subscribers when it combined with Time Warner.
But the end of the boom hurt AOL and it struggled to adapt as online access shifted from paid dial-up subscriptions to high-speed broadband connections offered by telecommunications firms such as Verizon and cable giants such as Comcast Corp.
Search engines such as Google Inc. also emerged as an alternative entry point to the World Wide Web.
In 2006, the company started phasing out subscription service in favor of a free ad-supported model. AOL was spun off into a separate company in 2009.
------
FOR THE RECORD
8:19 a.m.: An earlier version of this article stated that the number of AOL subscribers peaked at 26.7 million in 2002. The figure was incorrect.
------
In recent years, AOL has focused on becoming a digital media company. It moved its headquarters from Virginia to New York City and acquired popular online sites such as the Huffington Post, the liberal blog site run by Arianna Huffington, and technology sites TechCrunch and Engadget.
AOL also has produced online video programming, such as "The Future Starts Here" and "Park Bench with Steve Buscemi," that earned Emmy nominations last year.
"One of the biggest winners out of this deal is going to be the Huffington Post because the Huffington Post is going to end up being on more platforms and more places along with all of the other content that Verizon has and AOL has," AOL Chief Executive Tim Armstrong told CNBC on Tuesday.
"I gave Arianna one message, which was this is great for the Huffington Post and this is going to be huge," Armstrong said. "So that is the same message I am giving the whole company."
AOL still had 2.2 million monthly dial-up subscribers as of March 31, down from 2.4 million a year earlier. The average subscriber had been using the service for nearly 15 years.
That's a decent subscriber base, and AOL's advertising technology presents potential for growth, Zino said.
But video is the future for Verizon, he said.
"I think there's a huge opportunity in video," he said. "That's a key growth area for the future and my belief is Verizon is really looking to grow and expand into the video area."
UPDATES
11:23 a.m.: This article has been updated with additional reaction.
7:45 a.m.: This article has been updated with comments from AOL Chief Executive Tim Armstrong.
7:25 a.m.: This article has been updated with early stock prices for the companies and additional background.
5:41 a.m.: This article has been updated throughout with additional details and background.
This article was originally published at 4:26 a.m.
