Verizon Sees AOL as Umbrella Over Planned Streaming Service

NEW YORK (TheStreet) -- Verizon (VZ) will give AOL (AOL) CEO Tim Armstrong autonomy to oversee and integrate his company's advertising technology platform into a new streaming service that the telecommunications company plans to unveil sometime this summer, Verizon CFO Frank Shammo said Tuesday.

Verizon said a week ago that it plans to acquire New York-based AOL for $4.4 billion in cash in a deal. The transaction, which is expected to close later this year, will allow Verizon, owner of the country's largest wireless network, to offer a streaming service focused on customers who have balked at getting a pay-TV contract.

"Tim will be running this unit, which we envision as being an independent siloed company," Shammo said at a JPMorgan (JPM) investor conference in Boston. "We determined that AOL had one of the best ad-tech platforms and ad-insertion tools in the industry, and that's what we needed. This is a multibillion dollar business from an advertising standpoint."

The decision to acquire AOL, Shammo said, came after the company determined that its nascent Internet-based video service would operate more profitably, and be better able to attract users, if it could sell targeted advertising along with selling monthly subscriptions.

The new service, said Verizon's finance chief, will target consumers who have either ended their pay-TV contracts, or have never subscribed to the traditional pay-TV bundle of 150 or more channels. The service will feature shorter video programming from content producers such as AwesomenessTV and AOL's Huffington Post. Over the past year, Shammo said, wireless traffic at Verizon increased by 54%, most of it in video.

"Everyone is focused on content in the home and then taking that content outside the home," he said. "So, that's live events, sports, news, millennial-type content. This isn't episodic. It's unique, live and more focused towards the millennials."

Verizon is experimenting with alternative packages as Internet-streaming services multiply in response to long-simmering consumer frustration with having to pay upwards of $100 per month for packages that include dozens of channels that viewers say they don't want.

One such option is Verizon's new Custom TV, which allows consumers to choose a package of small bundles of channels for as little as $55 per month. Disney's (DIS) ESPN and 21st Century Fox (FOXA), on behalf of its channel Foxsports1, have sued Verizon, arguing that the new service violates existing contracts that require its channels to be placed in a pay-TV provider's most popular bundles.

Shammo said Verizon is doing nothing wrong. "Customers are tiered of paying for hundreds of channels that they never watch," Shammos said. "It's a way to give the consumer more choice. We believe we are within our rights to offer this package and we will continue to do so and see how it plays out in the courts."

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