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AOL Acquisition Could Boost Verizon's Free Netflix Competitor

Today, Verizon announced that it intends to purchase AOL Inc. for $4.4 billion. Verizon seems to believe that this deal should strengthen its OTT (Over the Top) strategy and help it diversify away from being only a wireless provider.

Lowell McAdam, Verizon chairman and CEO, said: "Verizon's vision is to provide customers with a premium digital experience based on a global multiscreen network platform. This acquisition supports our strategy to provide a cross-screen connection for consumers, creators and advertisers to deliver that premium customer experience."

Late last year, Verizon tried to get into the content business with a new technology news-focused website called Sugarstring. It's not clear what Verizon's strategy was at the time, because the company quickly shuttered it soon after rumors appeared online that Sugarstring writers would not be allowed to talk about the NSA's domestic surveillance activities or net neutrality.

Perhaps Verizon realized that it was simply thinking too small then and that a brand new homegrown website wouldn't have had too much success or credibility. Soon, Verizon will own some large media brands such as Engadget and Techcrunch (Huffington Post will apparently be spun off) that already have an established readership.

If Verizon was willing to completely ban certain technology hot topics that didn't put it in a good light from its Sugarstring site, it will be interesting to see if Verizon ends up doing the same with its AOL properties. However, as a large U.S. carrier that's tied to the explosive mobile industry, Verizon's businesses and actions will continue to come up in the news cycle whether the company likes it or not. Therefore, such actions may prove futile and even counter-productive.

For now, though, Verizon seems more interested in expanding its business portfolio than meddling with the news about the company. As the Internet increasingly becomes the only type of medium people use for consuming content, and its customers start using Voice and Text plans less and less, Verizon may fear that it will eventually get completely commoditized. Verizon, and other carriers, don't want to eventually compete on a "per GB" price.

Many billion dollar businesses have been built on the Internet, and Verizon wants to own or create a few of those, too. For instance, AOL is third only to Google and Facebook in terms of the people it reaches with online video (seriously!) and Verizon is planning a video streaming service of its own. By acquiring AOL, Verizon can reach many more people, which can help its OTT video streaming service explode almost overnight.

Verizon seems to want to offer this streaming service for free, monetized through ads, which is another area in which AOL can help the company. AOL has a large ad platform for its own content, and it could expand that platform to cover Verizon's own streaming business, too. That means it should be easier for Verizon to find advertisers for its shows, which could keep the streaming business profitable, even if it was offered to users for free. If Verizon's ad-based streaming service is profitable enough to get good and original shows, it could become the free Netflix competitor that Hulu never was.

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Lucian Armasu
Lucian Armasu is a Contributing Writer for Tom's Hardware US. He covers software news and the issues surrounding privacy and security.