AOL Focuses on Video with Adap.tv Acquisition

AOL has announced it will acquire Adap.tv, a video advertising platform, for $405 million cash and stock. Adap.tv’s proprietary technology allows advertisers to control their video advertising across different media channels, permitting AOL to provide customized advertising based on viewers habits and location.

Internet media companies are targeting video because of higher advertising revenues. Even Facebook, which is primarily a social networking site, will introduce video ads beginning in the fall.

With Adap.tv’s technology, someone watching “Friends” in New York at 3 a.m. may get a different ad than someone watching the same show in Colorado at 6 p.m. We’ve already seen some of this customized video advertising with Hulu and Netflix. Technologies like Adap.tv’s are making advertising more powerful and effective by getting the right ad in front of the right audience.

The AOL-Adap.tv deal is particularly interesting in the context of the Omnicom-Publicis merger that will form the largest advertisement agency in the world.  From an M&A standpoint, media and advertising companies like AOL are in transition and we are seeing major changes in content, delivery and distribution.

The Washington Post and The Boston Globe recently were bought by wealthy individuals, Amazon CEO Jeff Bezos and Red Sox owner John Henry. These papers were once extremely profitable, but now with print media becoming almost obsolete and advertising revenues sinking, traditional newspaper revenues have been cut significantly.

The advertising world is turning upside down. As users consume media on different channels, advertisers must follow. My kids do not watch TV, but they watch lots of video – online and on their phones.  Adap.tv’s technology is important as users move from traditional television to computers to smartphones and tablets. Financial Times reports 38 percent of smartphone owners regularly watch videos on their phones.

In an industry facing disruptions, advertisers must make changes to their existing technology or capabilities or they will struggle to be relevant. Those in any industry who stay on the sidelines will struggle to compete with other players. Companies like Google, Yahoo and AOL are expanding their capabilities through acquisition.

AOL will use Adap.tv to integrate advertising with video content, which AOL has invested heavily in. In 2012, AOL created the first live video channel for the internet, Huff Post Live. (According to AOL’s 2012 Annual Report).

AOL is a huge media advertising company with a wide range of companies, from websites like Huffington Post to AOL’s Sponsored Listings for advertisers. Some of the companies are heavily branded with AOL, such as AOL Mail and AIM, while others like Huffington Post, TechCrunch and Mapquest are branded separately.   It will be interesting to see how AOL will integrate Adap.tv with the rest of the company and how the competition will respond.

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