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Verizon is buying AOL for $4.4 billion

The Washington Post's Brian Fung breaks down Verizon's $4.4 billion acquisition of AOL and what it could mean for the average consumer. (Video: The Washington Post)

Verizon announced Tuesday morning that it is buying AOL for $4.4 billion in what amounts to a major play by the telecom carrier to crack the online video and advertising markets.

The acquisition could help Verizon make money from distributing video over the Internet — particularly to mobile devices, which account for a growing share of America's media consumption. Verizon is already one of the country's top telecom companies and wireless providers, but those markets are maturing and the company has been seeking other ways to grow.

AOL has struggled to regain its relevance in recent years, transitioning from being an online portal for consumers into a digital advertising and online content company. In 2011, AOL purchased the Huffington Post.

AOL chief executive Tim Armstrong will remain as head of the company as part of the deal.

"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 Lowell McAdam, Verizon chairman and chief executive.

Last year, Verizon snapped up an Intel project aimed at developing streaming video. That business, OnCue, was widely said to be a key part of Verizon's ambitions to deliver video to smartphones and tablets over its cellular network.

Then, in March, Verizon announced it would be rolling out a streaming video app to compete with the likes of Hulu and Netflix. Verizon officials hinted that the service might not rely on subscription fees but rather on advertising. A tie-up with AOL would likely support such a strategy.

The acquisition raises questions about Verizon's approach to content, and the fate of prominent AOL brands including not only the Huffington Post, but also high-traffic blogs such as Techcrunch and Engadget. Rumors surfaced Tuesday that Verizon could spin off the Huffington Post, but an AOL spokesperson said all of its content firms would remain with the company.

As part of the deal, Verizon will also inherit the more than 2 million AOL customers who still subscribe to dial-up service. That audience represents the most profitable (and loyal) segment of AOL's business. Dial-up rakes in, on average, nearly $21 per month per subscriber, and the typical dial-up customer has been with AOL for nearly 15 years, according to recent corporate filings.