M&A Alert - January 25, 2010
AOL acquires online video company StudioNow
Transaction Overview
On January 25th, 2010, AOL announced it had acquired StudioNow for $36.5mm in cash and stock, with a portion of the cash to be paid out over a number of years.
Target Description
StudioNow is an Internet video service provider, providing video content production services through a network of over 3,000 licensed freelancers. StudioNow provides the full spectrum of video services to a high-profile portfolio of blue chip clients by creating, managing, storing and syndicating that content. The company competes with online commercial video provider AdVideo. StudioNow has received a total of $3.5mm in venture funding since its inception, $1.5mm of which came from Claritas Capital in June 2007, with an additional $2mm from Clayton Associates in August of 2008. StudioNow was founded in 2007 by David Mason and Adam Solesby, and is based in Nashville, TN.
Buyer Description
AOL is an international, ad-supported Web company, with a large audience of 56mm – 67mm monthly visitors supporting an advertising network, which is currently its main revenue stream. Since becoming the world’s largest Internet subscription service in the late 90’s, AOL has shifted strategy to providing content, hoping to drive content to support a sophisticated advertising network through a suite of successful Web brands and products. In 2008, AOL acquired the social network Bebo for $850mm as part of its
overall strategy of gaining as large an online presence as possible to support ad revenues. This strategy is becoming all-important, as AOL’s subscription based Internet service appears to be heading toward zero as users convert to broadband service.
Transaction Parameters
AOL reported it paid $36.5mm in cash and stock for this transaction. A portion of the cash is to be paid over the course of several years.
Strategic Rationale
AOL’s acquisition of StudioNow should provide AOL with additional premium content to help support its lackluster advertising business. In the third quarter, AOL’s overall revenues declined by $777mm, or 23%, while its advertising revenue dropped by 18%. AOL has indicated that it intends to integrate StudioNow’s network of over 3,000 freelancers and its sophisticated video creation platform into AOL’s recently launched Seed.com venture. Seed.com, a content management system, buys and distributes content from the entire ecosystem of AOL products, brands and services. StudioNow should enhance AOL’s ability to produce and distribute sophisticated video content, part of its core revenue strategy to build an audience to support a profitable advertising network.
Architect Partners’ Observations
This is AOL’s first major acquisition since being spun off from Time Warner, and it demonstrates their promised shift toward a content model. AOL gets two things from this acquisition: an established roster of video producers and a technology platform for accepting, managing and distributing content through Seed.com. Both are important as AOL moves away from a subscription model, and one might expect to see more moves in this direction from the largest content houses.