AOL's Armstrong asks investors to bet on tomorrow
NEW YORK (Reuters) - AOL Chief Executive Tim Armstrong said investors will reap the benefit of an online advertising resurgence by 2011 if they hold on to the company's shares after it is spun out from Time Warner Inc (TWX.N) later this year.
That will be a difficult sell to Time Warner shareholders looking at AOL's revenue trajectory over the last three quarters, which has seen steep declines of 20 percent.
Armstrong said it remains unclear when exactly the overall ad market will rebound, but he believes online video and display ads will see a resurgence in 18 to 24 months.
"Advertisers are going to be driving to Internet Road and AOL is a major property on Internet Road," Armstrong said in an interview at his office in downtown Manhattan, though he also acknowledged, "The property needs some work."
The media conglomerate appointed Armstrong, Google Inc's (GOOG.O) former sales chief, in March to run AOL and set him to the task of spinning out the Internet company.
Unlike Yahoo Inc (YHOO.O) and Microsoft Corp (MSFT.O), which seek to compete with Google in Web search, AOL will be a pure-play Internet display advertising company.
That means its revenue will mostly come from companies buying advertisements on its own websites and partner websites -- a business that has been harder hit by the recession than the search advertising market.
The AOL CEO believes the value of its inventory has been hurt by a network-based approach to advertising through its Advertising.com platform, which serves ads to hundreds of websites.
Armstrong and his sales lieutenant Jeff Levick, another ex-Googler, are working to rectify this by separating targeted ads -- which generate higher revenue because they reach specific audience groups -- from the one-size-fits-all approach of network ads. The two had been mixed together previously.
"They mixed the peanut butter and chocolate together," said Armstrong. "In reality you ended up with something that didn't taste very good."
AOL -- whose properties include celebrity news site TMZ, tech site Engadget, plus own brands like AOL Music -- ranks fifth in the U.S. display ad market, lagging Yahoo, MySpace, Facebook and Microsoft, according to comScore.
ON DIAL-UP, M&A
Management is deep in talks with Time Warner about AOL's capital structure based on internal revenue and cost estimates that are still being ironed out.
Armstrong said they are two months away from a decision without giving further details.
"There is debt capacity at AOL but how much depends on the strategy and financial planning and what we invest in," he said. Continued...
