The profit was at the low end of the average of $0.32 – $0.34 that analysts had been predicting, while AOL’s $538.3 million in revenue was slightly above expectations.

Update: the market does not like the EPS. AOL share prices are off more than 10% this morning.

Overall, the numbers reflect an ongoing turnaround at AOL, which for years had been depending on its legacy dial-up subscription business for profit as its content and advertising business struggled. In March, CEO Tim Armstrong said recent results validated the company’s focus on content.

The most encouraging sign for the company may be a 14% growth in revenue in its so-called brand group, which consists of its in-house media properties like the Huffington Post, AOL.com and TechCrunch. AOL networks, which represent its third-party advertising service, was also up 8%.

The biggest question for the company remains profit where the company continues to depend on its shrinking legacy business to pay the bills. Both the ad networks and brand group continue to lose money, in part because sites like Patch.com continue to be a drag on earnings. This is reflected in the following screenshot, showing revenue and adjusted OBITDA:

If there is a dark spot here, it is the fact that, notwithstanding revenue growth, AOL still depends on its historic business of selling dial-up subscriptions. While losses in the brand group shrank by 71%, they are still losses — and the tech-heavy AOL Networks, in which AOL has invested significantly, is losing money too. Here’s how the company’s earnings release explains the profit situation:

“While significantly improved, Brand Group Adjusted OIBDA remains negative reflecting our investment in Patch and in our editorial and engineering staff at our core brands and in our sales force domestically and internationally [...] AOL Networks Adjusted OIBDA decreased year-over-year due to higher research and product development costs primarily related to continued investment in Adlearn Open Platform (our demand-side platform) and the launch of AdTech MARKETPLACE (our supply-side platform).”

Update: an earlier version of this story cited analysts’ prediction as $0.32; I’ve updated to also to refer to a separate consensus account of $0.34

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Yahoo 

Celebrity Presence: John Stamos, Ed Helms, Morgan Spurlock, Cheryl Hines, Rachael Harris, The Lumineers (who performed live).

New Shows Presented: A mix of comedy and lifestyle programming, including Helms’s Tiny Commando, a show about the intersection of food and film, and a Spurlock-produced series where celebrities tell Stamos about the first time they had sex.

Biggest News Announced: For wrestling fans, it was probably the announcement that Yahoo and the WWE will be “tag-teaming” video distribution. But Yahoo also announced plans to partner with Condé Nast and CNBC for shows.

Money Quote: From Sam Gutelle at Tubefilter’s coverage, based off a comment by Yahoo COO Henrique de Castro:

De Castro asked advertisers to sink 5% of their TV budget of just one brand into Yahoo. Clearly, he understands that while the online video space is growing in popularity, it is still an area meant to complement TV, not overtake it. Yahoo’s new shows should do just that by providing solid, accessible entertainment.

My Take: None of the announced partnerships are as high-profile as Yahoo getting the exclusive rights to Saturday Night Live clips. That said, of all the new shows announced this week, I might be the most intrigued by Losing Your Virginity with John Stamos: It sounds like a lot of fun.

AOL 

Celebrity Presence: Sarah Jessica Parker, Nicole Richie, Baratunde Thurston, iJustine.

New Shows Presented: A wide range of largely lifestyle-oriented programming, including the Gwyneth Paltrow-starring Second Chances, Hank Azaria’s Fatherhood, Webby co-founder Tiffany Shlain’s The Future Starts Here, and a show about ballet executive-produced by Parker.

Biggest News Announced: To track who’s actually watching all that programming, AOL will be collaborating with Nielsen on a system that will “express audience measurement in the language of TV, enabling comparisons between the audience of AOL’s high-quality original programming and curated premium partner content to TV viewership” (according to the press release).

Money Quote: From Video Ink’s coverage of the Nielsen deal, an interview with Nielsen SVP of Strategic Partnerships John Burbank:

Ultimately, it’s not up to the Comscores and Nielsens of the world. “It’s really the market that has to decide, and we’re doing our best to make the measurement as robust and as fair for everybody so the buyer and the seller have to agree to transact on the data,” Burbank added.

My Take: Some of AOL’s original programming sounds potentially interesting, but relying on celebrities and brands to drive web content is far from a fresh business model, and oftentimes doesn’t have much staying power. However, if the audience for that content finally gets properly measured, it could help advertisers better understand the potential impact of online video.

Hulu

Celebrity Presence: SNL‘s Seth Meyers (who hosted the event), Desperate Housewives star Eva Longoria, professional wrestlers Sergeant Slaughter and Rey Mysterio.

New Shows Presented: Two new exclusives include Quick Draw, a comedy western, and high school drama East Los Angeles. Plenty of other series are on their way, and Hulu made note of One Life to Live and All My Children, which have performed well in their new digital iteration.

Biggest News Announced: Hulu had some exciting numbers to report, most importantly that Hulu Plus has topped four million subscribers, and according to comScore, it’s number one in engagement among top ad-supported sites.

Money Quote: From Variety’s coverage, a snippet from Meyers:

“‘You might be wondering why someone who works for a traditional network like NBC is at the Hulu upfront,’ he said. ‘Simply put, I’m hedging my bets. I don’t want to be working for the steam-engine company and wondering if cars are going to work.’”

My Take: It would have been interesting to see bigger-name content presented by Hulu this week, but with subscribers on the rise and the site bringing in more original series, things seem to be going well for the site.

Blip

Celebrity Presence: Rob Huebel (who hosted the event), Grace Helbig, Rooster Teeth’s Burnie Burns.

New Shows Presented: The Huebel-starring comedy Mainly Murder, unscripted competition series Jewelry Star, The Great S. Cape!, created by Dark Knight producer Michael Uslan. (Full details presented on Blip’s site.)

Biggest News Announced: Not only has Blip already announced a partnership with My Damn Channel to distribute original content, but on Wednesday they announced a production deal with hugely popular (and outspoken) YouTuber Ray William Johnson.

Money Quote: From AdWeek’s coverage of the event:

“‘Blip is the future of TV,’ said CEO Kelly Day. ‘We have the largest library of Web originals anywhere. And we are not a platform.’”

My Take: Blip is currently in the midst of a massive sea change — so it was inevitable that this week’s news is a bit underwhelming in comparison to earlier shakeups. However, it’ll be exciting to see how the talent Blip’s brought in meshes together.

Crackle 

Celebrity Presence: Jerry Seinfeld, David Arquette, Missi Pyle.

New Shows Presented: Plenty of them, including Extraction, a feature-length thriller starring Danny Glover and Vinnie Jones, Cleaners, an assassin action series with a cast including Arquette and Gina Gershon, and Strand Street, directed and produced by Milo Ventimiglia.

Biggest News Announced: As previously announced, there will be a second season of Jerry Seinfeld’s extremely successful Comedians In Cars Getting Coffee, but more importantly the landmark 2010 web series The Bannen Way will return in 2013 for six new half-hour episodes.

Money Quote: From the Hollywood Reporter’s coverage:

“Crackle is for the new living room,” Eric Berger, executive vice president of digital networks at Sony Pictures Television and GM of Crackle. “It’s programmed, it’s everywhere and its easily accessible. We’re not a content aggregator but a programmer much like a cable network.”

My Take: Anecdotal evidence suggests that Comedians In Cars has been huge for Crackle, introducing a whole new audience to the service, and the emphasis on thriller and drama programming is a positive step forward for those looking to see web original content mature.

But there’s this line from the press release: “The long-awaited sequel to the cult favorite David Spade comedy Joe Dirt will break new ground as the first made for digital movie that is a sequel to a hit motion picture.” We might be looking at two steps forward, one step back.

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Instead of simple transactions between publisher and buyer, digital ad sales rely instead upon a bewildering degree of middlemen who offer competing versions of a lengthy technology product. Ad executives say, for instance, that there are now eight different technologies just to count if an ad has even appeared.

“How f’ed up is our industry? Even after you work with five or 10 companies, you have to hire two more companies to find out what you achieved,” said Ned Brody, CEO of AOL Networks, while speaking on Monday at AdExchanger’s Programmatic I/O conference in San Francisco.

The good news is that Brody predicts that the ad industry will consolidate and offer publishers fewer and easier choices. Instead of having to navigate a series of disparate SSP’s (supply side platforms), DMP’s (data management platform), ATD’s (agency trading desk) and so on, he says more companies will offer a one-stop shop. Brody also suggested that that fewer “mouths to feed” along the ad chain will result in publishers receiving closer to 80 cents, not 50 cents, on every ad dollar.

Alas, this promise of a simpler and more lucrative ad landscape may not emerge anytime soon. Speaking from the publishing point of view, the chief revenue officer of The Weather Channel, Curt Hecht, was more sanguine about the situation.

Hecht agreed that the ad industry was over-complicated but said the Weather Channel “embraces all these things” and looks for “market signals” — chatter from agencies, marketers and tech partners — to ensure it’s familiar with whatever technology its ad buyers request. In other words, publishers like The Weather Channel have accepted that the current cluster of ad tech companies may not untangle itself anytime soon.

Publishers’ hopes for simplicity may also be dashed by ad buyers’ increasing desires for cross-channel marketing — reaching potential customers on laptops, mobile devices and more in the same campaign. While this may deliver more effective marketing messages, it also has the potential to further complicate the current ad tech witches’ brew, especially on the measurement front.

As other speakers at the conference noted, ad buyers are still skittish about the tools used to measure online ad purchases on platforms like video. While the metrics are fast improving, publishers may not be able to promise that ad buyers are reaching more than 50 percent of a given video audience — let alone a cross-platform one. All agreed that the online ad economy will improve significantly with the arrival of a single Nielsen like rating, which may (or may not) get here by the end of 2013.

The bottom line is that the ad tech industry remains a fragmented industry with many moving pieces and that, despite the promise of a streamlined experience, publishers will have to wait awhile to see more daylight in the notorious LUMAscape slide.

(Image by nmedia via Shutterstock)

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Today, AOL has mostly bounced back and its CEO Tim Armstrong, who survived an ugly proxy fight last year, seems to feel vindicated. At the Paley Center for Media in New York on Thursday morning, he explained why he bet on a content strategy to turn the company around.

“Silicon Valley is a pig pile ..  Everyone is putting out the same services, the devices have become more commoditized and the platforms are the same,” said Armstrong. He added that, over time, content is what will differentiate the platforms and that AOL’s strategy is to be the content “arms dealer to Silicon Valley.”

To achieve this, AOL is pushing forward with an expensive video strategy that involves, in large part, turning the Huffington Post Live into a new type of cable channel. Armstrong says he sees AOL’s video ambitions as a “Clay Christensen type disruption” and that its potential will only expand as mobile technology improves. He added that AOL will also rely on its cable partnerships to feed the appetite for content.

Armstrong also addressed the future of Patch, AOL’s network of hyper-local sites that have lost a spectacular amount of money and been a punching bag for shareholders and media pundits. He acknowledged that “there’s a lot of dead soldiers on the local hill” and that other efforts, like NBC’s EveryBlock, have flamed out. But he thinks Patch still has a chance.

“The journalism world pounds on Patch,” said Armstrong, but pointed out that the sites have become a fixture of hundreds of local communities and that Patch’s viability should be seen through a long lens. He added that Patch reaches nine percent of the US population but also 20 percent of the country’s commercial markets, and that the sites will be profitable by the end of the year.

In response to a query if AOL’s content appetite might include Time Warner’s magazine empire which is now for sale, Armstrong demurred. “I’m a fan of the brands,” he said, but added that the economics for such a deal wouldn’t work.

AOL’s current feel-good moment is reflected in its share price which is outpacing other media companies and the stock market as a whole (red line is the overall Dow index):

Despite Armstrong’s optimism, however, there are still plenty of reasons to be cautious about AOL. The stock’s high-flying performance is driven in part by a billion dollar patent sale and, for now, AOL still has to prove that it can make its content and ad units profitable. As Henry Blodget pointed out last month, AOL’s revenues may be growing for the first time in eight years but nearly all of its profits continue to come from selling copper wire internet connections to dial-up subscribers.

(Image by EDHAR via Shutterstock)

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It’s easy to forget that it wasn’t always this way. Remember when you had to delete emails before receiving new ones? Back in the late ’90s, providers like Hotmail and Yahoo allowed users on a couple of megabytes—essentially, the size of a single song.

From Hotmail to Gmail to Dropbox, here’s a look back at some of the key moments in the evolution of free online storage.

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Thursday’s ruling comes as part of a case that begin in early 2011 when two Democratic political operatives, Peter Daou and James Boyce, filed a lawsuit stating that they had presented the idea for HuffPo in 2004. The pair claim that Huffington and Lerer then cut them out of the process, launching the site in 2005 and claiming the idea as their own.

In October 2011, New York Supreme Court Judge Charles Ramos threw out seven of eight claims in the case but allowed one claim — based on the state claim of idea misappropriation — to go forward. Since then, the parties have been wrangling over procedural issues and Daou and Boyce filed an amended complaint.

In addressing the amended complaint, Ramos allowed the idea theft claim to go forward as well as those for fraud and unjust enrichment; he tossed a fourth claim for breach of implied contract.

“Plaintiffs have adequately alleged that defendants took the information that plaintiffs provided, secretly shared it with another person, camouflaged the origin to make it appear as it came from that other person and, in effect, stole the idea and developed it with that other person,” Ramos wrote in letting Daou and Boyce go forward with the fraud claim.

In the same ruling, Ramos rejected Daou and Boyce’s request to subpoena the CEO of AOL, Tim Armstrong, rejecting arguments that Armstrong had essential knowledge about the founding of the Huffington Post. AOL bought the Huffington Post for $315 million in the spring of 2011.

Today’s ruling does not mean that Daou and Boyce have won the case. Instead, it means they have cleared a crucial procedural hearing and, thanks to the added claims, can proceed to a trial with a stronger hand.

“The court has made only a preliminary decision based solely on the uncontradicted allegations of the complaint and without any consideration of the proven facts,” a Huffington Post spokeswoman said. “As we have said from day 1, there is no merit to these allegations. They are make believe. With this ruling, we will now be able to move for summary judgment and lay out the actual evidence in this case. We look forward to the opportunity to present the full record to the court.”

Here’s the ruling:

Order upholding HuffPo complaint.pdf by

This story was updated at 8:30 p.m. ET with a statement from the Huffington Post and at 9:30 p.m. ET with a slightly updated version of the statement from the Huffington Post.

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At first glance, it might not look like Nextdoor and Patch are even in the same game: after all, Nextdoor describes itself as “the private social network for your neighborhood,” while AOL has always described Patch as a source of news and information, more like a community newspaper. But when it comes right down to it, these are really just two different ways of looking at the same problem: how to get important information about a community to the residents who care most about that information — whether it’s school closings or local government ineptitude or criminal activity.

Blurring the line between news and social network

That kind of content has always been the core of what small town and community-level newspapers have done, and the best ones have been similar to a social network in many ways as well — in the sense that readers pay more attention to the birth and death notices and the letters to the editor than they do to the actual “news.”

This is the goal that EveryBlock was going after, first as a data-driven startup launched by programmer/journalist Adrian Holovaty with a grant from the Knight Foundation, and then as a subsidiary of NBC after it was acquired in 2009. In 2011, the service added a lot more human-powered and community features — which Holovaty said he had come to believe were crucial for such a network to succeed — but it wasn’t enough to keep the service afloat.

Patch recently did something similar: instead of relying exclusively on journalists, it is opening up the service in an attempt to make it more of a community noticeboard. The main goal seems to be to cut the costs of the network, which AOL has poured more than $150 million into. According to comments made during its latest conference call with analysts, Patch is doing well — but it is still well short of the revenue targets that AOL chief executive Tim Armstrong has repeatedly promised to hit.

Instead of starting with the news and then trying to add social-networking aspects later, Nextdoor started with the social networking side: the idea behind the service is that you and your neighbors need a place to talk about those school closings or crime reports or even where to find a good mechanic or babysitter, and doing it on Facebook or Twitter or another public network isn’t appealing for a variety of reasons, including privacy concerns.

High barriers to entry improve the signal

So what Nextdoor does is make it as difficult as possible to join — the exact opposite of what Facebook and even Patch try to do. Only people who actually live in a specific neighborhood can join the Nextdoor network for that area, and the service doesn’t just accept your word: it verifies it by checking your credit-card information, calling your home phone or sending a postcard directly to your house with a special registration code on it.

Nextdoor CEO Nirav Tolia says the company is sending out about 15,000 of these postcards every day, and admits that the service builds in “a lot of friction to join” the network.

In part because of Facebook, we are used to thinking of social networks as being more powerful the more open they are, but in the case of Nextdoor the private and restricted nature of the network could be its biggest strength — and it’s almost certainly why David Sze of Greylock, an early investor in LinkedIn, was interested in the company. In many ways, Nextdoor is like a LinkedIn for your neighborhood, but even more restrictive: so if you are interacting with someone on the site, you have a high degree of confidence that what they say is going to be relevant to you.

When it comes to monetization, Nextdoor and its backers say there are some fairly obvious advertising or e-commerce tie-ins to such local content — and given the network’s focus on keeping the signal-to-noise ratio high, an argument could be made that it is more likely to succeed at this strategy than either Patch or the existing hyperlocal media players (newspapers, etc.) in those regions. Nextdoor says it has doubled in size in the last six months and now covers over 8,000 neighborhoods in all 50 states.

Images courtesy of Flickr users Jason Parks and Pew Center

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Then something happened. The company’s revenues grew, its share price soared and CEO Tim Armstrong revealed a strategy to make AOL a media and advertising powerhouse. The company’s winning streak continued Friday morning as Wall Street greeted AOL’s latest earnings report with glee; the stock shot up another 12 percent when markets opened.

“We’ve walked through the the value of the turnaround and got to growth,” Armstrong said on a morning call with investors.

It’s too soon to say the company’s back on top but, for now, the results look like the real deal. Here’s why: as analysts fussed over AOL’s debacle with hyper-local site Patch and its dwindling dial-up business, the company quietly invested in state-of-the-art ad technology and rejigged AOL to inject new revenue streams. The most important of these are inside the AOL Networks group — a business unit that offers ad tech tools to publishers and advertising agencies that are still learning to navigate the world of automated ad buying. The Networks group grew 37 percent year-over-year and posted revenue of $183.5 million in Q4. (Total revenue for AOL in the quarter was up 4% from a year ago to $599 million; adjusted OIBDA income was down 7% to $123 million).

During this time, AOL has also become number two in online video thanks to products like HuffPo Live; this is significant because video is one of the most lucrative forms of online advertising. AOL now plans to draw on its fancy ad tools to create automated buying for its own video inventory while, at the same time, offering those tools to other companies who are still catching up on the video front.

Meanwhile, AOL’s media properties don’t look as dysfunctional as they did a year ago. Armstrong appears to have figured out how to manage the mercurial Arianna Huffington and, as for his pet project Patch, the hyper-local site is still losing money but he promises it will be profitable by the end of  the year.

The bottom line is that AOL has three major revenue streams, all of which look viable. There are still danger signs, of course: AOL’s display ad business looks shaky and, as Henry Blodget points out, the company’s revenues may come from three streams but nearly all of the profit is still coming from the legacy subscriber businesses.

But, for now, investors are right to like what they see. People looking for 2013′s turnaround story should stop fussing over Yahoo — it’s AOL that is poised to be this year’s comeback kid.

Correction: an earlier version misstated the sale of AOL’s patents; this has been corrected to say the patents were sold to Microsoft (which in turn sold them to Facebook).

Disclosure: GigaOM distributes some video content through AOL.

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AOL executives’ comments on a Tuesday morning earnings call suggest they believe the company’s future identify is tied to grabbing TV dollars and becoming a video powerhouse. And the plan is not a crazy one.

First, some context. Recall that, after getting thrown out of the Time Warner nest, AOL faced a bleak future of squeezing value from troubled content sites like Patch.com while watching its cash cow of dial-up subscribers slowly dwindle. Earlier this year, the end seemed nigh after the company sold off its patent portfolio and used the proceeds for dividends rather than reinvestment.

But now comes upbeat news. This morning, the company announced its best results in 7 years as ad networks and video platforms experienced impressive revenue growth. More striking, analysts sounded pleased as CEO Tim Armstrong and other executives described what sounded like a bona fide strategy.

That strategy involves pruning the company into three operational units: a membership and subscription group; a “content brands group” (Huffington Post, TechCrunch, etc); and an advertising group.

The first group amounts to a legacy unit that will presumably be spun off or milked for cash while the other two units could drive AOL’s re-emergence as a powerful media entity. According to Armstrong, advertisers are looking for “fewer, bigger partners” that can distribute their messages on a massive scale. If he is right, AOL is well-poised to offer ad buyers what they want through its network of content providers, partners and ad platforms.

And then there is video. Armstrong says AOL expects to do $100 million in video revenue in 2012 compared to $10 million two years ago and that video will eventually overtake display dollars. The company also claims it has moved from #27 in overall video views to #2, behind only YouTube. Finally, AOL predicts that 2013 will see more and more TV dollars pouring into its sprawling video properties.

If these predictions are even partly correct, it means that AOL has a leg up in the emerging (and lucrative) video ad market and that it will have to be less pre-occupied with the problem of mobile media consumption that keeps up other publishers up at night. Finally, AOL appears to be less distracted by pet projects like Patch which it has slimmed down and even predicts will be profitable by late next year.

AOL’s promise to pull off a third act as a video star doesn’t mean it has turned the corner on the soap operas and dysfunction (hi there, Arianna) that have plagued it in recent years. But it does mean that, for the first time in years, the company looks to have a fighting chance at a comeback.

Disclosure: GigaOM distributes some video content through AOL.

(Image by Matej Pavlansky via Shutterstock)

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