“This gets us back into the ad tech game in a serious manner,” said CEO Tim Armstrong, speaking at the AdTech conference in San Francisco on Tuesday.

The new Marketplace product, which will compete with offerings from Google and Adobe, is intended to provide publishers with an alternative to using multiple companies to carry out the process of selling and serving digital advertisements.

“All these companies create a false sense of complexity in industry but also take a lot of money out of it,” said AOL Networks CEO Ned Brody, in a recent interview. Brody claimed that the multiple pieces in ad tech amount to “too many mouths” to feed, and that AOL’s new integrated platform will let publishers keep 80 cents, rather than 50 cents, out of every ad dollar they receive.

Brody also argues that the lion’s share of ad tech innovation has occurred on the buyer’s side, giving brands new tools to obtain ads more efficiently but failing to help publishers. He claims tools like Marketplace will fix this imbalance. Brody also says that AOL’s own media entities, like Huffington Post and Engadget, use its ad tech tools — giving it a perspective on what ad tools other publishers want. An ad manager I spoke with was more skeptical, saying companies are constantly offering magic bullets to make advertising cheaper and easier but that the industry remains much the same.

From a larger business context, the ad tech offerings are also part of Armstrong’s efforts to refashion AOL into a company that no longer has to rely on its legacy dial-up internet subscriptions. This has meant creating two other separate divisions: one dedicated to its media properties, and another dedicated to its ad technology. Recent earnings reports show the two newer divisions are performing well from a revenue standpoint but are still waiting for profits to roll in.

At the conference, Armstrong also says he wants AOL to be like financial firm Goldman Sachs by relying on strong partner relationships, but also innovating in its own right.

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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.

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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.

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Redesigned Patch mobile website (a redesigned app is coming in November).

This is the change that Aol CEO Tim Armstrong mentioned in Aol’s second-quarter earnings report in July. “When you see it, you’ll understand,” Armstrong said of Patch’s redesign at the time. While the changes seem like a good step toward turning Patch into an actual community hub, though, whether it actually becomes one relies on the users. And it’s unclear at the moment whether they’ll find enough at the new Patch to switch from the services like Facebook that they are already using every day.

Patch editors are still writing editorial content, which is featured at the top of each page, but they’re taking a less central role.

Patch is “one click to manage your life,” chief content officer Rachel Feddersen, who joined the company in claimed. But as Patch places more focus on social networking, can it really compete with Facebook, or more established local listings services like Yelp? The site’s redesigned mobile app is coming in November (and the company says that Patch’s mobile website works well now). AOL is hoping that users will come for “the news of the town,” in Federson’s words, and then stay to create groups and communicate with other members.

As for the third part of Patch’s goal — commerce — it’s not here yet. Brod said the company is working on “a number of initiatives” but can’t go into detail, though Tim Armstrong told AdAge in July that Patch will start offering local listings at some point.

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We do — that was that state of digital media when paidContent launched in 2002. Other weird things were happening back then too: People still got much of their news from television and newspapers, and they learned about major events after they had already happened.

There have been some huge shifts since 2002: Tablets and smartphones are now ubiquitous, lots of people read on their digital devices, and just about everyone is part of a social network or three. This summer is the tenth anniversary of our launch. In an effort to gain some perspective on the past decade in digital media, I’ve been reading back through paidContent’s archives — a collection of over 80,000 posts.

Since I was only a freshman in college when paidContent came to life, I often didn’t know, as I read through the stories from the early days, how things had begun or how they turned out. As I watched them unfold, I wanted to grab our readers’ arms and give them advice (“Don’t buy that Zune!” “Invest in Facebook!” “Go for the good Twitter handle now!”). But I also realized how difficult it is to predict success.

Some takeaways from my trip through the archives:  Some companies — AOL and Yahoo come to mind — have been consistently bad at predicting what consumers want. And a couple of companies, namely Apple and Amazon, have been very good at it. Also, being a native digital company helps, but it’s no guarantee of success (what up, MySpace?). And after all these years, it’s still not clear what content customers will pay for, or how much they’ll pay.

Streaming and Moviebeaming

What do analysts, CEOs and bloggers have in common? None of us can predict the future. Roger Ebert joked in 2002 that “on-demand streaming movies on the Web, like HDTV, are five years in the future — and will be for at least another 10 years.”

If Disney’s Moviebeam had been the only game in town, Ebert probably would have been right. When it launched in three cities in 2003, customers paid $6.99 a month to use a device that could hold 100 movies and plugged into the back of a TV set. They also had to pay for each movie they watched– billing was done via the phone line. The company went through various unsuccessful iterations before India’s Valuable Group bought it in 2008. It was never heard from again.

Netflix almost went down the same road. It had a plan to release a Moviebeam-like “proprietary set-top box with an Internet connection that could download movies overnight.” But instead, it decided to forge ahead with streaming — starting with a complicated “quota hours” system in 2007 and moving to unlimited streaming in 2008. By 2010, the majority of subscribers were streaming something, and the company began offering streaming-only subscriptions, though CEO Reed Hastings said that same year that the company would keep shipping DVDs until 2030. (We’ll see about that.)

ABC was the first network to sell episodes of its shows on iTunes, back in 2006, and to stream shows free with ads on ABC.com — and later on AOL. But by the time premium subscription service Hulu Plus launched in 2010, the platforms getting the attention were devices with built-in access, like Internet-enabled TVs, Blu-ray players, and tablets.

Return of the living dead

Speaking of AOL: It’s something of a miracle that the company still exists. In 2000, when it merged with Time Warner, it was valued at $350 billion, and the next year, more than 24 million people in the U.S. were paying for its Internet access service. By the end of last year, that number had dwindled to just 3.3 million subscribers. Here’s a quick recap of some of AOL’s miscues over the years:

• AOL Voicemail ($5.95 per month)
• A teen service called Red (featuring “a talking head—using the image of an actual employee—that uses software to answer users’ questions”)
• A digital music partnership with Burger King
• A reality show called “Gold Rush”
• Social networking site AIM Pages
• Going free
• The hyperlocal Patch blogs

Though AOL was once a high flier, no other company ever liked it quite enough to buy it. Google bought a five-percent, $1 billion stake in AOL in 2005, leading analysts to wonder if Microsoft missed out. That resulted in a $726 million writedown in 2009. Time Warner bought back Google’s stake and finally spun off “the albatross” in December 2009.  AOL is still promising a bounceback. “The executive team expects a profitable content business by next year,” CEO Tim Armstrong said in May 2011.

Yahoo hasn’t fared much better. The company launched Yahoo Platinum in 2003; for $9.95 a month, subscribers got access to audio and videos.  The program was dead by October of that same year. It later tried a Twitter-wannabe microblogging service (“Meme…where you share everything that you find that’s interesting,”). Perhaps the smartest move Yahoo ever made was not buying AOL.

Where did these companies go wrong? In 2010, former Time Warner CEO Gerald Levin pondered that question in an interview with the New York Times . The AOL-Time Warner deal was “undone by the Internet itself,” he said. “I think it’s something that no one could have foreseen, and to this day, whether Apple is going to dominate entertainment or whether Amazon is going to dominate publishing, all the old business plans are out the window. How do you get paid for content?”

Know what’s cool? A billion dollars

In 2006, an RBC Capital analyst estimated that a certain social networking company would be worth $15 billion in a few years, based on “raw, unprecedented user/usage growth.”

Six years later, Facebook went public with a valuation of $104 billion. Too bad the analyst wasn’t talking about Facebook but about MySpace. The social networking company that Rupert Murdoch acquired for $580 million in 2005 sold for just $35 million in 2011.

Why did Facebook soar while MySpace — and other social networking services like Friendster — sank? It allowed people to build real connections using their actual personal information, and rolled out a product that was ready to scale and had good technology. Other companies realized sharing was important too — in 2005, Yahoo SVP Jeff Weiner called sharing “the next chapter of the World Wide Web” — but Facebook was able to implement it in a way that kept users coming back. The site surpassed Yahoo and AOL for “stickiness” in 2009, when Nielsen found users spending an average of four hours and thirty-nine minutes a month on Facebook.

Social has already disrupted some industries — witness the rise of Twitter and the way it has changed the way news is reported, with stories like Osama Bin Laden’s assassination breaking there first. In a sign of the importance of these emerging platforms, newspapers like the Wall Street Journal and New York Times are launching “Everywhere” initiatives to deliver news to readers where they are already hanging out.

Fast food and music don’t mix

Hard to believe it now, but there was real skepticism that iTunes’ 99-cent songs would be able to compete with peer-to-peer file-sharing services. “According to academics who’ve studied the economics of digital music distribution,” we wrote in 2003, the year iTunes launched, “the cost still seems too high to attract users of peer-to-peer file trading services.” The piece cited an economist who believed “the appropriate price of a downloaded song is 18 cents.” In fact, Real Networks dropped its song prices to $0.49 in an attempt to compete against Apple.

In the end, consumers choose selection and convenience over P2P networks. We called iTunes “a kickstart for the micropayments industry.” Was it? While Steve Jobs said in 2004 that Apple wouldn’t hit its one-year, 100 million songs downloaded goal, global digital music sales crossed $1.1 billion in 2006. In April 2008, Apple surpassed Walmart  as the largest music seller in the United States.

The company that arguably started the digital music revolution — Napster — didn’t survive. Once it no longer offered “free,” it was done, though it tried to reincarnate itself: launching a mobile music service, “Napster To Go,” with AT&T in 2004 (the one smartphone that supported it could hold up to 6 songs), partnering with Circuit City on a digital music store, getting itself acquired by Best Buy in 2008 ,and then being bought back by Rhapsody in 2011. Unfortunately, Rhapsody was already losing out to newer (and free) streaming services like Pandora and Spotify.

The partnerships with Circuit City and Best Buy, though, were probably the kiss of death. One of the big trends of the past 10 years has been brick-and-mortar retail stores’ consistent failure to compete effectively against digital-native companies. Best Buy wasn’t the only retailer to try to crack the digital-content business — and fail: Target and Sears both took a shot. And McDonald’s sold digital content over its WiFi network and even tried DVD rentals in its restaurants.

Do you like the feel of paper?

Just as digital music didn’t really take off until Apple introduced the iPod, the ebook revolution didn’t take place until the arrival of the Kindle. In paidContent’s early years, ebooks were written off as a failure in part because publishers couldn’t figure out what to do with DRM. (In 2003, “temporary electronic ink” that would disappear after a few months was floated as a possible solution.) Barnes & Noble decided to stop selling ebooks in 2003, and Yahoo stopped selling them in 2004.

Meanwhile, Amazon and Google were pushing forward. Google launched Google Print – now called Google Book Search, and still besieged by lawsuits seven years later. Amazon tested two now-defunct programs: Amazon Pages, which allowed customers to buy access to digital copies of select pages from books, and Amazon Upgrade, which bundled print books with online access to the complete work.

Customers weren’t biting. Then Amazon came out with the Kindle in 2007 for $399. Less than two years later, Amazon was selling more Kindle books than print books, and ebooks now make up over 20 percent of some big-six publishers’ sales. Barnes & Noble has had some success with its Nook e-reader and digital bookstore, but bankrupt Borders shuttered all its stores in 2011. Meanwhile, the Department of Justice suit against Apple and five big publishers for allegedly colluding to set e-book prices drags on.

Good thing Steve Jobs looked beyond ringtones

A Forbes survey back in 2002 found that “business professionals” would be willing to pay for “news content to be delivered to their cellular devices,” and some media companies tried early mobile experiments. Verizon offered a cell phone version of the Yellow Pages — which, at $19.95 per year, gained 15,000 subscribers in three months. But starting in 2004, everyone decided the future was in ringtones. A $4 billion global business by the end of the year, one company projected.

So, so many ringtones. You could buy them from Rolling Stone or from an ATM-like device called E2Go. A fall 2004 marketing campaign let you mix your own ringtones on Levi’s website. Billboard launched a top ringtones chart.

Could ringtones “prove to be a passing fad”? we wondered late in 2004. Luckily, yes — a new technology came along to shake up the mobile market. No, it wasn’t the $500 ESPN phone, but the iPhone, which came out in 2007. And by opening its platform up to third-party app developers, Apple got users ready for its next ecosystem-changing device, the iPad, in 2010.

Monetizing mobile

Advertising has always been a fuzzy business — how exactly do you measure engagement and success? Well, that’s still the big debate about advertising in the digital era.  ”If here’s anything that’s really holding back ad spending on the web, it’s the lack of good measurements,” Tim Armstrong, then Google’s VP of national sales, said in 2007.

Mobile advertising has also faced obstacles. In 2006, mobile carriers began allowing advertising despite fears of annoying customers. Customers were indeed annoyed – 79 percent of them found mobile advertising annoying, according to a 2007 Forrester study — but they could “see the potential benefits of mobile advertising and marketing to themselves,” particularly if they could get a useful special offer or coupon.

Further complicating matters for advertisers: The smartphone market is fragmented among different brands — marketers don’t want to spend the money to create different ads for Android and iOS — and there are two mobile ad universes: mobile browser and apps.

Nevertheless, mobile advertising has gained ground, crossing  $1 billion in the U.S. for the first time in 2011, according to the Interactive Advertising Bureau, totaling $1.6 billion for the year.

The next opportunity is social media advertising. And once again, it will be a challenge to figure out some standardized metrics. What’s a retweet worth, anyways?

Back to where we all began

Though micropayments worked well for music when Apple launched iTunes, the path to payments for written content has been rockier. In 2004, we wrote that “micropayments today are still characterized by a large number of competing transaction types” – including direct-to-bill, merchant aggregation, prepaid accounts and direct transfer – and “each of these face the current incumbent in digital content distribution: the flat-fee subscription model.”

Eight years later, it appears that the subscription model has won out. The iPad opened the door for magazine and newspaper publishers to create new revenue selling content on that platform, but the results have been mixed. When Rupert Murdoch’s “The Daily” iPad newspaper launched in early 2011, the company called it “the model for how stories are told and consumed.” We wrote, “The bet here is that while consumers are less and less likely to reach into their pocket for a few quarters to buy a newspaper, they might not care about the 14 cents on their credit card for a copy of an e-newspaper.” A year and a half later, The Daily has over 100,000 paying subscribers — but it’s living on borrowed time and may not get through the five years its publisher has said it needs to break even.

Writing for the web, of course, has been around for awhile. At the beginning of the decade, blogging was called “nanopublishing,” and the question was how blogs could support themselves doing it. All sorts of models have arisen. For example, Gawker tried a licensing deal with Yahoo, but that relationship ended a year later. The deal “garnered way more attention than we expected, but less traffic,” Gawker CEO Nick Denton said in 2006.

Some bloggers have stayed independent and make a living from advertising (or from their day job); others write their blogs under a newspaper, website or larger magazine’s umbrella — see the Dish’s Andrew Sullivan, FiveThirtyEight’s Nate Silver, WaPo’s Ezra Klein. Or, they go to work for the Huffington Post!

Magazine companies have grappled with whether to bundle digital editions with print subscriptions or charge for them separately. Time Inc. — which first put digital editions of its magazines behind AOL’s paywall in 2003 — started out charging separately, but today Time Inc. and Condé Nast print subscribers get the digital edition free. Hearst, meanwhile, is charging separately, and it said its digital business in the U.S. became “solidly profitable” for the first time in 2011.

Could there ever be a Netflix for magazines? Time tried it for print versions with its 2008 Maghound service. It failed, due to a lack of marketing and reader interest. Magazine publishers are trying again with joint venture Next Issue Media.

Many newspaper publishers, most notably the New York Times, tried paywalls at the start of the decade and then abandoned them – only to return to the model in the past couple years.  In its most recent earnings report, the NYT said it has 454,000 digital subscribers. Is that enough to sustain the newspaper in its 21st-century transition?  Probably the best answer to that came from  Vivian Schiller. But it was in response not to the NYT’s recent digital subscriber numbers, but to the NYT’s decision in 2004 to close the paper’s first paywall, known as TimesSelect. Schiller, then the SVP and general manager of NYTimes.com, was asked whether TimesSelect had worked.  “It did work,” she said. “It’s just a matter of as compared to what.”

Birthday cake photo courtesy of Shutterstock user [Robyn Mackenzie].

TV photo courtesy of Shutterstock user [Somchai Buddha].

Zombie hand photo courtesy of Shutterstock user [lineartestpilot].

Piggybank photo courtesy of Shutterstock user [cardiae]

Fast food photo courtesy of Shutterstock user [Sergio Martinez].

Book photo courtesy of Shutterstock user [TrotzOlga].

Ringtones and apps photo courtesy of Shutterstock user [violetkaipa].

Cash register photo courtesy of Shutterstock user [titelio].

Magazines photo courtesy of Shutterstock user [bernashafo].

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“Revenues are growing quickly and costs are coming down,” Armstrong told analysts and investors, who spent a significant chunk of the earnings call talking about the controversial local effort that some argue should be shut down. It was a flashpoint for activist investor Starboard Value, which forced a proxy fight that it lost.

Patch is still in red mode after more than $200 million in investment since 2009, with more money going into a new data-driven product Armstrong says will make its debut sometime this fall. It’s been in development for at least the past six months. Armstrong promises the new version will change the way people see Patch and what it can do, telling them:

“When you see it, you’ll understand.”

Asked if Aol is ahead or playing catchup with Patch, Armstrong raised an interesting aspect of being in the local marketplace. “When I look out across the traditional landscape, almost every traditional company in our space is in a turnaround of their own.” He mentioned newspapers reorganizing or selling to get away from pension costs. “We’re ahead of the marketplace — in terms of scale, doing it in a differentiated way.”

Armstrong brought Patch into Aol and he is still a true believer, even though the latest reorg put him a step away from overseeing it. He noted that Patch is “a very closely watched investment,” and added, “It’s obviously a bold step for us as a company.”

Artie Minson, the former CFO on his first call as COO, said that some cost cutting continues: “Expenses on Patch are down a little bit sequentially. We’ve been trying to optimize the operating structure of Patch; at the same time, we see strong revenue growth from Patch.”

Armstrong said Patch is seeing some success with national advertisers and continues to work on e-commerce as well.

Minson and Armstrong didn’t provide more explicit details on current investment or revenue numbers; Minson says they haven’t broken those out. The earnings report mentions “double-digit” gains in traffic and engagement sequentially and year over year.

One more sign Armstrong isn’t backing down: his prediction that “it’s going to be a very interesting next couple of years for Patch.”

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And yet, Aol does have a better story to tell. The company’s not out of the woods but there are signs of a path and a few clearings:

• Advertising was up 6 percent — the fifth sequential increase; it included 21 percent growth internationally.
• Revenue of $531 million was down two percent over the same quarter in 2011 but beat analyst expectations of $519 million.
• Aided by the lucrative $1.05 patent sale to Microsoft and a patent licensing fee, Aol reported net income of $970.8 million in Q212, compared with a loss of $11.8 million in Q211. Income without factoring in the extras — OIBTDA — was $168.6 million, up from $76.6 million
• Double-digit search revenue growth on Aol.com helped keep search decline to 1 percent, best in more than three years.
• Another sign of stabilizaton: subscription churn at its lowest in more than a decade; revenue decline of 12 percent decline in subscribers, lowest in five years. That’s real money for Aol — more than $167 million in Q2.

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Where did the idea reported by ex-TechCruncher Sarah Lacey at her PandoDaily, that the tech properties were for sale for $70-to-$100 million come from? Armstrong tells paidContent in a post-earnings interview that they were out in the marketplace talking to possible investors about partnerships for scaling the tech properties.

“We don’t have any interest in selling TechCrunch or Engadget,” he said firmly. “Our number one goal basically has been to scale them up. At this point, it’s likely we’ll just end up investing ourselves.”

(In case you were wondering, TC founder Michael Arrington told Lacey “I am not in the least bit interested” in buying back the site.)

The sites, which are now run separately from the Huffington Post Media Group, already have some international presence. What does Armstrong mean by scale? Armstrong says what he wants to do is move them from brands to businesses. That means more coverage areas, more video, more international, more events. TC has been staffing up and moving to retain the staff that stuck around after a Michael Arrington-Arianna Huffington showdown last year.

Huffington, who continues to head the Huffington Post Media Group, has nothing to do with the tech properties now. Instead, they are being run by former Time Inc. exec Ned Desmond, reporting to Jay Kirsch, SVP and GM, AOL Marketplace. He in turn reports to CFO Artie Minson.

What about Huffington Post?

Treating the tech media properties separately is part of showing that AOL is a diversified media company overall. Post-HuffPo merger, it started to look like the plan was to put all content under that umbrella, even when it Armstrong and others stressed keeping the identity of TechCrunch and other established sites. That sense increased as HuffPo shut down or subsumed AOL properties while it expanded internationally and into new verticals. Arianna’s role in the TechCrunch ruckus last year added to it.

Armstrong calls that other people’s “assumptions.” The bigger assumption, though, may have been that Arianna could head all of content and build other brands while her main loyalty lay with HuffPo and her chief goal is growing that property.

“The Huffington Post is always going to stand out as being its own global incredible brand. The portfolio’s very strong,” Armstrong said, adding, “We changed a whole bunch of the AOL brands into the Huffington Post and we’re going to continue to scale.”

As for Arianna, “I think overall we’re going to have big brands with lots of big voices.”

Putting fires out

Usually when we talk about something being on fire, it’s a positive connotation. Armstrong takes it in a different direction. When I asked him how today’s AOL story differed from the last couple of years, he replied: “Two years ago the company was on fire. Last year, we had containted the fire down to four or five. Now it’s down to display. …

“We’re seeing the evolution of the company into major brand categories. We’re more efficient, we’re better managed, we have lower costs.”

Like Yahoo, Armstrong has a vocal dissident shareholder who wants change. (There was a little nervous laughter when I suggested maybe he was lucky to get Starboard instead of Dan Loeb.)

“The biggest thing we coud do as a company right now, which is going to sound a little strange, is to closely align with shareholders and follow thorugh on what we said we were going to do.”

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AOL’s Q1 total ad sales grew by five percent from last year’s corresponding quarter. But that was thanks to third-party network ads from Advertising.com and GoViral, of which AOL sold 23 percent more.

Ad sales on AOL’s own sites dipped by two percent – specifically, they were down by a percentage in the U.S. but up hard, by 34 percent, in the UK and Canada.

That dip coincided with AOL losing four percent of its unique visitors but, speaking to Wall Street analysts, CEO Armstrong blamed his sales team’s recent strategy:

“I was not happy with the domestic display over the course of Q1. We had a display strategy that was off-tune, now we’ve tuned it back up, we’re much more KPI-focused.

“We have a great sales team – we think it’s going to go up in the back half of the year – we have a more structured approach to a go-to-market strategy which is more data-centric.

“We’re focusing not on the old display market but the new display market” (video ads, Project Devil ads).

Price cuts at AOL’s ISP business resulted in it smallest subscription revenue dip (14 percent) in five years, AOL says – a two percent churn rate.

Net income rose sharply from $4.7 million to $21.1 million, thanks largely to this quarter’s absence of a last year’s amortisation charge.

Release

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