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Armstrong: We’re Trailing The Display Market Now, But Wait ‘Til 2011

Despite the recovery of display ad sales, AOL (NYSE: AOL) has found itself trailing the market, despite its vast reach. AOL CEO Tim Armstrong sought to explain the reasons for that and why he believes that next year, the company’s ad revenues will start to show some turnaround during a Q&A at the Goldman Sachs Communicopia conference. But first, he warned that there could still be more declines before the display picture improves completely. He indicated that taking down the European operations to rebuild them was part of the reason behind the lag, as well as the restructuring of its ad business in general.

“When I got here, AOL ad sales were run through Platform-A, which made it easy to sell but was mostly low-cost inventory,” he said. “We also had a user experience problem with ads and having so many impressions on every page — we stripped that out and that had an impact. We said to ourselves that in order to compete in advertising, we have to compete with Google (NSDQ: GOOG), Facebook and people who are very data-intensive. We needed to restructure the sales force and integrate the data systems together. That is a huge amount of work. But we made a decision to be public company and be transparent about our report card to be big in the future. Right now, the sales force is settled, we’re rolling out things like Project Devil, which is the new way we’re going to selling ads. And AOL is considered on every major ad buy right now. My calendar is booked with meetings with advertisers. So you’ll see a much more robust ad sales picture from us in 2011.”

Access business: Churn has been down. The company should run away from it. But it doesn’t mean we have to treat our customers poorly. There are people who use us as backup. There are other tools we’re adding, such as our paid services business. AOL used to now we have a pipeline of 100 things in the AOL store. We believe that can expand and sell them other things. I spent my first three months looking at separating the access business, but it doesn’t make sense to do that right now.

TV ad business: Armstrong provided an interesting form of discipline that his wife recently used when the kids were misbehaving. He overheard his wife scolding the kids one afternoon, telling them that if they didn’t behave, they would be forced to watch cable. Armstrong, wondering why this was seen as such a severe punishment, asked his tearful five-year-old daughter why she didn’t want to watch cable. The reason: she wanted to watch Apple (NSDQ: AAPL) TV. “That’s become the biggest thing my kids fight over now,” he said. Armstrong then turned about Cambio, AOL’s JV with the Jonas Brothers as an example of the ways the company is approaching video.

M&A strategy: AOL has a $100 million limit on acquisitions, which is tied to credit agreements. The next part of the M&A strategy is to sell losses. “We want to run a very profitable media company and we’re combing through every thing we have at a detailed level. You will see a mini-version of the cost restructuring we completed earlier. You’ll also see more partnerships.”