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AOL’s Armstrong: All About ‘Content Exits’

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AOL (NYSE: AOL) CEO Tim Armstrong began the company’s Q3 earnings call talking about a three-pronged strategy around distribution. That includes “communication products” like AOL mail, search, social media and its homepage, which was revamped this week. He also talked of “content exits,” which are built off of the distribution. “It’s not just building more content sites, but business models around these areas,” he said. Aware of investors’ low expectations — AOL managed to beat analysts’ estimates — Armstrong said he would be “disappointed” if AOL’s advertising did not return to growth by the second half of 2011. He also stressed the desire to continue hiring, as AOL tries to find itself on the positive side of the balance sheet. “We are going to be an investment company next year and we are making a commitment to bringing in great talent.”

Summer sprints: Armstrong then offered a long list of projects that have launched since the summer. “Last time, I talked about helping a sick patient recover, so we as a company made a big decision to jump out of bed and head to the gym. We initiated a program called ‘The Summer Sprints.'” The goal was to snap the AOL culture out of its sluggishness and “begin to play offense.” The company identified 12 major “sprint areas.”

There were another dozen “summer sprints” that employees started on their own.” Some of that work included the display ad program Project Devil, this week’s new AOL.com homepage and the new video player. The travel guides was relaunched with 12,000 reviews. Ended 2.8 million tweens were attracted to AOL from its Jonas Brothers video channel Cambio. As a result of its focus on video, AOL claimed double-digit growth in video ad sales. In addition, even before the revamp, homepage pricing was up in double digits as well, Armstrong claimed, noting that ad inventory on the site was reduced to avoid clutter and create a better user experience.

Patch: Armstrong said that Patch has been doing well in terms of building traffic without the use of Google Places. “Our strategy is built around building community, not scraping content and aggregating pages. That said, I’m aware of Google’s power there… Our number one goal was from a usage standpoint and it will be an investment priority for the next few years. We’re looking at different monetization strategies for Patch over the next two years.”

Video: Asked about the integration of videographer site StudioNow, which AOL bought in January, and DIY streamer 5Min, Armstrong said the focus is striking high scale production for the former and high scale distribution for the latter. Revenue results weren’t meaningful in that area, even as video revenue generally grew, Armstrong said.

M&A: The company was vague about individual payouts for Techcrunch and other acquisitions. But he did outline the current M&A strategy. “We have a few rules: No Hail Mary passes, which I’ve said before. Acquisitions must have talent and the talent must stay. We’re not buying companies only to see the talent walk out the door. It’s more likely we will do acquisitions in “content exit” areas than distribution side. We have an M&A list and we have the cash to act on it.”

Search: Armstrong touched on a number of improvements to the last search deal with Google (NSDQ: GOOG). The big news this time out was the addition of Google’s mobile search. YouTube was also part of this deal and AOL believes it will help in terms of driving more traffic and ad sales for its video content.

The “exits” strategy: When JP Morgan’s Imran Khan asked for some definition of the “exits” strategy Armstrong began the call with, the CEO sighed and said it would be better to discuss it over a cup of coffee. But after trying for a brief synopsis, he said, “Okay, coffee or no coffee, we’ll go over this now.” He described the strategy as built on the idea of building everything around the concept of “80-80-80” — meaning that 80 percent of purchases are done by women as head of a household, 80 percent of purchases are local, and 80 percent of purchases are influenced by someone else. “That would give an idea of what exits were focused on,” Armstrong said. “Techcrunch and Engadget are influences and we’re building an exit around technology.”