AOL’s Armstrong: Content Business Could Be Profitable In 2012

AOL (NYSE: AOL) CEO Tim Armstrong suggested Q1’s earnings proved that the company was back on track, mainly due to the first increase in years for display dollars, despite continued decline in profits and total revenues. He sought to portray a more streamlined AOL in light of two years of restructuring and cutting. “We’re focused on a few core areas,” including display, hyperlocal, mobile, building its b2b business and stabilizing search — which has proven to be a troubled area now that display is reviving. “We’re not juggling as much as had been a year ago and that’s setting the stage for future growth.”

A good deal of the credit for the turnaround in display went to Huffington Post. CFO Artie Minson said that the integration of HuffPo is “ahead of schedule” and that cost savings will likewise be realized much sooner than expected.

Minson added that its hyperlocal network Patch had expenses of $40 million, and losses will decline in the back half of the year.

When it comes to building momentum on display, Project Devil, the company’s display ad serving system. Armstrong stressed that the value wasn’t just that this was about running “bigger ads.”

“Two years ago, a typical AOL page had about 14 ads,” Armstrong said. “We thought, what if we took all that space and gave it to one advertiser. That works for everyone. The engagement rate for display is 6.4 times — that’s the industry benchmark and we’re seeing a 10 percent rate. The interaction rate, how often people touch the ad, is 1.9 times higher than the industry rate. People spend 3.4 times more with a Devil ad. When video is added, they get 2 times the engagement rate the industry gets on average.”

All those numbers, Armstrong added, will add up to higher revenues over the course of the year. CPMs for Devil are “multiples” of what AOL is seeing on the rest of the ad business.

Apart from Devil, Minson and Armstrong talked up the prospects for the business, which represented AOL’s first big dive into shifting from an internet service provider to an online ad company back back in 2004. hasn’t been discussed much in the past few years, but Armstrong positioned it as central to the b2b business it’s trying to grow.

“Content profitability is a north star goal for us,” Armstrong said. “The business has been, if you go back a few years, turning the red to green. Overally, the reds are going down and the greens are going up. The executive teams expects a profitable content business by next year.”

Asked about mobile, Armstrong also cautioned against expecting too much on the revenue front before next year.

Wrapping things up, asked how much of the $5 million in display revenues that came from HuffPo and Techcrunch, Minson said 75 percent was from HuffPo.

Armstrong took a last question about what’s next for Patch. There will be over 1,000 Patch sites this year. AOL will be adding other variations of Patch over the next few months, including one tailored for Hispanics in California coming soon.