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Armstrong: Shift In AOL Sales Heads Does Not Equal Change In Strategy

Seeking to calm investor concerns about the ad strategy with the departure of global ad sales chief Jeff Levick last month, AOL (NYSE: AOL) CEO Tim Armstrong began the Q2 earnings call by saying that the ad team under Ned Brody is stable.

With Brody mostly associated with the third party network and Advertising.com, the unit that AOL formed in 2004 as a way of shifting from being a dial-up internet access company to one build around display and content, there was a view that replacing Levick with Brody suggested that Armstrong was looking to go back to an earlier company strategy. But Armstrong took several swipes at that view, saying that the focus on driving premium ad dollars remains the central part of the plan.

Explaining what Brody brings to the table, “Let me be crystal clear about this: Ned Brody was acting as the COO of the ad group and has been working closely on advertising. We have several heads and Ned worded closely with all of them, including Jeff. There’s no strategy change, we’re not switching to a network strategy. We are pursuing a premium ad strategy for the network and the O&O sites. What he brings to the table is that within our inventory planning, reporting we do for customers, I expect him to focus on that. On the sales side, the different regional sales heads, are very close to him. We’re not going to see major differences with ad results, except for any affects from what’s going on now in the economy.”

Earlier in the call, CFO Artie Minson noted that staffing levels are down to 4,100 from roughly 7,000 when the new regime at AOL came in two years ago. More recently, in July, AOL let 150 people go in order to free up investment for hyperlocal network Patch and The Huffington Post. Later in the call, Minson said that most of those 150 people were in “support” positions and were not directly driving revenue.

Looking forward, there’s persistent softness in display and search, so Q3 might show signs of losing momentum. However, the company still expects to be profitable by the end of the year.

Project Devil time: A UBS analyst said that investors seem to feel that it’s been taking too long to roll out the premium advertising offering. Armstrong: “It takes time to “educate” marketers and agencies, as well as set up the sales team around that product. Brody will connect Devil into the network as well as the owned and operated properties. For example, the Devil Network, which is part of AOL’s Advertising.com third party ad net, has added Turner and Hearst inventory to that system.”

Do ad exchanges undermine premium display? an analyst asked, putting a question that has major publishers up at night. With AOL playing both sides of that fence, Armstrong said that there was a feeling at the company last year that the focus on ad exchanges was going to be upsetting to Ad.com. But they’ve since exorcised those fears, he said. You have to have the technology layer to drive the customer acquisition that customers want, just like most of the people on this call work for banks that offer tech services, Armstrong said. We need to innovate in places outside the ad exchange space, like Project Devil.

“I often get this question about ad exchanges and social media: Are Google (NSDQ: GOOG) and Facebook eating up ad budgets? We have to be able to compete with the fastest growing players” Armstrong continued. “Google’s done a nice job creating a set of assets around display. But I think there’s a real opportunity around premium. I don’t think from a results-oriented perspective, there’s not much there.”

— AOL has a research traffic program called “Bridge and Tunnel.”

— Unlike the New York Times (NYSE: NYT) Co.’s problems with About.com, Armstrong insisted that Google’s Panda, the new algorithm that was aimed at reducing the power of content farms to game search optimization, has been a positive.

— One of the major parts of the sales and content reorg has been pulling out of Europe over the past two years. Most recently, it shuttered AOL’s main music and sports sites in the UK . Armstrong explained that he did that because the business wasn’t properly integrated and the scale wasn’t there. AOL’s European properties are under 10 percent of AOL’s revenue base at this point. HuffPo, Goviral is looking at expansion plans in Europe. “We have 12 countries we’re interested in and we’re going to enter three more,” Armstrong said. “If you look at HuffPost UK and Canada, we have meaningful traffic.”