AOL’s CEO to haters: Our content strategy was right after all (and Patch is fine too)

Winning, success

Media companies live a fraught existence but, even by that standard, AOL walked closer to the valley of death than most. A year ago, most observers (including us) believed AOL was in permanent decline and that its content empire — including its money-losing local sites — was an incoherent mess.

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):

AOL share price screen shot

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.

(Image by EDHAR via Shutterstock)

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