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Dec. 9 2009 - 11:43 am | 4 views | 0 recommendations | 1 comment

AOL Begins Another of Its Nine Lives

AOL

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AOL assumes another of its nine lives this week, jettisoned by Time Warner at the end of a tumultuous nine-year union. Unfortunately, its new stand-alone game plan as an advertising-supported content provider is the same as scores of traditional and online media rivals. Its legacy businesses, costs and challenges are worse.

With many industry analysts estimating that AOL’s break -up value already exceeds its $2.8 billion valuation when it begins publicly trading Dec. 10, the company’s brightest prospect may be as a merger or acquisition candidate for the likes of Yahoo, Microsoft or InterActiveCorp.

Even after a breathless string of investor and media meetings, AOL has failed to ameliorate widespread concerns about the continuing 25-plus percent annual decline in its outmoded access business, slide in AOL’s overall unique visitors and page views, nearly 30 percent decline in subscription revenues and nearly 20 percent drop in advertising income in 2009.

Prior management matched $1 in cost cuts for every $1 in lost revenues, yielding $2 billion in cost reductions from 2006 to 2008. AOL CEO Tim Armstrong appears to be spending more than he is cutting (he calls it “re-engineering”) in 2009 amid a 22.5 percent decline in overall revenue in the worst recession in decades.

“Fixing advertising growth is critical to the company’s future,” notes Bernstein Research analyst Michael Nathanson. That partly hinges on ramping general portal and niche site offshoots (Leomndrop for young women, Engadget for technophiles, PoliticsDaily for politicos) costing hundreds of millions of dollars.

It may all depend on AOL’s Third Party Ad Network which reaches more than 90 percent of all Internet users (according to comScore), making it a hedge against continued fragmentation. It should grow annually mid-to-high single digits through 2014, according to Douglas Anmuth, analyst for Barclays Capital.

AOL’s ability to command premium prices from advertisers relies on its ability to generate “sufficient scale, reach and page-views with differentiated niche content on its branded owned and managed verticals. AOL is producing 80 percent of its own content. There is no margin for error. By 2014, advertising revenues will comprise 84 percent of AOL’s overall revenues, up from 50 percent in 2008. For now, an autonomous AOL in 2010 will see a 13 percent decline in both earnings (to $1 billion) and revenues (to $2.8 billion),  Anmuth says.

AOL is adopting what is being referred to as a “robo content strategy,” using automated news fashioned by marketers seeking target consumers. The controversial use of algorithms to determine the match and to dictate the creation of “news” could have what is news could be a last-ditch strategy that eventually has an adverse impacts on all online content.

All well and good, but how does the new AOL expect to remain a player without  social network plans (despite its ownership of Bebo) to appeal to the interest and relevance of individual consumers on their own turf? Social media such as Facebook and Twitter is the fastest growing Internet segment.

Clearly, the new AOL is confronted by what RBC Capital Markets analyst Ross Sandler has dubbed “a prisoner’s dilemma;” bound by its troubled past as much as by its uncertain future.

Five years from now, AOL will likely be buried within a global conglomerate and a bittersweet footnote in media history.


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    I was multi-media before it was fashionable: a career business journalist covering entertainment, advertising and every kind of pre-digital media. My trademark was hard-to-get newsmaker interviews and breaking big stories until it became obvious industry leaders (like the rest of us) had more questions than answers. Shifting my byline column to big-picture analysis about developments and trends was a no-brainer in an era of headline streams and truncated thought without context. The only questions that matter now: What does it mean? What are the short and long-term implications? It is a perspective honed parenting four accomplished children, studying Arthurian literature (more relevant than it seems), and caring deeply about the transformation of all things media. Share your thoughts here on the extraordinary ways digital will continue reshaping our lives The Next Five Years or email me at mailto:dianemblog@gmail.com

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