Tim Armstrong

 comments

AOL wants to be an 'arms dealer to Silicon Valley'

By March 8, 2013: 1:48 PM ET

AOL CEO Tim Armstrong has been on a roll - and he wants to make the most of it.

130208025708-investing-buzz-aol-turnaround-tim-armstrong-00003512-gallery-horizontalFORTUNE -- To AOL CEO Tim Armstrong, Silicon Valley is a "pig pile" where every company is copying every other company. "Everyone is putting out the same services, the devices have become more commoditized, and the platforms are the same," he said Thursday during a presentation at the Paley Center for Media in New York.

Sounding a bit like a Web-media executive from 1998, Armstrong basically put forth the idea that, as a lot of people said back then, "content is king."

That might sound a bit quaint in this era of ad rates falling with breathtaking speed and many Web publishers stretching the limits of propriety to draw page views and generate revenue. But Armstrong is a true believer, and he believes that "content," more than gadgets and more than platforms, will be what drives communications technology. AOL's (AOL) aim is to be the "arms dealer to Silicon Valley," he said.

Somewhat overblown rhetoric, to be sure. But it's hard to count Armstrong and AOL out entirely. The Huffington Post is succeeding better than most Web publishers (thanks in large part to sheer scale), and the company's stock is up by 109% over the past year. Lately, it has been outpacing the stock of most other media companies.

Much of the boost in share price is attributable to the patents AOL sold to Microsoft (MSFT) for $1.1 billion. But that was a year ago, and the upward trend has continued. Another issue: profits. While revenues are up for the first time in eight years, the company's profits come mainly not from its media properties, but from the high-margin business of continuing to collect revenue from people who are still using AOL's dial-up Internet service. Demographics alone spell eventual doom for that business, and over time AOL will be increasingly reliant on the highly uncertain and risk-riddled business of Web publishing.

MORE: Facebook's new look can't conceal its old problems

One of the company's riskier continued bets is on Patch, its network of local-news sites. It continues to bleed money, to some degree because even struggling local newspapers often have larger staffs, more-complete coverage, and better brand awareness than Patch sites can manage. Armstrong argues that Patch gets a bad rap in the media because journalists are put off by its sometimes-iffy ethical practices, such as when it makes journalists directly responsible for generating ad revenue. "The journalism world pounds on Patch," he said. But that argument might carry more weight if shareholders didn't pound on Patch even more. He insists that Patch is a good long-term play.

A big question at the Paley Center was whether AOL might be interested in acquiring Time-Warner's (TWX) stable of magazines. It was announced this week that the titles that once made up Time, Inc., -- including Fortune, Time, Sports Illustrated, and People -- will be spun off into a separate company, perhaps as soon as the end of this year. But that's a non-starter for AOL, which can't afford any major acquisitions (estimates of the new magazine company's potential valuation put it not far below AOL's market cap of about $2.85 billion.) Armstrong sees the reality of this, but seems a bit wistful about the impossibility of reuniting with AOL's former Time-Warner cousins. He would buy them, he said, "if I had my private druthers."

The druthers of public investors, though, are paramount, at least in the case of Time Inc., if not in the case of Patch.

Posted in: , , , , , , ,
Most Popular
China's fastest-growing cities for millionaires
 
Google files First Amendment court case against NSA surveillance secrecy
 
Chrysler relents, agrees to recall 2.7 million Jeeps
 
Immigration bill could cut deficits by $175 billion - CBO
 
Why Apple's new MacBook Air is the ultimate road warrior's notebook
 
Current Issue
LinkedIn: How it's changing business
LinkedIn: How it's changing business
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.