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July 21, 2009

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AOL predicts ad revival by 2011

AOL Chief Executive Tim Armstrong believes that investors will reap the benefit of an online advertising resurgence by 2011 if they hold on to the company's shares after it is spun out from Time Warner Inc later this year.

That will be a difficult sell to Time Warner shareholders looking at AOL's revenue trajectory over the last three quarters, which has seen steep declines of 20 percent.

Armstrong said it remains unclear when exactly the overall ad market will rebound, but he believes online video and display ads will rebound in 18 to 24 months.

"Advertisers are going to be driving to Internet Road and AOL is a major property on Internet Road," Armstrong said in an interview at his office in downtown Manhattan on Sunday, though he also acknowledged, "The property needs some work."

The media conglomerate appointed Armstrong, Google Inc's former sales chief, in March to run AOL and set him to the task of spinning out the Internet company.

Unlike Yahoo Inc and Microsoft Corp, which seek to compete with Google in Web search, AOL will be a pure-play Internet display advertising company.

That means its revenue will mostly come from companies buying advertisements on its own Websites and partner Websites - a business that has been harder hit by the recession than the search advertising market.

Armstrong believes the value of its inventory has been hurt by a network-based approach to advertising through its platform, which serves ads to hundreds of Websites.

The management is deep in talks with Time Warner about AOL's capital structure based on internal revenue and cost estimates.



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