On March 12 2009, AOL replaced Randy Falco with Tim Armstrong, who previously ran Google’s North American sales operations. I attended the Media & Money conference yesterday at the Roosevelt Hotel in Midtown Manhattan and heard Tim talk about AOL’s future and past.
First 100 Days: Strategy vs. Cost Structure
Before even accepting the Chairman and CEO role at AOL, Armstrong got a ton of advice from experts and monday morning QBs alike.
Once he joined, his first 100 days were highlighted with an assessment of the company’s assets and position in the marketplace. He received thousands of employees’ suggestions. Subsequently, Armstrong decided to wipe the slate clean and formulate a new company strategy that fit on a single page.
The Strategy: Content, Ads and Communications
On this one-pager, Armstrong formulated AOL’s three pillars:
1 - Content
2 - Ads
3 - Communications.
AOL Time Warner: 50% of Marriages End in Divorce
Of course, to talk about AOL’s future, one must put the January 2000 merger with Time Warner in context:
AOL/Time Warner will be 55 percent owned by AOL and 45 percent owned by Time Warner. The combination will immediately boast a market capitalization of $350 billion and an annual revenue stream topping $30 billion.
That’s right, buoyed by the Nasdaq’s gains and AOL’s growth in the 1990s, AOL acquired Time Warner.
The Nasdaq peaked in March 2000 at over 5,000 and crashed down to 1,200 by the next year. To be fair, while there were macro-level causes for the result, there were also some unique factors at play.
From a 2009 article in TheDeal:
The new economy was never realized, and neither was AOL’s potential as the driver and distributor of Time Warner’s unmatched inventory of content. Not that AOL Time Warner, which dropped the scarlet letters A-O-L from its corporate name in 2003, didn’t keep trying. The efforts have already added two successive AOL heads — Jon Miller and Randy Falco — to the list of those the original deal beheaded.
It didn’t help that, as an Internet service provider, AOL has never been more than dial-up. That meant the transaction in which it figured so prominently (its shareholders received 55% of the combined entity’s equity) had built-in obsolescence. It also meant, arguably, that the promise misplaced in AOL kept its parent company from pursuing the potential of its much faster and technologically advanced cable-driven ISP, Time Warner Road Runner.
Throughout that decline and the increased obsolescence of dial-up technology, Time Warner’s size relative to AOL grew considerably and the AOL/Time Warner merger cost shareholders billions of dollars and after less than a decade, the powers that be at Time Warner decided that AOL had to go.
As a result, the Time Warner brass needed to sell AOL - the new stock - to institutional investors and few have the presence and track record of Tim Armstrong, Google’s former North American VP.
The Story Starts: Use of Funds is Main Divergent Issue
According to Armstrong, the main driver for the spin-off is how differently AOL and Time Warner would use cash. Oddly enough, while merger was doomed due to culture clashes and bad timing, in theory, the case for the merger is as sound today - on paper - as it was then:
“Together, they represent an unprecedented powerhouse,” said Scott Ehrens, a media analyst with Bear Stearns. “If their mantra is content, this alliance is unbeatable. Now they have this great platform they can cross-fertilize with content and redistribute.”
The problem, of course, is that big “transformative” mergers and acquisitions are transformative in good or bad ways. They can radically help grow a company (look at how much revenue eBay generates from Paypal from example) but they can also kill a company.
Let Bygones be Bygones
If content, ads and communications are the focus of the company, then the company’s objectives are:
Objective # 1 - To Become The Largest Producer of Content Online
Armstrong has talked a lot about AOL being the Time of the 21st century with regards to producing content, lots of it.
It’s worth noting that Time.com’s own Managing Editor Josh Tyrangiel admits that “long form journalism, a staple of magazines like Time, is not working online”. As such, maybe emulating Time too well won’t serve Armstrong either. Of course, time will tell.
”You are seeing more and more talk of content and scaling it.” AOL has hired hundreds of reports and is investing in systems to scale the production and distribution thereof. Armstrong said he wanted to bring “Silicon Valley’s platforms and mentality to content,” and echoing something I’ve been saying for a while, he added that “while there has been a lot of investment into technology, not much investment has been made in content.”
He’s right. But AOL’s not alone in investing in content, though companies are going about it differently.
Should be stated that we at WatchMojo are now one of the biggest supplier of premium video content online. We not only supply the usual suspects (YouTube, Hulu, etc.) but also vertical sites. Who else, do you know of, for example, supplies both business videos to Thomson Reuters and video game content to IGN.com?
As I also like to say, unlike technology, content isn’t a zero sum game, and in fact, as a content entrepreneur and executive, I love seeing more and more focus being put on content.
The heavily-funded startup Demand Media is also into producing hoardes of content. What sets AOL apart from Demand Media is that while Demand is intent to play the SEO/Google Ad Sense text advertisement arbitrate card, AOL’s second objective is to leverage the strong display advertisement business Armstrong inherits from previous executives such as Mike Kelly (who encouraged the Advertising.com deal, which we ranked as one of the best Internet M&A deals of all-time in our 2006 list here), Jon Miller and to some extent Randy Falco.
Objective # 2 - To Become the Biggest Seller of Display Advertising
AOL owns Advertising.com, the largest ad network in the world. Of course, AOL also owns Tacoda, Quigo and a barrage of other ad networks that were bundled and branded Platform A but have now been - shocking I know - separated as well.
The problem with AOL’s strategy under Falco was that it became a strictly quantitative approach to sell reach and networks, whereas advertising - and brand advertising in particular - is a different beast.
What is really shocking about Armstrong is that despite his pedigree at Google (a joint run by a bunch of quants, basically) is just how much he thinks like a media / content / advertising guy, which makes sense given his role and success at Google, but still, it’s refreshing to see.
Web’s phases
If Armstrong is singing the “contest is king” mantra, it’s because history suggests the next boom will be in content. Yes, this is also a theme in my ruminations, as the Web now shifts to an era of consumption of information and entertainment.
He broke down the Web’s phases as such:
1) Access: ISP, portals, search engines, etc.
2) Platforms: Facebook, MySpace, Twitter, etc.
3) Content: speaks for itself.
Across all new distribution platforms (TV, radio, print), over time, it’s content that becomes most valuable.
AOL isn’t merely interested in producing the right type of content, it’s also looking at scaling quality content, building systems and platforms to help content creators.
SMO Replaces SEO?
When asked about social media, Armstrong views it as a great way to distribute content.
I agree, I think in video at least, because search engines do a crappy job of indexing videos, SEO has been replaced to some extent by SMO, or social media optimization (I’ve called this SNO, or social networks optimization, in the past). This has been accentuated by the “deportalization of the Web”.
He touched on Bebo, which he suggests is being repositioned on what it did best: sharing media and entertainment amongst friends.
Display and Video to Outperform Search?
The next $50 billion that shift online probably won’t respect the same ratio between search and display. He’s right, here’s a graph to demonstrate that:
Related: can online video advertising can surpass online search advertising; can online advertising outright surpass television advertising?
It’s no secret that Armstrong is repositioning AOL’s ad network business, suggesting that AOL’s extreme focus on Platform A might have been misguided.
To become the #1 in display banner ads, he added: “Display cannot be about ad networks and reach alone, brand advertising could be done differently, it’s about the ‘brand story’”.
Multi Brand Strategy
AOL has 70 properties, ranging from men’s blog Asylum to Spinner, but AOL sells mainly by audience. As Asylum’s quick ascent has shown, AOL doesn’t merely have the traffic and eyeballs to build large properties, but it has data.
As a VP for men’s lifestyle site AskMen, I worked with both MSN.com and AOL.com in the early 2000s, and one thing that AOL had was a lot of information on user’s interests, click through data and what not. As a result, if it decides to focus on an audience, it can move fast… and efficiently.
Of course, that is theory; in practice, it boils down to execution and having the right content.
“More and more advertisers see themselves as content producers,” continues Armstrong. I agree, but we’re also seeing a more sober stance occasionally when marketers decide to stick to what they do best.
He touched on local and video, too.
Local
“All about living lives better locally”, he stressed. He invested in Patch due to a personal frustration over a lack of information at the local level. AOL acquired Patch, who has since expanded into 30 cities and tends to partner with local media, as is the case in New Jersey.
Video
AOL is producing six times more videos than it was a mere 4-5 months ago. The content can be broken down into two main genres:
- very high quality (Beyonce comes in the studio)
- original videos based on their media properties.
I personally break professional videos into two: super premium and premium. Here is my not-so-complicated view of content online:
- At the top, you have ”super premium” representing Hollywood, studios etc. You can command extremely high CPMs but the inventory is usually low etc.
- In the middle, you have “premium” content, basically being where WatchMojo now has built a nice position. If you’re keeping track, CPMs are healthy and inventory is decent, so the overall revenue is highest here.
- At the bottom, you have UGC, which totally changes the rules of engagement of media, news and publishing, but which will fail in ad-supported model.
Echoing by bearishness on scripted entertainment, Armstrong believes that there is an “opportunity” in scripted entertainment, but can’t take a Hollywood approach online. This is why many companies have failed, in fact, in the video content business.
AOL’s Future
The Verdict is obviously still out. Yesterday’s chat is largely about getting the story right and out, as institutional investors will have to buy into the story and the stock once Time Warner completes the divorce less than a decade after the marriage.
Will the Street buy in? Who knows. After all, the Street applauded the TWX/AOL merger when it happened, and then evaporated 90% of the value of the combined entity.
But I do know that Armstrong is saying all of the right things to position AOL as the home of great content and as a home for content producers. And, if content is king and in the end content prevails, then AOL might prove to be a nice long term bet amongst media stocks.
You can read more about Armstrong’s chat yesterday at the Media & Money conference on Business Insider. You can also read my previous posts on AOL and their content initiatives here:
- Mediaglow: Silver Lining in AOL Empire?
- Did Armstrong Leave Google Because Content is King?
Monthly magazine ad pages are down 33%, or 8,359 ad pages this year. For Conde Nast in particular:
Man that sucks any way you dice it. Business Insider asks: “The real questions for Conde Nast: Is this is a one time event brought on by the recession? Or is this is a permanent trend?”
Hmm… I’ve subscribed to magazines for a decade now and the trend is pretty clear: they get thinner and thinner, and some just - poof, like magic - disappear.
What is wrong with MSFT?
Despite the fact that their sites (MSN.com and I guess MSNBC.com as well) garner the highest time spent on site of any company, they cannot convert those eyeballs and engagement into profits?
Then again, maybe it’s specifically the reason why their operations are burning so much money?
I keep telling myself not to post monthly updates of WatchMojo’s growth trajectory, and I mean it, but then every once in a while something else happens that blows me away. This is one of those months. I just announced how our offline reach has soared to over 15,000,000 consumers per month (think big screens in malls, gyms, coffee shops etc. broadcasting our content) which combined with our online reach of 5,000,000 uniques put our total reach at 20,000,000 consumers. That is very cool.
But today, I ran our October stats and I was floored, first, the graph, then some perspective, and finally some lessons:
Monthly Streams
All-time Streams
This is freaking insane. When we launched the site in 2006, I used to look at the stats and I would ask myself: do people actually watch videos? And if they do, do they watch anything other than cats falling off skateboards (well, and porn)?
Eventually, we found out that we had to take our videos to where people consumed them. We did 550,000 streams in all of 2006, then did 13,000,000 in 2007. Then 2008 saw a jump to 28,000,000 streams and in 2009 we will do 55,000,000 streams.
We decided to brand the videos heavily to WatchMojo.com, with opening and closing bumpers and lower-third watermark and all. I thought it was crazy, I pushed for it because I figured if people pirated the content (who would want to do that anyway, was my own counter-argument) then at least we would get some branding. But today this means our brand has been seen some 87,000,000 times online alone.
That’s the thing, that is only online. This month I finally decided to run the numbers and see how much presence we had offline. I fell off my chair. Our videos - branded WatchMojo again - are seen in 2,000 retail locations and reach 15,000,000 consumers each month. I will never forget when a would-be investor called me up an hour after we chatted and told me he saw us in a gas station in Los Angeles, or when a former host of ours saw us in a bagel shop in Chicago, or for that matter, when I heard that my former boss curses every time he lands on a site and sees our logo display before a video loads up.
I always laugh when Google scores heavy in InterBrand’s top brand survey because they never set out to build a brand but did so by focusing on the nuts and bolts.
I always thought WatchMojo could become a strong brand (the logo was always intended to stick out). I also thought the company could be big, very big; but the company’s popularity, reach, brand and position in the marketplace is starting to floor myself. And I am a very ambitious and driven individual. I want to make WatchMojo as successful financially as it has been operationally, and I know there’s lots of work to do on that front, but still…
We’ve had to overcome a lot:
- being a content company, which in the 2000s gets no respect from the media and investors alike,
- the 2006 lawsuit which was frivolous and we won, but almost killed us before we really took off,
- talking to VC groups and then seeing them turn around and fund our “competitors”, which wouldn’t be the end of the world, if it weren’t for…
- … seeing those very same companies scale back or shut down, only to leave a bad taste in the mouths of other would-be investors,
- there not being any ad format in online video that is popular, efficient and effective enough to move the needle, the way Google’s text ads did for search, despite the hundreds of millions that hapless VCs have made in the sector,
- being unfunded (forget being underfunded, I mean literally not funded - ever), so always having one foot in the grave and the other foot on the gas pedal,
- the 2008 recession which basically almost killed everything,
- the 2009 advertising market crumbling in H1.
Anyway, I’m not complaining. In fact, I am very grateful.
As we finish Year 3 of WatchMojo’s operations, we have never laid off a single person and technically now have 50% more staff than we did last year (don’t know why I use the word “technically” since we do, in fact, have 50% more staff than last year this time).
Not only am I not complaining, I am counting my lucky stars that we:
- have such a great team,
- have an amazing product,
- provide a valuable service to countless other media companies, both new and traditional,
- are now finally counting amongst our clients marketers such as McDonald’s, Coca Cola, Coors Molson, Malibu Rum and many, many others.
How, on earth, did this all happen?
Well, for one, determination and persistence. I’ve written on that before, here, here is the quote from former President Calvin Coolidge:
Nothing in the world can take the place of persistence. Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb. Education will not; the world is full of educated derelicts. Persistence and determination alone are omnipotent.
Determination and persistence is just one part of it, you need a lot of luck and timing… and of course, vision, ambition, execution and focus.
I have no idea what the future holds… but I used to think we would get a lot of “street cred” if we jumped off the bridge like many others and raised a boatload of money. The boat never came, the money wasn’t there… and some how we are now totally dominating the industry.
I’ve referred to Sequoia’s “Good Times RIP” presentation and the famous death spiral slide:
I was very concerned about not becoming Company A - you know, the company that didn’t take immediate action and lay off people so that maybe, just maybe, when the dust settled, it could become like Company A, who had the “courage” to lay off everyone and reset its operations.
But, I also didn’t want to be Company B, who recklessly laid off people because it got scared.
Then it hit me, we were neither company A or B, we were a company that was largely off the radar, doing our own thing. We had written our own playbook and were in the process of writing our own history. We were, in fact, Company C:
I don’t quite know who is Company A and Company B in our world, and I don’t care, all I know is that we’re coming on strong. I have always said the beautiful thing about content is that it is not a zero-sum game, our wins won’t necessarily come at the expense of our competitors… but the more we compete in the marketplace, the more often we find ourselves winning.
I doubt Google’s market capitalization will surpass that of Microsoft’s (as I outlined as a possibility in 2006), but judging by the growth in cash flow of each company, it’s not impossible over time:
Graph via Business Insider.
On the heels of WatchMojo.com crossing the symbolic 75,000,000 all-time streams mark, here are more even stronger growth numbers.
1) What summer effect?
Summer 2008 to Summer 2009: 233% Annual Growth.
A reader asked me about the 200% growth number, so here it is: in fact, we grew 233% if you look at the summer months of June/July/August 2008 to the similar period in 2009:
We’re on pace to cross 50,000,000 streams in 2009. That’s using a simple cross-multiplication formula, if you look at our growth we might do over 55,000,000, even. What will our 2010 figures look like? When 2009 started, I told myself “we should do 100,000,000 throughout 2010″, but if you ask me the same question today, I would say that is a no-brainer.
2) YouTube is the Marketmaker.
YouTube is really starting to own the video content market, in our case, they now account for 49.5% of our total streams. A year ago, they were at 30%.
3) September 2009 was our second best month ever.
What I love about our monthly video stream growth chart is that we keep setting new records, then we come back stronger to break the previous record not within too long.
When we hit 4.2M streams in March 2008, I thought we might never break that, but then in January 2009 I was running December 2008’s stats and realized: “oh, lookie here, we set a new record”. That new record took a whole 9 months to set. These days we set new records fairly quickly, and I do think this can be attributed to Metcalfe’s law.
4) 100 Million Streams by our Four Year Anniversary on January 23 2010 is Possible
As we enter October, we’re on the footsteps of 80,000,000 all-time views, which at our recent volume and growth rates - along with our countless new distribution deals - would suggest that hitting 100,000,000 all-time views by our fourth year anniversary is not impossible.
When I hired our technical advisor from Big Media, I showed him our growth rates and he forecasted that we might hit our 100,000,000th stream by Christmas. At that time, we had just crossed 50,000,000 streams. I told him he was crazy. But with hindsight, I guess this proves one man’s crazy is another man’s common sense.
I have always maintained that traditional media won’t really die (well…) and that TV advertising probably won’t get surpassed by online ads… but seeing online ads surpass TV ads in the UK I am starting to doubt that.
In fact, I’ve ran numbers using basic growth estimates and the case can be made for both
Online Ads Surpassing TV Ads by 2021
Online Video Surpassing Online Search Ads by 2018
Told you, not crazy…
Largest advertisers online by category:
Highest ad rates by categories:
I had a chance to sit down with Barbara Corcoran. She’s currently on Shark Tank alongside Robert Herjavec, Kevin O’Leary, Kevin Harrington and Daymond John.
We chatted about numerous things, to read the interview from the beginning, see Part 1 here. Here is Part 2:
WatchMojo: You were quoted as saying that the worst students make the best entrepreneurs. I actually understand why you would say that, but do you think that good students make for bad entrepreneurs?
Barbara Corcoran: With a few exceptions, I would say generally so, yes. And, this is my logic, and I don’t really know, because I’ve not done a survey, but just on my life experience of meeting entrepreneurs’ day in and day out. I think great students operate very well in a defined role, okay? And so, the problem that happens as an entrepreneur is you’ve got to redefine your role constantly, and you’ve got to do it for yourself. You also have to set your own great standards, so you are not reaching for a program that’s been outlined that you can succeed at; you have to create your own program.
I think very often great students don’t have incredible imaginations, whereas kids that are terrible students have the whole school day to daydream. So, they have much more opportunity to practice being creative, because they’ve got to fill in their brain with something while they are not figuring, while they are not getting what’s going on in the classroom. And so, I think entrepreneurs who are terrible students often have a head start of a great student who is stuck with the program.
And then lastly, kids that don’t do well in school can’t wait to get out of school, and so when they get out of school it’s like getting out of jail and they burst out. And, their shear relief of being let go out of the confines of the school role usually creates great energy. And so, they are much more comfortable in a freewheeling, high risk workplace without rules than they are in something that’s defined; that’s my own theory, I don’t know if that’s to be true.
WatchMojo: From my own experience both from working with great entrepreneurs and starting a company I think there is a pattern.
Generally speaking if you are good at working within a framework, I think that makes you excellent to actually take direction and do great things. But, I think entrepreneurs generally like to work when there is no playbook; you throw them in the wild and ask them to solve the problems, that’s when we excel.
Barbara Corcoran: Oh, definitely.
WatchMojo: Now, the interesting thing is whether it’s New York City in particular, the panel on Shark Tank, the real estate world or business in general, women are generally out numbered. Their voices aren’t even heard oftentimes, or if they are heard, they’re not always taken as seriously as they should be. So the question is, how has being a woman played a part in your success?
Barbara Corcoran: It’s been an absolute advantage, or certainly that’s how I perceive it. Because, I walked into an old boys club where the large firms were owned, controlled by men. And, when I would meet, when I would walk into any industry event, I was the only person in skirt, and I made sure I had a red suit on to be noticed. So, I was noticed more, because I was the odd duck, so that’s an advantage to be noticed in any business for better or worse to be noticed is better then not being noticed, right?
WatchMojo: Exactly. That’s why I haven’t changed my name…
Barbara Corcoran: Yeah, right. Because, for you it’s true, isn’t it?
WatchMojo: Yes.
Barbara Corcoran: Because, people will remember your name. And then, the other thing is women operate very differently than men, and in the real estate world even though in my day it was owned by men, it was worked by women. And so, I intuitively knew how women liked to work, what was important to them; how to build a great workplace for females, whereas the men had to guess about it? You know, so I was closer.
WatchMojo: That’s a very good point, because you can have a fantastic company and provide all these opportunities, but if the women are not comfortable, you are right, you are going to lose a lot of talent and a male boss might not even understand why.
Barbara Corcoran: Yeah. We were the only firm in New York City where we designed our offices like spas where we had, you know shoe shine guys, massage therapists. Why, because 80% of my staff was female and they really liked that, I don’t think a guy would have thought of that one.
WatchMojo: Do you spend more of your time looking for ideas for your production company or investments on the show?
Barbara Corcoran: Both, I have one leg in each. I, you know I had both seat in looking for the story ideas and getting more television appearances, that was my career. Since I’ve been on the Shark Tank, I would have to say I’ve got one foot in each arena, because it’s not just doing the Shark Tank, it’s when you buy the businesses, and I bought twelve in the first season. Once you buy the businesses, now you have to tend to them. You know you’ve got to get the contracts done, you know arrange the funding.
You have to start working, getting to know your entrepreneur. So, clearly you can imagine how much time is involved in that. And, I’ve also had to build a financial team that I didn’t have going into that TV show. I had to hire venture capitalist to work for me, because I don’t want to lose my money.
WatchMojo: Who would?
Come back tomorrow, where we continue our discussion and I ask Barbara what the common traits of the businesses she’s invested in were.
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