Time Warner wants AOL to successfully complete its transition to an ad-supported business, and isn’t mulling “structural” changes, such as selling it or spinning it off, Time Warner Chairman and CEO Richard Parsons said Tuesday.
“We’re doing better than I had hoped [with AOL] but we still have a long way to go. We have to make sure we stay tightly focused there,” Parsons said at a Goldman Sachs conference, responding to questions from a financial analyst.
Time Warner’s priority for AOL is to make sure the Internet subsidiary executes properly its transformation from a business based on subscriber fees for dial-up Internet access, and takes full advantage of the opportunity in the vibrant online ad market, he said.
Two key issues are to increase AOL’s own ad inventory that it sells directly to clients, as well as fortifying the ad platform that allows it to act as a broker and distributor between advertisers and third-party Web sites.
“Those are the big executional challenges, given where we’re coming from with AOL and the speed at which the industry is moving and the competition,” said Parsons, whose appearance was webcast. “That’s where the focus is, not on doing something structural with AOL.”
Parsons said that the dynamics of the online ad market are shifting towards this latter business of ad brokerage and distribution, whose margins are smaller compared with the direct-sales inventory.
The reason for this change is that advertisers increasingly see value in the broader reach that ad networks provide, as opposed to buying ad space in a specific site, like a portal, he said.
“It’s kind of exciting in one sense [and] it’s a little daunting in another sense because it’s all moving so fast, but we think we’re in the middle of it and we think we’ve got the right tools, management and technologies to play aggressively,” he said.
After recently acquiring Advertising.com and several other companies that specialize in behavioral targeting, video ads and mobile ads, AOL has a leading position in this segment of the market, he said.
“I think we have the lead in that space right now, so it’s ours to lose,” he said.
In fact, AOL can and should be a growth driver for Time Warner, as long as it can increase its revenue at or above the growth clip forecast for the online ad market, Parsons said.
That didn’t happen in the second quarter, when AOL’s online ad revenue grew 16 percent, leading some financial analysts to question AOL’s ability to capitalize on the online ad opportunity.
Currently, the U.S. online ad market has been growing its spending between 25 percent and 35 percent, according to reports from the Interactive Advertising Bureau.
Still, Parsons is optimistic about his Internet subsidiary, which this week announced that it plans to move its headquarters to New York City and that it has integrated its various ad networks into a single platform.
This platform, called Platform A, meshes Advertising.com, behavioral targeting specialist Tacoda, mobile ad unit Third Screen Media, video ad specialist Lightningcast and ad serving unit AdTech.
“Everything we’re doing in AOL is around trying to create a platform that has broad reach, increase the amount of our own inventory and then have [the tools] to optimize [the ads],” Parsons said.
Although it’s actively de-emphasizing the AOL Internet access business, Time Warner isn’t in any hurry to sell it, he said. Time Warner is unlikely to make a move regarding that unit for at least the next 12 months to 18 months, for two main reasons, he said.
First, the access business, although shrinking, is still good for AOL as a whole. Specifically, a substantial portion of the traffic on the AOL network of Web sites still comes from access subscribers, he said, adding that the access business also accounts for a majority of AOL’s profits.
Second, it would be hard to find a buyer for this business while it is still shedding subscribers, he said. He expects that it will take a year to a year and a half for the subscriber “runoff” to stabilize. By then, he expects AOL’s online ad business to be more mature and solid as well.
“If you’re getting real and full value for that asset, it’s probably better done at a time when you’ve reached a more predictable [stage] and you know where you are, and the rest of the ship is in shape,” Parsons said.
While Parsons acknowledged Time Warner will probably at some point divest itself of the AOL access business, he didn’t fully commit to doing so, saying that many things can happen and change in the Internet market in the near future.
“You never want to set your sails and say ‘I don’t care what’s happening in 12 to 18 months down the road,’” he said, reiterating that, at the moment, Time Warner has good reasons to hold on to that access business.