AOL's Fourth-Quarter Earnings Decline 26%

Portal Plans to Launch New Version of 'Seed' Unit in March

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NEW YORK (AdAge.com) -- If there was ever any need to ramp up AOL's commitment to content, the company's recent earnings statement may offer a source of motivation.

AOL plans to launch a new version of its Seed business unit at the end of March.
AOL plans to launch a new version of its Seed business unit at the end of March.

As expected, AOL reported a 26% drop in earnings for the fourth quarter of 2010 on $596 million in total revenue, with $471.6 million coming from advertising, which also dropped 29.7%. "We're now stabilized for growth," CEO Tim Armstrong said about its plans moving forward.

As such, the company plans to launch a new version of its Seed business unit at the end of March. "We have a 780% increase over the year in the amount of content that was produced through Seed," Mr. Armstrong said. "Soon you'll see it more integrated across AOL's properties."

What is sometimes derisively referred to as a "content farm," Seed is similar to Demand Media, which recently launched a public offering valuing it at close to $2 billion. AOL's version, however, has largely been quiet up until now. "We firmly plan on being a leader in the digital-content space," Mr. Armstrong said, adding that the company may make more content acquisitions this year, particularly in the "women's space."

AOL's revenue has taken a dive through most of last year, but Mr. Armstrong has consistently stated that that has been part of the company's plans to clean up the overloaded advertising impressions that rile both users and publishers.

"We basically believe the industry is crowded with impressions," Mr. Armstrong said. "Brand advertising will work really well if you give one consumer one impression at a time."

Underscoring that strategy, AOL recently released a new large-size advertising unit, called Project Devil, that was deployed at the end of last year. The company has also submitted the unit to the Interactive Advertising Bureau as a possible new standard within the display-advertising industry.

But AOL still has its work cut out for it. The company's share of total online display advertising fell to 5.3% in 2010 from 6.8% in 2009, according to eMarketer, and its display and search advertising revenue declined in the most recent quarter. AOL took in $151.1 million from display advertising, a 14.3% drop from the same period in 2009. Search revenue, meanwhile, fell 33.7% to $96.4 million, but that is partly a function of its shedding its legacy dial-up or internet access business. The company was once solely an internet service provider, and 39% of its revenue still comes from that service. That business drives a lot of its search-advertising revenue, as users who access the internet via AOL tend to use its search feature. The company has a revenue-sharing agreement with Google, which powers the underlying search engine.

While AOL's ad revenue has declined, Google's and Facebook's have grown, signifying the changing nature of user's online habits.

But Mr. Armstrong said the company should see a turnaround by the second half of this year. "I am optimistic that the industry is going to grow in display, and AOL is going to see part of that overall growth," he said.

AOL's bet to be a content candy store has spurred a slew of acquisitions during the past year, particularly in video. The company's European unit, AOL Europe, recently acquired video-distribution network Goviral for $74.1 million and $22.6 million in future incentives.

A set of leaked documents that surfaced on Business Insider yesterday revealed that AOL plans to publish at least 31,000 "pieces of content" each month and increase that production up to 40,000 by the end of March, according to the documents. That includes articles from staff writers, content-farm pieces from its Seed business unit, video content as well as others.

Mr. Armstrong stressed that the documents outline "but one part of the overall content strategy for AOL."

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