AOL Sees Future in Ad Networks

Advertising.com Drives AOL's Revenue; Will It Lead to an Acquisition?

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NEW YORK (AdAge.com) -- YouTube, MySpace, Facebook. Amid all the hype around searching for the next hot internet property, don't forget about those online workhorses, the ad networks. Just ask Time Warner executives, who are eager to tell you the next big get is one of those unglamorous companies that deliver ads to thousands of third-party websites and keep marketers' campaigns away from the unpalatable content.
Comments by Time Warner Chief Operating Officer Jeff Bewkes last week at the UBS media conference suggest he believes the next wave for the digital age will be figuring out how to monetize all that online video traffic.
Comments by Time Warner Chief Operating Officer Jeff Bewkes last week at the UBS media conference suggest he believes the next wave for the digital age will be figuring out how to monetize all that online video traffic. Credit: AP

While the ad networks have been around for more than a decade, what's new is that they're rapidly gearing up in the online-video space and are girding for a round of mergers and acquisitions.

AOL's ad revenue
It 's not surprising Time Warner is eager to talk up the sector. It already owns a major player in the market, Advertising.com, which is a significant contributor to AOL's growth. In the third quarter, ad revenue at AOL was up 46% to $151 million, bringing its total to $479 million, 26% of which was due to Advertising.com.

"Everybody is looking for the next new thing. This is not rocket science," said Shelly Palmer, a consultant and author of "Television Disrupted." "There are two gods being prayed to: Wall Street and the business-fundamental god, profitability. They've never been the same. ... They're all trying to make an online video play, and there's a lot of pressure to do something, but there needs to be the fundamentals."

Recent comments by Time Warner Chief Operating Officer Jeff Bewkes last week at the UBS media conference suggest he believes the next wave for the digital age will be figuring out how to monetize all that online video traffic, and the ad networks are a good place to start.

Newcomers to the sector
Mr. Bewkes heaped praise on the Advertising.com unit and threw some light on the sector, which beyond a handful of established players such as 24/7 Real Media, is bulging with newcomers including Brightcove, IMC Squared and Tremor Media, all of which are in slightly different businesses. "You can go out and think of MySpace, Facebook and 2,000 other websites. So there are plenty spaces where people can go to."

What is not true is that monetization platforms are doing the same. It's the opposite, Mr. Bewkes said. "Google is the first and biggest in the tech space, but the second and third are Yahoo and AOL, with Advertising.com being somewhat of a unique third-party player. We have real advantages monetizing long-tail fragmented pages should sites like MySpace and Yahoo have to turn to us to sell on display."

"The ad networks are the next big thing. It's the only thing that makes any sense at all," Mr. Palmer said. "Ad networks are going to be hugely important to the way you aggregate all your station affiliates. All that quantity needs to be qualitatively optimized."

Possible acquisition target
Even Porter Bibb, managing partner with MediaTech Capital Partners, a veteran Time Warner/AOL watcher, appears to have arrived at that conclusion. He has consistently urged Time Warner to offload AOL, but when asked what the company might want to acquire, he said one firm stands out: IMC Squared, which specializes in placing ads on pharmaceutical and health-care sites.

While social networking and online video have Wall Street's hormones in a tizzy, major media companies are already trying to damp expectations on the revenue front. Last week, News Corp.'s top lieutenants, Chief Operating Officer Peter Chernin and Fox Television President Tony Vinciquerra, both tried to downplay sky-high expectations of new-media revenue potential for the short term and remind the Street of the strength of their traditional businesses.
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