AOL Building Free Portal To Make Its Content Pay

In its latest reinvention, AOL is opening up much of its content and services to the outside world in the hope of earning a bigger piece of the expanding online-advertising pie, a key goal for the Time Warner unit as its subscriber numbers continue to decline. After years as the Time Warner problem child, AOL sees an opening in the market. Thanks to its trove of Time Warner media content, it is betting it can transform itself from primarily a dial-up Internet service provider to a video- and audio-saturated destination in a broadband-enabled world. "There is a huge leg up for AOL there," said Jeff Lanctot, vp of media at aQuantive's Avenue A/Razorfish, which places $300 million worth of Internet media annually. "If content's still king, AOL's going to ride in on a horse called Time Warner and lay claim to the throne." The new AOL portal, which will launch in late July, is squarely centered on the growing broadband market, looking to leverage both its own content and increased interest in online video advertising. "What [advertisers] are saying is, 'Give us more.' They want more inventory, more opportunities," said Michael J. Kelly, president of AOL Media Networks. The company will not only have the extensive resources of Time Warner but also has deals with XM Satellite Radio, the NFL and ABC News. In addition, the portal will come in three parts: a splashy main page that includes search and access to video, weather and news; a text-based My AOL page that resembles My Yahoo!; and a video hub aggregating video content, much of it exclusive. In terms of advertiser opportunity, Kelly pointed out that AOL's current exclusive Monday synopsis of ABC's Desperate Housewives garners 300,000-500,000 streams a week and, like the TV series, is sponsored by Buick. AOL will also use its exclusive Webcast of July's Live 8 benefit concerts to promote itself as a destination for great free content, executives said. AOL's move comes as online advertising is surging, growing 26 percent in the first quarter to $2.8 billion, according to figures released by the Interactive Advertising Bureau last week. Investment banks and research firms forecast full-year Web ad spending this year to be $12-15 billion, compared with $9.6 billion in 2004, according to the IAB. "There's a significant increase in demand with what I think are diminishing opportunities to place the dollars," said Eric Valk Peterson, vp of media for Omnicom Group's Agency.com. "If supply is a problem, this goes a long way to solving that," said Gary Stein, an analyst with Jupiter Research. The AOL portal will compete with established destinations like Yahoo! and Microsoft's MSN, which have been adding their own video content. And Google is waiting in the wings after unveiling a beta version of a customized home page last month and testing its own video search engine. Consumers' portal habits may be hard to break. Thus, the key to AOL's marketing strategy is to home in on distribution, driving traffic from its well-known to its far-flung properties, which include brands such as Mapquest and Moviefone. One cornerstone is AOL Instant Messenger, which currently has 30 million unique users a month. In a nod to free e-mail services from Yahoo! and MSN's Hotmail, AOL launched AIM Mail in May. Much of the marketing, AOL officials said, will revolve around search-engine optimization—ensuring that the new free content will rank at the top of search queries. "We're going to have more than 30 doors into the house," said Kevin Conroy, evp of AOL Media Networks. Considering it charged even its own subscribers extra for the content as recently as two and a half years ago, AOL may be risking more than most by throwing its content onto the Web. But with its mostly dial-up subscriber base waning (down another 500,000 in the first quarter to less than 22 million), AOL feels it is time to leverage its vast resources—there are some 30 online properties under the AOL brand, with more than 110 million users—to catch up in ad revenue to Yahoo! and Microsoft's MSN. (In the first quarter, AOL's ad sales grew 45 percent to $311 million, compared with $1.3 billion for Google and $1 billion for Yahoo!) Jim Bankoff, evp of programming and products, said making content free would not cause the subscriber erosion to accelerate, as company research shows AOL members generally do not subscribe for the content. Media-agency executives said AOL has the pieces in place to become a solid competitor to other portals. AOL.com drew 70 million visitors in April, per Nielsen/NetRatings, a substantial base. "It's not like they're starting from scratch," said Nick Pahade, evp and managing director of the Beyond Interactive unit of WPP Group's Grey Global Group, who served on AOL's broadband advisory panel. Agency executives express cautious optimism that AOL is finally settling on a strategy that can work. In the dot-com era, AOL was notorious for going around agencies to cut deals directly with clients. AOL has been mending fences with advertisers and agencies. It has revamped its sales structure, abandoning the proprietary "Rainman" technology in favor of industry-standard HTML pages, and jettisoned its proprietary ad server in favor of DoubleClick's DART system. "They're not making excuses, they're not being defensive," Pahade said. "The presentations they're giving are a lot more polished."

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AOL Building Free Portal To Make Its Content Pay

Brian Morrissey

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Brian Morrissey