AOL as a standalone

Last night, I sat at the bar reading the Jonathan Knee book, “The Curse of the Mogul” applying its basic tenets to our business at NCI – good mental gymnastics, more to come on that… I was fascinated by a piece where he showed how media CEO’s who are on a bad path tend to be disingenuous to their investors. He uses the VNU announcement of its acquisition of Houghton Mifflin as the example – hinting at synergies that were obviously not there.

Well, I just watched Tim Armstrong on CNBC (note that I think you need a CNBC account to see the viedo) and tried to put his opening day interview and his “Squawk on the Street” transcript to the test.

Here is what I found:

His five points for investors summarized…

  1. Management Team with deep knowledge (important, but not a barrier to competitors)
  2. Brand – ught oh, brands are temporary and certainly don’t present a long term barrier to competition
  3. Strategy – depends on what he means – wait and see.
  4. No debt, deep pockets – ught oh, to quote the Knee book, “deep pockets are eventually emptied”
  5. Cost structure – good, without a lot of barriers, you need to be extraordinarily efficient

When asked about investor’s biggest concerns he says:

“…what’s really here at the business, there’s a business that’s– that’s large, historic and declining. There’s a newer business which I think they’re tryin’ to understand and see.”

High marks for directness in that response. It is the brutal set of facts.

When asked to explain the strategy, it seems to be generate a lot more content and align the content to advertiser needs. There is discussion of technology and content management platforms – but the big bet is that content and broad audience is what big brand advertisers need. Meanwhile the AOL advertising business most recently has been in decline. Hamm – wait and see, not a lot of clear picture of what the content competitive advantage is.

The disingenuous moment came this morning in his interview with Melissa Lee. I’ll need to paraphrase because I can’t find the transcript. When asked about the focus on the access business, he replied that while they love their access customers they are only 2mm of AOL’s 260mm audience; a small sliver. WHOA – you don’t get paid in audience! Audience is, at best, a source of potential value – right now it is just a source of expense (acces is the profit driver for the whole enterprise). This smells like obfuscation and trouble…

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