Peter Kafka

Recent Posts by Peter Kafka

Is AOL Finally Making Money From Content? Maybe!

armstrong_huffington1_380One of the perennially weird things about AOL is that it’s a content company that doesn’t make money from content: All of its actual profit has come from subscribers to its old Internet-access business, which still has 2.5 million customers,* who pay $20 a month to get online.

But now, in 2013, more than four years into Tim Armstrong’s tenure as CEO, that may be changing.

In AOL’s Q3 earnings report today, AOL announced that its “brand” business — the group that operates and sells ads on AOL.com and the other sites AOL owns and operates, like the Huffington Post and TechCrunch — made money.

Sort of. If you squint at it the right way. Using an unofficial metric called “Adjusted OIBDA,” AOL said its brand group made $10.9 million in the last three months.

And if you look at all of 2013 to date, that performance holds up: AOL said the brand group’s Adjusted OIBDA for the first nine months of the year was $4.6 million.

This is the first time AOL has been able to say that its brand group has positive Adjusted OIBDA. On the other hand, AOL only started breaking out its “brand” business as a category last year, so it’s hard to make a real apples-to-apples comparison.

More important is that Adjusted OIBDA isn’t a “real” accounting metric. It leaves out lots of costs that traditional accounting requires, like depreciation and amortization, as well as one-time costs like restructuring charges.

AOL argues that looking at the number is helpful because it gives you a good idea of its “core operating performance.” Lots of other companies use similar metrics to tell investors the best possible story about their performances. Twitter, for instance, highlights a metric it calls “Adjusted EBITDA” in its IPO filings.

But companies that use metrics like Adjusted OIBDA usually also tell you what their “real” profit numbers or operating income numbers are (Twitter, for instance, loses money). And AOL, which isn’t required to break out its divisions, doesn’t do that for its brand business.

We do know that AOL’s brand business did have some significant one-time hits in Q3, generated by the downsizing at Patch, its struggling local-news effort.

AOL took a $19 million charge for restructuring charges at Patch, and also knocked down the value of the unit on its books, generating another $25 million in “asset impairment charges.” If you added those in, the brand group’s $10.9 million Adjusted OIBDA profit would swing to a $33 million loss.

We also know that the top line for AOL’s content business is doing well. Revenue was up nine percent this quarter, to $192.5 million. Which means that it’s finally getting close to eclipsing the company’s dial-up business, which saw revenue shrink by seven percent, to $204.5 million.

So we can say that the trend lines for AOL’s content business are improving, which is the point AOL wants us to understand. What we can’t say is whether it makes money. But it’s probably closer than it has ever been.

* If you’re wondering who exactly is paying AOL to get online in 2013, here’s a hint: The company said its average subscriber has been paying them for 13 years.


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The problem with the Billionaire Savior phase of the newspaper collapse has always been that billionaires don’t tend to like the kind of authority-questioning journalism that upsets the status quo.

— Ryan Chittum, writing in the Columbia Journalism Review about the promise of Pierre Omidyar’s new media venture with Glenn Greenwald