AOL CFO Artie Minson prepped investors for the call with a memo laying out expectations. Short version: AOL thinks HuffPo will earn about $10 million on revenue of $50 million this year (as long as you’re okay with using “adjusted OIBDA” as a proxy for “profit”). It also thinks the purchase will save it $20 million a year, but it’s going to spend around $20 million on restructuring charges when the deal goes through.

I’ll liveblog the call below:

8:02 am: Greetings! About to start now.

8:03 am: On the call: Tim Armstrong, Arianna Huffington, Artie Minson.

8:03 am: Armstrong makes a Super Bowl joke that I can’t quite follow, and I like football. But now praising Arianna, co-founder Kenny Lerer and outgoing AOL CEO Eric Hippeau.

“The Huffington Post is one of the best properties on the Internet.” Armstrong, Huffington and Minson are all BlackBerry users.

8:06 am: On revenue: This gives an opportunity to serve more brand marketers, who are “very interested” in the scale this gives us.

8:07 am: Spending next 30 days on integration. “Really synergies to be had.”

Next steps: Next 72 hours communicating with employees, talking to partners. 1,500 AOL workers on the phone this morning explaining deal to others.

“This may be the smallest disruption” internally of any deal I’ve worked on. Majority of integration done within 35 to 40 days.

8:09 am: We’ve looked at a bunch of companies, though we’re mainly going to concentrate on organic growth. But Arianna is great [many superlatives] and she “also happens to be a woman.”

8:10 am: Here’s Arianna.

8:11 am: “Amazing” how aligned two orgs are.

8:11 am: HuffPo was profitable last year. We were thinking about bringing in additional investors last year, and an IPO down the line. But this made perfect sense.

8:12 am: This deal provides a “dramatic acceleration” for the plans we already had.

8:13 am: Some praise for Patch, AOL’s local strategy.

8:14 am: Can’t wait to start!

8:14 am: Alrighty, then. Here’s Artie Minson with some nuts and bolts.

Actually, it’s some color on the deal. But a lot of it is in the prepared remarks he put out earlier this morning.

8:15 am: Again, $20 million in cost savings here. And again, we’ll have to pay up for restructuring: $20 million for cuts, and $10 million for purchase price.

8:17 am: Still basically reading from prepared remarks. Some bookkeeping talk re: compensation accounting.

8:18 am: Remember, display ad growth coming will finally start showing up second half of this year.

8:19 am: Q&A:

Q: Talk about content strategy. Does HuffPo become hub for content going forward? Does it replace Seed? And how long is Arianna’s contract?

A: “The press” has been talking about our content strategy, so let me be clear–we’re focusing on premium content. Things like Seed and StudioNow are platforms–you can do whatever you want with them, different quality levels, at different types of scale.

And then the other thing that is important about those platforms is the ability they give us to work with advertisers.

One of our main interests in HuffPo is their technology and publishing system. So now we have multiple systems [which he is saying is a good thing]. “Our content strategy hasn’t changed.” The “stuff that was out in the press about the AOL Way” was just one way of doing things. [This is not very convincing]

Arianna, tell us how long you’re going to stay.

8:24 am: Arianna: “I’ve told Tim I want to stay here forever. I want this to be the last act of my life.” Anything I want to do I can do here.

[Sorry, missed next part but it was a defense/explanation of content strategy.]

8:26 am: Armstrong: Arianna has a multiyear contract, but it’s open-ended.

8:27 am: Arianna: By the way, we’re going to bring back commenting to AOL stories, and socialize them.

8:28 am: Q: Why buy instead of partnering? Were there other bidders? Also, how will HuffPo politics affect AOL?

8:28 am: Armstrong: We do partnerships where there is “limited upside to those arrangements” so ” we can really spend time on the areas we want to win”–i.e., we don’t care about sports, we do care about women.

“Arianna is somebody we’d rather have inside our building than outside our building.”

“If there were or weren’t bidders on the other side,” I think we got the right price.

8:30 am: Arianna. “As we’ve said, again and again, Huffington Post was not for sale….Nobody was in a hurry to cash out, everybody believed that we could do an IPO down the road.” It’s just that Tim gave us a great offer. [hrrrm.]

On politics–we used to be all about politics, now we’re not. Just 15 percent of our traffic. We have a divorce section now.

Talking up AOL’s “college” section.

8:33 am: Q: For Arianna: More on Patch, please. What do think about what AOL’s done with it, and what you can do with it?

8:33 am: [Every time Arianna says "local level" I think she's saying "locker level." It's happened at least twice, maybe more, on this call.]

There’s a “greatest person of the day” feature we have, and I think Patch should use that. [Or maybe vice-versa, sorry.] I also like their five percent “giving back” rule, cause marketing, etc.

8:35 am: Armstrong: Again, we can do national and local. That’s important. NFL rights are important, and so are local news stories.

8:36 am: Q: Who’s going to sell what? And can you talk about pricing disparity between AOL and HuffPo?

8:37 am: Armstrong: “We would like to maintain all the people from both sales forces [except for Greg Coleman!]. I think we will end up with a large-scale, large-property organization–I don’t know exactly what that’s going to look like, though.

On sell-through rate: Slightly lower at HuffPo, because they’ve been ramping up traffic, and sales force. On CPM, same story. So we can bring up sell-through rate and CPM, and have a larger sales force. [This is pretty much the best argument for the deal that Armstrong can make.]

[BTW: Good back-channel discussion on Twitter right now about AOL's SEO skills, and the people behind it. None of that coming up during this call right now.]

[Sorry, I meant HuffPo's SEO skills, much of which stem from blueprint BuzzFeed CEO Jonah Peretti set out.]

Q: Why not use equity for this deal?

A: Because our equity is priced too low, essentially. But HuffPo employees did roll over 25 percent of deal consideration into AOL options. So as that equity gets more valuable, they’ll get upside.

8:45 am: Q: In your statement, you talked about OIBDA growth in 2013. More on that please.

Minson–probably going to stick to my prepared remarks on that one.

8:46 am: Last Q: Your acqusitions have been about toolsets or content. As you think about others going forward, what else do you want?

Armstrong: We have long-term vision. On plumbing: We’ve wanted to get platforms and plumbing straightened out, and we’re doing that now. Think about the bones or foundation of a very large property. That’s why we’ve been doing infrastructure, like with video–5Min and GoViral and StudioNow.

Going forward, we’ll be doing infrastructure. And we’ll continue to look at “media properties and media brands” that fit our strategy. [Remember, Web site owners: HuffPo just got 10x revenue.

8:50 am: Minson: But we're very price sensitive and we've walked away from deals.

8:50 am: Arianna: And we like women!

8:51 am: Armstrong sums up: Success "in the Internet space" requires vision and execution. That's this deal. And remember, content and brands become more valuable as tech gets faster, more advanced. And "expect us to stay on strategy and on point" going forward. "We're going to overcommunicate" with both sets of employees as we integrate. [You've been warned!]

And we’re done. Thanks for reading.

[Photo credit: Arianna Huffington]

A lot of video! AOL says that 5Min’s library and distribution deals, along with its existing video offering, gave it a total of 493 million video streams in October. Which is a pretty big number–and bigger than any other U.S. Web property except for Google’s YouTube.

Comparing AOL’s homegrown video with the stuff that 5Min offers–content other publishers (including CBS, Hearst and Scripps Networks) make that it syndicates out–isn’t apples and apples: Different video has different costs, and the amount AOL will be able to get for the stuff will vary widely depending on the property it runs on, and the real estate it gets there.

But making all of that work will now be Ran Harnevo’s responsibility. Harnevo ran 5Min up until the sale, and he has now been named senior vice president of AOL Video, a unit that didn’t exist prior to the deal. Harnevo will report to AOL content boss David Eun; he says that all 45 of his former 5Min employees are staying on at AOL, too.

Near term: Expect to hear more from the company about other partnerships designed to get high-quality video on the site, along the lines of deals it has already announced with Next New Networks, Vuguru and Electus.

The good news for Armstrong is that he has now conditioned Wall Street to expect these drops, as he works on a turnaround effort that began in the spring of 2009.

And because some of the ad drop is “self-inflicted”–the result of AOL’s decision to focus on quantity instead of quality as it revamps its ad team and strategy–it’s possible to add a more positive spin to the data. For instance: AOL’s domestic display ads, where the company has the most control of results, are only down 8 percent.

Armstrong’s vision is that eventually his company will once again be one of the industry’s top players: “AOL’s goal is to be competitive with Google and Facebook,” he said during his earnings call this morning. “We’re not trying to be competitive with people farther down the chain.”

Okay. But when? Today Armstrong announced that he expects AOL’s ad sales to mirror the broader industry’s by the second half of 2011. That will be more than two years after he took over.

Then again, you can argue that AOL languished within Time Warner’s grasp for the past 10 years. By comparison, that’s a reasonably speedy turnaround–and bear in mind that any Internet turnaround is a very rare thing.

So here’s the question: Will Wall Street wait to find out if he can do it?

—————
EARLIER:

A quick first look at AOL’s Q3: Revenue of $563 million and adjusted earnings of $0.93 a share. The Street was looking for $557 million and adjusted earnings of $0.50 per share.

AOL’s ad slump continues, though Wall Street expected that: Ad revenue was down 27 percent this quarter, and display ads were down 14 percent. Domestic display was down 8 percent.

Things to look for in the company’s financials and during its conference call this morning: Most important, an update on its attempt to turn around its ad sales unit, which has been a mess–analysts are still expecting AOL to post a substantial ad sales decline this quarter; additional news about the company’s renewed search pact with Google; and perhaps insight into Tim Armstrong’s M&A plans following a shopping spree that included TechCrunch and 5Min.

AOL says it spent $97 million on TechCrunch, 5Min and Thing Labs, and that it could spend up to $23 million more on earnouts/retention bonuses over the next three years. $65 million of that total went to 5Min.

Here’s what AOL’s ad story looks like, quarter by quarter:

And here’s what AOL wants you to think about as you evaluate its ad decline–moves it has made on its own that will cut down sales in the short term, like its decision to more or less shutter its European operations.

I’ll update with notes following the company’s 8 am earnings call.

No one seems to spend much time talking about it anymore. For good reason: In large part because Steve Jobs insisted on it, “online video” increasingly means “HTML5-compatible.” There’s not much to debate anymore.

Video search engine MeFeedia, for instance, says that 54 percent of Web video is now compatible with HTML5. That’s more than double the tally the company had back in May–less than six months ago. And because MeFeedia’s numbers include old archival stuff that most people don’t watch, as well as big troves of Chinese video you’re unlikely to see, the practical number for most Web surfers is much higher.

Then again, it isn’t hard to find Web video that isn’t compatible with your iPad or iPhone–or your Android handset from Google, either. And once you do, the fact that the clip is in the statistical minority won’t make you feel any better. Even some sites that Apple says are “iPad-ready,” like the New York Times, have plenty of video that won’t work on Apple’s device or any other HMTL5 player.

MeFeedia highlights these HTML5 holdouts:

• Full episodes from the major TV Networks (including Hulu)
• Most cable network content, particularly long-form video
• Metacafe, MySpace Video, 5min
• Live video sites such as Ustream and Justin.tv
• International sites such as Tu.tv, Youku, and Sevenload

But as the Hulu example shows us quite clearly, the HTML5 gaps that exist today are usually there because of business reasons, not technical ones: Hulu is quite happy to provide you with HTML5 video on your iPad–if you’re willing to pay (something) for a Hulu Plus subscription.

So, sorry iPad users (and yes, international visitors on good old-fashioned PCs)–you won’t be able to see this clip:

That’s a nice outcome for 5Min’s team, and for its investors, who put in $13 million, including Globespan Capital Partners and Spark Capital. (I mistakenly identified Scott Kurnit as an angel investor in the company. He was not.) Interesting that AOL (AOL), which has extensive reach already, felt it needed to invest in a distribution play, but you can read CEO Tim Armstrong’s explanation below.

And perhaps someone can ask him about it if he makes another acquisition announcement in the near future.

AOL ACQUIRES 5MIN MEDIA, WEB’S LARGEST VIDEO CONTENT SYNDICATION PLATFORM

Combination of 5min Media and AOL’s Video Capabilities Creates Powerful
End-to-End Offering

New York, NY, September 28, 2010 – AOL Inc. [NYSE: AOL] today announced it has acquired 5min Media, the Web’s largest video syndication platform.* The acquisition allows AOL to significantly expand its consumer offering of contextually relevant, high-quality video across its sites, increasing the AOL Network’s appeal to advertisers and is expected to further enhance the distribution and monetization of AOL-produced original video content throughout the Web.** Deal terms were not disclosed.

“Our acquisition of 5min Media is the latest in a number of steps we have taken this year to better position AOL to capture the growing video opportunity on the Web,” said Tim Armstrong, Chairman and Chief Executive Officer of AOL. “AOL is building a video ecosystem for the next decade. 5min Media is the perfect complement to our powerful video capabilities — it provides a missing piece in the AOL value chain that completes our end-to-end video offering from content creation through syndication and distribution to the consumer experience and monetization.”

“AOL and 5min Media share the same excitement about the direction our industry is taking, and our complementary video capabilities make us a compelling fit and an attractive combination for content creators and publishers,” said Ran Harnevo, Co-Founder and Chief Executive Officer, 5min Media. “We’ve seen rapid and successful growth as an independent organization and becoming part of AOL is a natural next step. We’re confident that AOL’s organizational horsepower, combined with the vast library, audience and syndication capabilities 5min Media offers, present compelling opportunities for AOL as well as the content creators we work with and the publishers we serve.”

Leading Video Syndication Network and Library to Enhance AOL’s Properties

5min Media is the world’s leading video syndication network with a library of more than 200,000 categorized, tagged and rated videos from more than 1,000 of the world’s largest media companies and professional independent video producers. Founded in 2006 and headquartered in New York City with offices in Tel Aviv, 5min Media has been named the largest U.S. independent video property by comScore, with more than 20 million unique viewers and more than 130 million video streams (including ad and content videos) in the U.S. in August 2010. 5min Media’s growing network of 800 partner sites allows content creators to reach this audience of targeted viewers across 21 different verticals, including six verticals – Home, Food, Beauty / Fashion, Health, Travel and Pets – that lead their categories, according to comScore Video Metrix, August 2010. VideoSeed, 5min Media’s proprietary semantic technology, contextually matches the most relevant videos with a partner site’s text content to enhance the consumer experience and increase monetization rates.

AOL has already begun to integrate 5min Media’s video content on its sites through a commercial agreement executed prior to the acquisition. “With 5min Media we’ll be able to add more video inventory to our pages. Importantly, we’ll also be able to identify video content holes among our sites, tap our StudioNow capabilities to fill those needs and create a truly ‘demand informed’ video library,” Armstrong said.

Combination Completes Next Step in AOL’s Value Chain

With the addition of 5min Media, AOL will significantly increase its consumer offering in video programming and connect consumers with high-quality video. In January, AOL acquired StudioNow, the premier online platform for quality video content creation and distribution. With StudioNow, AOL has formed a fully functional platform to produce high-quality video content in a rapid, cost-effective and scalable way for both AOL as well as third-party publishers. In addition, AOL is forging exciting new partnerships to provide relevant content to specific audiences, including partnering with: The Ellen DeGeneres Show; Marlo Thomas; The Jonas Group and MGX Lab to found Cambio (www.cambio.com); and A Squared Entertainment LLC to create children’s content featuring Warren Buffett, Gisele Bündchen, Martha Stewart and the late Carl Sagan.

Here’s a deal we can confirm: AOL is buying Web video start-up 5Min Media.

The price for the deal is between $50 million and $65 million, sources close to the situation said. AOL (AOL) plans to announce the deal Tuesday morning. UPDATE: Here’s the press release.

5Min has raised some $13 million in three years, and last spring CEO Ran Harnevo told me he was being offered the chance to raise more money at very attractive valuations.

The deal is at least part of AOL’s secret video strategy–the one that CEO Tim Armstrong acknowledged, but wouldn’t disclose–earlier this month.

5Min is a video middleman: It takes video clips that other people make and distributes them to other people’s Web sites. It says it has a library of 200,000 clips that generate 110 million views a month across 800 partner sites.

The videos come from people you’ve never heard of, and those you have, including CBS (CBS), Hearst and Scripps Networks. 5Min isn’t focused on getting the clips on Google’s (GOOG) YouTube–it’s trying to strike deals with conventional publishers that don’t have video, but would like some.

I don’t know whether 5Min’s deals allow it to retain distribution rights if it gets acquired, but I’m guessing that they do. Otherwise, 5Min is a much less attractive acquisition.

But in any case, you can see how the company would fit together with StudioNow, the video-creation platform AOL bought for $36.5 million earlier this year.

The first deal gives AOL a way to make lots of videos at low cost; the second gives it the ability to distribute those clips widely. At the right price, it’s not a head-scratcher.

No comment from AOL. I’ve left messages for Harnevo, who can be seen in the video below:

This sounds alarming, but you can think of it as an amicable divorce: Spark gets back all of its bubble-era investment and Eqal gets to keep going, with fresh money from new and existing investors.

Spark led a $5 million series A round in the company in April 2008. Eqal co-founder Miles Beckett wouldn’t tell me how much of the round Spark accounted for, but did say that the VCs were made whole in a transaction that closed at the beginning of this year.

So what happened? As far as I can tell, it’s a straightforward story: Eqal changed directions and Spark didn’t want to stay on board.

Eqal began life as a video-production house spawned by the surprise success of “lonelygirl,” the supercheap, superpopular Web series that crested on YouTube in 2006, just as that site was acquired by Google (GOOG). But by 2009, as the market for Web video ads was slow to develop, Eqal was shifting from developing its own Web video to helping other people make and distribute stuff.

If you want to paint that in a positive light, you can say that Eqal had become a Web video-platform company. A less attractive way to describe Eqal is as a Web video-services company. The difference is meaningful if you’re an investor because “platform” is a scalable business while a service company requires more money and effort and offers less lucrative returns.

Any way you slice it, Spark wanted out. “They wanted to zig and we wanted to zag,” Beckett says. He notes that current management and some original investors, including Ron Conway, helped finance the buyout; Eqal also rounded up new money from investors like Scott and Cyan Banister.

The deal is a much better outcome for Spark than Veoh, another Web video bet, was. That one collapsed in a bankruptcy-protection filing earlier this year. The firm still has money in two other Web video investments: Next New Networks and 5Min.

Meanwhile, I’m still looking for examples of companies that can say they’re doing a booming business by concentrating solely on making original Web video. Anyone?

Here’s a clip of “lonelygirl,” the series that put Eqal on the map. Below it is an example of the company’s new work, a promotional campaign for Kraft’s (KFT) Philadelphia Cream Cheese, starring food celebrity  Paula Deen.

Hence, another round of funding for 5min, a video start-up that just raised a $7.5 million B round. New investor Globespan Capital Partners led the round, and Spark Capital, the VC shop that has made several video bets (along with a big one in Twitter) made a second investment.

5min has now raised $12.5 million since 2007. Co-founder Ran Harnevo won’t discuss valuation, though I’m told it’s up from its A round, which is an accomplishment in and of itself.

“People do understand that video is the next thing. They just don’t see reasonable business models,” Harnevo says. “That’s the next thing that you have to do. You have to go into VCs and say, “I know how to do this.”

The company, which is based in New York City but has its roots in Israel, takes a different tack toward video than the would-be YouTubes: Rather than serving as a portal for user-generated clips or movies and TV shows, it cobbles together a library of how-to videos and distributes them to sites that don’t have any videos of their own. It now claims to reach 14 million video views across 200 sites.

There’s plenty of competition for how-to sites and videos, too, of course. But Harnevo claims that he’s been able to sell all of his inventory so far, and predicts he’ll be profitable in the next 18 months.

He was similarly optimistic six months ago, when he let me try my hand at conducting an interview with a Flip Mino. I never ended up publishing the clip, but now seems like a good time to do so–as long as you’re willing to put up with crummy sound, shaky camerawork and a stretched image. As I said, I was trying this stuff out.

Just about every thing we discussed in this interview still holds up, except that 5min now boasts 100,000 videos, up from 50,000 in December.