Tags: AOL | Losing | Content | Sites

AOL Losing $500 Million a Year on Content Sites

Wednesday, 21 Dec 2011 02:12 PM

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AOL is losing $500 million a year through several of its content sites and needs to take immediate action now, a key shareholder claims.

Starboard, an activist fund that owns 4.5 percent of AOL stock, sent a letter to AOL Chief Executive Tim Armstrong, criticizing the company's plans to turns itself into an advertising-supported online media entity.

It's not working, Starboard says.
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"Immediate action must be taken to address this issue as the company continues to invest good money after bad without an acceptable return on the investment," Starboard writes in the letter, The Wall Street Journal reports.

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AOL CEO Tim Armstrong
(Getty Images photo)
AOL owns websites such as Engadget and Moviefone, and beefed up its list of Web properties with recent acquisitions of the Huffington Post and TechCrunch.

The company sells display advertising on these sites to make money, but many sites aren't adding value.

Collectively, these "display assets" as Starboard calls them, are losing more than $500 million a year in earnings before interest, taxes, depreciation and amortization.

Starboard estimates in the letter that AOL's Patch online media sites alone could lose some $150 million this year, mainly due to fixed costs of $160 million and revenue of no more than $20 million, the Journal adds.

Still, Starboard sees some value left in AOL and doesn't call for the company to be scrapped altogether.

"Although there is substantial skepticism about AOL’s display business, we believe there is significant value embedded in the company’s content properties," Starboard CEO Jeffrey Smith says in the letter, this time reported by Bloomberg.

AOL's stock has fallen by 70 percent in 2011.

AOL, however, defended its decision, pointing out it takes time to turn around from being a company founded as a subscription-based dial-up Internet access business to a multifaceted portal.

“Over the last two years AOL has significantly reduced costs, sold non-core assets, made significant investments for our future, and also recently repurchased over 10 percent of outstanding shares," AOL says in a statement, according to the Journal.

"AOL has a clear strategy and operational plan to provide our consumers and customers with exceptional value, which we believe will lead to the creation of shareholder value. Our Board and management team remain firmly committed to creating value for all shareholders and we will continue to aggressively execute on our strategy in 2012 as we continue the turnaround of AOL.”

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