CEO Tim Armstrong, Arianna Huffington Reveal AOL’s Ambitious Hollywood Strategy

 Jeff Lipsky

On the new cover of The Hollywood Reporter magazine with Huffington and new AOL partner Heidi Klum, Armstrong says, “We have a plan and we're executing as quickly as almost any company in our space."

This time, though, the push is not only bolder -- with the help of advertising partners, AOL is ponying up between $1 million and $10 million-plus per project -- but more critical. In a crowded marketplace where content is increasingly a commodity and social networking sites a threat, partnering with household names is a way to differentiate a site and appeal to users and advertisers alike. Both are key as AOL's search business continues to lose share to juggernaut Google and engagement metrics pale in comparison with sites like Facebook. According to Compete data, users stayed on the latter for an average of 25 minutes in January, compared with a measly six minutes on AOL.

Michael Eisner (Getty)

Worse, AOL is still dependent on its rapidly shrinking dial-up business, which accounted for 40% of its revenue last year. Despite Armstrong's stellar reputation and some commendable moves, his aggressive turnaround efforts have yet to bear fruit. In the last quarter of 2010, AOL's overall revenue plummeted another 26% to $596 million as advertising and subscription revenue fell 29% and 23%, respectively.

But even if AOL is, at times, a punch line, it is also a major source of capital, and that in itself makes it an attractive partner for the entertainment industry. Unlike most digital operations, AOL has cold, hard cash - as opposed to far-fetched dreams -- to offer. Armstrong proved as much in February when he shelled out the $315 million, $300 million of it in cash, to buy the Huffington Post.

Although some have questioned the wisdom of acquiring Huffington's news and aggregation site -- Wall Street pushed the stock down 4% the day following the early-February deal -- Armstrong at least succeeded in changing the conversation about his company: Suddenly, people are talking about AOL as a possible player again, one with a plan.

"I love the fact that Armstrong's vision is so huge," Huffington says. "I really think this time we're living through now is going to reward bold moves."

Now, with an eye to Hollywood and a long history in ad sales, Armstrong has tasked a team of 25 to work exclusively on building partnerships with the creative community and the brands looking to be associated with AOL. (Your average Joe might be able to rack up plenty of hits on YouTube, but Madison Avenue isn't exactly clamoring to be associated with him the way it is a Joe Jonas.) In charge is Erin Clift, AOL's senior vp brand experiences, another former Google executive, who lines her schedule with frequent trips to Los Angeles and at least 10 meetings a week with agents, producers and technology companies in the space. "We're very serious about this," she says from her Manhattan office. (Business development chief Jared Grusd and video programming chief Amber Lawson are similarly active in the courting process; Armstrong, too, is hands-on with the talent.)

Thus far, the deals have varied greatly, both in budget and structure (Klum will offer an entire site, Planet Heidi, with videos, blog entries and slide shows; Eisner's Vuguru will license at least six scripted series). Clift admits that this is all a work in progress as her team -- and the brands helping to finance its Hollywood productions -- gets a better sense for what users connect with online.

"Win, lose or draw, Tim will deserve a lot of credit for recognizing that this is the future," Eisner says of digital storytelling. "Is he too early? I don't know, but he's right. Right doesn't always win immediately, but right will win eventually."

Continued on next page.

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