After AOL CEO Tim Armstrong announced last month that he had agreed to sell to Verizon for $4.4 billion, rumors started flying about the fate of the company’s content properties. Would Armstrong spin off the Huffington Post and TechCrunch? “Stay tuned,” he told Re/code.
Now Armstrong says AOL’s content sites are essential to the company’s future. He sat down with Fast Company last Friday, after leading a breakfast discussion with a group of New York City startup founders, to talk about content businesses, experiencing news via virtual reality, and his binge-watching habits. What follows is a transcript of that conversation, condensed and edited for clarity.
You’ve been talking with Verizon since last summer. Why do the deal now? What brought all the pieces together?
We’ve built ourselves into a very capable company. It was a real choice of our either going out to raise a bunch of money to keep going in the same direction, or to do a partnership with somebody that has really big resources and really big distribution. The simple calculation was, would we be able to buy, by raising money, the same benefits we would get from Verizon from doing the deal, and the answer was no. The Verizon benefits far outweighed what we would be able to do on our own.
You were talking about interest rates before–are there things that made you think, we’ve got to get this done?
No–we’ve built a sustainable company. It wasn’t a case where I thought the economy was going to go bad and we needed to sell. It was really about over a five-year period, what could we buy in the marketplace ourselves, or who could we partner with, which would be a bigger benefit, and Verizon was a hands-down winner in that case.
Was any of net neutrality debate a factor for Verizon, wanting to have that settled before signing a deal?
That really did not come up in our conversation. I think Verizon’s take is, they’re trying to compete in multiple marketplaces now. I think this acquisition puts them into more of the video content advertising landscape, and I don’t think net neutrality was something that was a strategic rationale either way.
TV and other media forms are shifting so quickly–it’s almost like the start of the Internet again. People have really big problems to solve, and AOL is an attractive partner. Video, global content brands, and advertising and commerce systems–those are the three pillars that we built our business around, and that’s what Verizon was interested in.
Any update on the future of Huffington Post and TechCrunch?
We just met about it yesterday. It’s all staying, scaling, all those things.
Will those content brands look similar in the future?
You can expect us to do a lot more video.
There’s a lot of conversation these days about whether having content and platform under one roof is the right approach. Do you think others will arrive at the same conclusion, that it’s best to have everything in-house?
If you look at the 200 or so major ad tech platforms, there’s a lot of commoditization happening. Content is a great decommoditizer of services. We’ve been able to grow our ad pricing for the last seven quarters by double digits, and part of it’s because we offer noncommoditized content and sponsorship ability with the platform business. If you think about what Silicon Valley has done–what Apple has done with music, what Google has done with search, and what Snapchat and Instagram and everyone has done with content–you see all the platform companies, they’ve basically been commoditizing the services they do and now they’re trying to use content to differentiate the experience. I think many people are moving into this direction. We happened to move into it four of five years ago, before it was super popular. Owning those content assets, plus the platform assets, has been a benefit. My guess is more people will do that in the future.
And now, through Verizon, you’ll also know more about that viewer or reader.
I think in the next few years we’re going to get to 80%-plus of our usage being mobile. Having the ability, with Verizon and their relationship with consumers on mobile, and their data–we couldn’t replicate that by going out to raise money ourselves.
There’s a lot of hand-wringing in the content space right now about big players like Facebook. When you look at that mobile traffic, how much are you reliant on someone like a Facebook, and how do you think about your relationship with those other entities?
We’re at the early stages of how social platforms and content are going to work together. I think it’s a chess, not a checkers, relationship you’re going to have to have with Facebook, Twitter, or any of the social platforms. When we bought the Huffington Post and TechCrunch, Wall Street hated it, because people had the perception that content wasn’t valuable anymore. We had the strategy, which I think has turned out to be correct: Content is only going to become more valuable. The more Silicon Valley creates platforms that commoditize each other, the more they’re going to end up down the content path.
I do think you have to manage your relationship with those platforms. We have great relationships with everybody. But as a content owner you have to be very careful, you have to keep your optionality open. You go back five or 10 years, and search completely dominated every metric for content. Now social is bigger than search. You have to be flexible. And I think the content players have really struggled to figure out what the value of their content is to that other partner. It takes a lot of work.
You were previously at Google. When you look at YouTube, are there lessons there for how you’re thinking about video here?
YouTube did a good job of showing that a lot of different kinds of content can be valuable to consumers. I think there’s also been a positive lesson from YouTube in terms of people basically experimenting with content. And I think one of the things that remains to be seen–the economic value proposition for the content people is a lot less than it is for the platform people. Over a long period of time, I would think that the content people will have other outlets to promote and distribute content.
Will you be looking at any of their talent?
One, we put a lot of our content on YouTube, so we have a relationship with them. Two, we have a lot of people from YouTube who put content on AOL or the Huffington Post. Over a long period of time, I think it won’t be dissimilar to traditional media, where some content talent rotates throughout different platforms, and some stuff is fixed. I would expect us to work with YouTube stars and I would expect us to work with the best brands in the world.
There’s been all this talk about virtual reality this week, with Google’s big conference. Does video for you include starting to think about things like that?
It does. If you take any of the events that have happened in news, Ferguson or anything like that, I think there could be a much different appreciation or understanding if you’re able to virtually be inside of that situation. It may have a totally different human element to it. It’s early, but virtual reality seems likely to have a big impact in terms of how people ingest content and how content is perceived by people. I think that could powerful.
You could experience TechCrunch Disrupt from your office or living room.
The theory when the internet was going to take over was that people were going to move out of big cities, they were going to telecommute. Exactly the opposite has happened. The more technology has taken off, the more events have sold out. I think virtual reality may give people another step closer to an in-person, human interaction. From everything you see in the world right now, people are investing their real estate dollars, travel dollars, into having more human interactions, not less. Virtual reality is a step closer to the human stage.
Do you have any teams now working on virtual reality?
We’re just starting to get into it and think about it.
What will the first joint video product look like?
I think you’ll see us do more of always-on video, streaming 24/7. HuffPost Live, AOL Build–you’ll see us continue to crank up the amount of powerful video content that we’re doing. We have 2 million pieces of video content in our library now, and they’ve got huge partnerships with folks like the NFL. I think there’s a lot of interesting stuff that we’ll be able to do.
Do you binge-watch anything?
I binge-watch ESPN 30 for 30, I binge-watch documentaries. The only show I like is Game of Thrones.