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AOL foresees long-spooned rush to sup with 'Project Devil'

Web giant covers (some of) its bloggers in gold

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AOL still believes there's money to be made in local journalism, while revealing that they are shelling out big bucks - $40.9million projected for this year - to keep on names from the media outfits they've bought up including Huffington Post and Techcrunch.

Their strategy hasn't been an unreserved success with net revenues for Q3 declining 6% compared to the same quarter in 2010. However AOL management see hope - and dollars - in local journalism and premium online advertising, bigging up their plans for local news project Patch and new ad strategy "Project Devil" in the introduction to their financial filing for Q3.

Patch and the local news gamble

Patch, the network of hyper local news sites is still a top priority at AOL. In the management's introduction to their financial results, it is listed second after AOL's core strategy of selling ads next to traditional blog content. Patch is given a bullish write-up:

"We believe that there is a significant strategic growth opportunity in providing local content, platforms and services covering geographic locations ranging from neighborhoods to major metropolitan areas…" AOL states, promise they will continue to pump money into the venture: "We have made and for the foreseeable future will continue to make significant investments in Patch and, as of October 28, 2011, we had 864 active Patch towns."

We're not sure how much cash it's pulling in, given the difficulties that established local papers face, but they did signal a push towards squeezing some money out of the service saying that they have "increased" their "focus on monetization opportunities".

Interactive advertising: AOL's Project Devil

AOL are also tinkering around with online ad formats as way of expanding their business - outlining a premium interactive ads service under the codename "Project Devil".

"We believe there is growing advertiser demand for innovation in online advertising formats to be more conducive to product branding and to more closely mirror experiences offered by offline formats." AOL say in their filing. "To address this opportunity, we are offering more premium advertising formats, including a format that we internally refer to as “Project Devil”. This format seeks to enhance the consumer experience by improving the aesthetic quality, impact and interactivity of online advertising."

Million Dollar packages for bought-out hacks

The financial results revealed the totals AOL has shelled out over the past nine months to retain top journalists from the blogs they've acquired including Arianna Huffington of the Huffington Post and Mike Arrington of Techcrunch, who quit in September, less than a year after the buyout.

Big pay packets for bought-out bloggers are a key part of AOL's content strategy they say, being keen to "ensure that the key employees are incentivized to remain with AOL following the acquisition".

AOL have already spent $28.9 million on incentive cash compensation arrangements so far this year and plan to spend a further $12.0 million in the remainder of 2011.

Revenues slide down

AOL faced a decline in total revenue of 6% this quarter with total Q3 revenue down to $531.7m from $564.2m in the equivalent period of 2010. Management attributed the $32.5m fall to a decline in its subscriber base, and a tough advertising market. Revenues from display advertising was up slightly as ad dollars migrate online.

AOL's cash reserves are still seriously diminished thanks to their spending spree on HuffPo ($315 million in Feb) and goviral in ($96.7m in January) which took them down to $444.1 million on the 30th September from $801.8million on 31st December 2010.®

AOL's filing for Q3 2011 can be read courtesy of the SEC.

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