Buoyed by better advertising revenues in Q4 2011, AOL (NYSE:AOL) rolled off an ambitious project, launching a live video network that uses the content base of AOL’s media properties like The Huffington Post, Patch and Engadget.  AOL operates in an intensely competitive display advertising market with players like Google (NASDAQ:GOOG) and Facebook.
Objective: Merge Quality Content with Social Media
The video service, termed as the Huffington Post Streaming Network (HPSN), aims to consolidate AOL’s content into a high-quality, and hence a highly monetizable format. AOL is also incorporating a social media element into the network, integrating with both Facebook and Twitter for users to share and comment on these videos.
The move to jump from text to live video is not a new concept for media houses such as the Wall Street Journal’s WSJLive,  which also brings together on-demand information on video. However, the HPSN might stand out in terms of scale and ambition with the company aiming to produce around 30,000 clips per year. AOL would be hoping that the HPSN finds favor with social network users, who in turn can share and re-post this content with their friends, leading to higher average page views. However, the concern over AOL’s margins would continue to persist, especially considering AOL has already dedicated 100 of its employees towards this venture.
We have a revised price estimate of $16 for AOL stock. Our revision is primarily based on the changed forecasts for AOL’s display ads division, as well as a change to the company’s net cash/debt position.Notes: