DMC2006: Keynote #3 - Michael Kelly, President, AOL Media Networks

[Notes from the 2006 Digital Media Conference]

The market has enjoyed 3 plus years of quarter over quarter growth in online advertising, which is big and it's getting even bigger... and becoming a huge part of our business at AOL. Keeping up with the demand is a challenge. The 4 big players (Google, Yahoo, AOL and MSN) control 50% of the advertising dollars. Each of these players enjoy over a 100M visitors a month. The spending gap between the 4 major portals and the non-portals is huge (i.e. a billion compared to 400k)

- The ability to assemble 3rd party networks will play a critical role...(Build large networks with lots of inventory.)
- The big macro-trend is that big media is losing viewers.
- It's always about the consumer's habits.
- Almost 20% of consumer usage is online.
- 63% of all online households have broadband today; this is an amazing transformation of medium and has ushered in a wave of opportunity and its taught the consumer that they can get way more out of being online. The consumer sees real value in having an online connection.
- 86% of internet usage is from broadband connectionthe new primetime is online (in the office)
- All advertisers want to be direct response advertisers.
- We're entering a world where traditional television is in a potential state of scatter...It's going to be hard for new players to enter the market.

Search has created a whole new life for content. Convergence was the digitization of all content, but we're still in the early stages...This mass digitization thrills the consumer. Social networking is also a key driver of growth. (i.e., AOL has a billion IM messages sent every day.) In the near future, however, different social networks will start to interact with each other.

Scale will continue to matter...It's very hard for a sub-scale player to generate the earnings required. 76% of the online traffic is being generated by an industry that generates 23% of its own revenue. The market will continue to be driven by the big players. We're a scale player in video; currently 200M streams a month and this will grow over time.

The advertising agencies of this world are all dealing with clients who are asking about, "what's going on with online advertising?" Unbelievably creative things are occurring, such as creative execution and creative mix of applications. But in the next few years, we're going to see a huge explosion in online advertising creativity; this will be very exciting.