(Updates with share price in the last paragraph.)
Oct. 9 (Bloomberg) -- AOL Inc., the owner of the Huffington Post and TechCrunch, signed a syndication agreement with Walt Disney Co.’s ESPN cable network in a bid for a bigger foothold in video advertising.
ESPN will grant AOL syndication rights and join the digital publisher’s online video-programming network that already includes the Wall Street Journal, Sports Illustrated and 1,700 other publishers.
AOL Chief Executive Officer Tim Armstrong is seeking to transform the company into a content publisher driven by advertising. Online video commands higher ad rates than traditional Web placements, and marketers are increasingly looking for more outlets to run promotions. Spending on digital- video ads is projected to increase 41 percent to $4.09 billion in the U.S. this year, according to EMarketer Inc.
“Advertisers tell us there isn’t enough quality inventory, and we’re working fast to deliver that,” Ran Harnevo, the head of AOL’s video unit, said in an interview. What sets AOL apart from other digital-video networks is its “high-quality” content, he said.
As part of the agreement, ESPN can sell short commercials that run at the start of each video clip, with both AOL and ESPN sharing in the revenue. Publishers participating in AOL’s network can feature ESPN’s video content on their sites also receive a cut of any advertising buys.
AOL’s ad business makes up more than two-thirds of sales, and its video network had 71.2 million viewers in August, second to Google Inc.’s 167 million, according to ComScore Inc. AOL’s video audience is less than half of Google’s, underscoring the need to boost the amount of available video content.
The company’s video strategy has become more important as it cuts back on other content initiatives. It recently faced setbacks with its hyper-local news service Patch. The company eliminated about 500 positions and said in August it could shutter as many as 20 percent of its over 900 Patch websites.
As a result of the deal, ESPN will become the anchor provider of sports-related content for AOL’s network, which also includes news, entertainment, travel and auto -- categories advertisers typically buy into. Harnevo said AOL is currently talking to other video partners for longer-form content as well.
AOL shares declined 1.2 percent to $32.50 at 11:46 a.m. in New York. The stock gained 11 percent this year through yesterday.
--Editors: Reed Stevenson, Ben Livesey