Why Original Content Is Becoming An Expensive Commodity: AOL CEO Explains

Original content and programming has turned out to be the defining factor, separating the leaders in digital media spaces with other players.

AOL, Inc. AOL chairman and CEO, Tim Armstrong, was on CNBC Monday to discuss the numbers behind producing original content.

Massive Growth

"Take a step back. Right now we are on TV landscape," Armstrong began.

"There's 900 million paid connections to TV in the world. There's roughly going to be around 4 billion people with smartphones in the next couple of years.

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"So, you have a massive market of both paid TV and, really, machines in people's pockets that act like cable boxes, and the growth rages are: we just grew 90 percent last year. All of that growth is what advertisers are chasing."

He continued, &quo;So, when you take a step back and say, 'How do you make this programming, and where video is going profitable?' You get a really big audience. You get really high quality content and you use massive digital to distribute those things.

"And the combination of those two things allows you to have a profitable [content]."

Underlying Math

Armstrong was asked if, like earlier, there are profitable secondary syndication mediums available for original content. He replied, "I think there's multiple windows now that people are distributing.

"So, if you take Nicole Richie Show, we started doing it online and then we put it up on VH1. It's online again this year; we had 16 million unique viewers on it. So, it's the size of a major TV show," he explained.

"I think these economics, they work, but they work because the underlying math in the industry is so great with how fast things are changing right now," Armstrong concluded.