AOL Ad Sales Aided by Google, Advertising.com

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Time Warner's online advertising sales had a healthy third quarter, the company said yesterday, thanks to its paid search partnership with Google and its purchase of Advertising.com, and it expects Internet advertising will grow in importance to AOL.


AOL's ad sales in the quarter rose 44 percent from a year earlier to $257 million. Paid search, through AOL's display of Google paid listings, and Advertising.com's sales drove much of this growth. Paid search revenue climbed 70 percent to $73 million. Advertising.com, a direct response ad network AOL acquired in a deal that closed in August, contributed $35 million in sales.


The Google partnership accounted for 38 percent of AOL's ad sales increase while the Advertising.com acquisition accounted for another 44 percent.


"Our growth in advertising revenue this quarter is the best we've seen in years, due in large part to the 44 percent increase in AOL ad revenue," Time Warner CEO Dick Parsons said on a conference call with investment analysts. "Even if you exclude the [Advertising.com] acquisition, AOL's ad revenue increased more than 20 percent for the second straight quarter."


While paid search continued to contribute to AOL, it did not grow as fast as Google and Yahoo in the quarter. AOL's paid search sales grew just $1 million from the previous quarter. Ask Jeeves also reported a seasonal slowdown in search during the summer months.


AOL's ad revenue increase in the third quarter partially offset another disappointing quarter for its subscriptions business, which saw sales fall 3 percent year over year to $1.84 billion. AOL's U.S. subscriber base shrank again, losing 646,000 subscribers to finish the quarter with 22.7 million. AOL Europe shed 8,000 customers in the quarter, leaving it with 6.3 million members.


AOL executives said they would continue to cut costs. The online division is reportedly set to shed 700 of its 13,000 U.S. employees. And AOL has started reviving its online advertising business, which suffered greatly with the expiration of long-term deals struck during the dot-com craze when AOL generated ill will from ad agencies for what was perceived as arrogant behavior.


Overall, the AOL unit saw revenue of $2.1 billion, up $26 million from a year earlier. AOL returned $261 million in operating income, up 74 percent from a year earlier. Time Warner said it would set aside $500 million in legal reserves to cover a possible settlement with the Securities and Exchange Commission over financial-reporting disputes. Time Warner also said it would restate its accounting for AOL Europe prior to 2002.


Time Warner executives expressed optimism that AOL would build on its recent strides in remaking its advertising business.


"AOL has greatly improved the quality of its inventory and its selling effort, which is now allowing us to take part in the strong growth trends in online advertising," said Don Logan, chairman of Time Warner's media and communications group. "Our aim is to increase inventory and impressions and optimize pricing."


After remaking its AOL.com site for members recently to draw more at-work use, Logan said AOL would launch a new AOL.com site for non-members next year.


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