AOL Subscriber Loss Continues; Ad Sales Stabilize

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Time Warner Inc. said its America Online division lost 688,000 subscribers in the third quarter, while online ad sales showed signs of ending their long slide.

The subscriber loss, detailed in Time Warner's third-quarter earnings report yesterday, leaves AOL with 24.7 million U.S. members, down 7 percent from a year earlier. AOL has suffered subscriber defections to cheaper Internet services and broadband offerings for the past four quarters.

Time Warner said a majority of the decline came from non-paying trial customers; 272,000 were paying subscribers. The debut of AOL 9.0 Optimized this summer sought to end the defections and position the Internet service to profit from the growth in broadband Internet connections.

AOL's long-suffering advertising business slowed its long decline.

AOL recorded $178 million in ad sales, a 33 percent fall from the same period last year. The decline was blamed on the expiration of $100 million of long-term deals and $36 million less inter-company advertising.

Time Warner executives put the best face on the advertising results, noting that ad sales dipped only $1 million from last quarter, when AOL suffered a 48 percent year-over-year fall in ad sales.

"We believe that we have essentially stopped the sequential declines," said Wayne Pace, Time Warner's chief financial officer. "We continue to sell more advertising this year than last, with growth coming from both the interactive marketing and the paid search categories."

Overall, AOL revenue declined 4 percent to $2.1 billion and operating income fell 6 percent to $150 million.

Meanwhile, The New York Times reported yesterday that the Securities and Exchange Commission subpoenaed Richard Parsons, Time Warner's chief executive, and Steve Case, former chairman of AOL Time Warner, as part of its investigation of an AOL advertising deal with Bertelsmann.

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