Google Sparks AOL Ad Rebound

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Time Warner said yesterday that its AOL unit saw strong advertising sales growth in the second quarter after nearly three years of declines, thanks to help from its Google search partnership.


Ad sales climbed 23 percent in the quarter to $221 million. Paid search revenue through AOL's Google partnership grew 76 percent from a year earlier to $72 million.


"AOL's advertising business is emerging as one of the most exciting growth opportunities in our business," Time Warner chairman/CEO Dick Parsons said in a conference call.


Overall, AOL reported operating income of $276 million, up 31 percent from last year's second quarter. AOL posted $2.2 billion in sales for the quarter, up 2 percent. Ad revenue from Google accounted for 33 percent of AOL's ad revenue and 74 percent of the ad sales growth reported in the quarter.


AOL has become an important partner for Google. In the first half of 2004, AOL accounted for 13 percent of Google's revenue. AOL has used Google paid listings since May 2002, when it dropped Overture Services for Google's then-new paid search offering. The companies signed a multiyear extension in October 2003. AOL and Google declined to give a specific date for its expiration.


The advertising growth offset continued subscriber declines. AOL ended the quarter with 23.4 million U.S. subscribers, losing 668,000 in the period. Its subscriber revenue remained at $1.9 billion.


Don Logan, chairman of Time Warner's media and communications group, said AOL would look to make up for a loss of dial-up customers by using the AOL.com site to attract non-subscribers. In the next year, he said, AOL will add content to the site and use Time Warner sites to promote it.


"We have a plan in place to drive increased traffic there that we will try to monetize with ad sales as well as search," he said.


Time Warner has struggled to turn around AOL since the collapse of the dot-com boom, in contrast to sustained ad growth from rivals such as Yahoo over the past year. Since third-quarter 2001, AOL ad sales have declined with the expiration of long-term deals struck in the late 1990s. In 2003, ad sales fell 35 percent. For first-quarter 2004, they declined 40 percent.


AOL's restructuring suffered a setback in January with the departure of Lisa Brown, the ad sales chief AOL CEO Jonathan Miller brought in only six months earlier. Time Warner ad sales executive Michael Kelly was tapped to replace her.


Time Warner's confidence in AOL's future was highlighted recently with its $435 million acquisition of Advertising.com, a performance-based ad network that will let AOL capitalize on the strong growth of online direct response advertising.


"We're investing to position AOL to return healthy growth in 2005," Parsons said.


Time Warner had 10 percent sales growth in the quarter, reaching $10.9 billion.


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