• E-mail
• Print
• Comment
• Font Size
• Digg
• del.icio.us
• Discuss article

AOL's Revenue Drops 3 Percent

Posted on: Thursday, 2 November 2006, 09:00 CST

By Sara Kehaulani Goo and Frank Ahrens, Washington Post Staff Writer

AOL reported yesterday that third-quarter revenue dropped 3 percent, to $1.98 billion, as a surge in ad sales failed to make up for a big drop in Internet-access subscribers.

Time Warner Inc. executives said they were pleased with the Internet division's results, saying the decision to move AOL away from access subscriptions in favor of ad-supported content was starting to pay off. Analysts, however, said it was too soon to tell.

Revenue for Time Warner, the world's largest media company, rose 7 percent, to $10.91 billion for the quarter, and profit jumped to $2.32 billion from $853 million. Time Warner, which also owns the Time Inc. family of magazines, Warner Bros. studio, Time Warner Cable and half of the CW television network, said much of its growth came from the purchase of cable systems from Adelphia Communications Corp. and Comcast Corp. Time Warner shares closed down 24 cents yesterday, at $19.77.

AOL accounts for only about a fifth of Time Warner's revenue, but it has drawn much attention as subscribers have been fleeing its dial-up Internet access in favor of broadband. AOL announced last summer that it would stop marketing dial-up access and give away content in order to sell more ads. AOL is gambling that even as customers move to other providers, they will remain registered users of AOL's free e-mail and other free services, such as privacy and security features.

AOL lost 2.5 million paid access subscribers in the third quarter, down from the 17.7 million subscribers it had in the second quarter. That was the steepest quarterly decline AOL has suffered to date and leaves the Dulles firm with 15.2 million subscribers, down from a peak of more than 26 million four years ago.

Subscription revenue, which still accounts for the bulk of AOL's income, dropped 13 percent in the quarter. That was partly offset by a 46 percent increase in ad revenue, to $479 million. Revenue at Advertising.com, a division of AOL that operates as a display ad network selling ads on a large number Web sites, grew 90 percent.

Company executives said 2 million of the people who canceled their subscriptions have continued to use one or more of AOL's free services, and 1 million new users signed up for a free AOL service, such as e-mail or software.

"We are encouraged by the early progress AOL is making in its transition to an advertising-supported business," Richard D. Parsons, chief executive and chairman of Time Warner, said in a conference call with analysts yesterday.

Page views on AOL's Web sites declined 6 percent over the three-month period, which executives said was an improvement because they had been declining 15 percent or more.

Analysts asked executives in the conference call to address rumors that rival Yahoo Inc. was in talks to buy AOL.

Parsons dismissed the rumors, saying AOL was a "core asset" of the parent company's portfolio and key to its growth. "We want to be in the online game, and where we can do it more robustly is AOL. . . . We are very pleased with what is going on in terms of the new strategy . . . and I think we got it on the right track."

A Time Warner source who spoke on condition of anonymity said Yahoo had expressed interest in buying AOL last year when AOL was looking for an equity investment and partner to provide search results to its users. After being courted by Microsoft Corp., Yahoo and Google Inc., AOL selected Google, which invested $1 billion in AOL and now owns a 5 percent stake in the company. The source said Yahoo has not approached the company about a possible AOL sale since then.

AOL's third-quarter performance contrasted with lackluster results from Yahoo for the same period. Although AOL's ad revenue is a fraction of Yahoo's or Google's, executives at Time Warner noted that ad sales for auto and financial sectors were particularly strong for AOL at a time when they were weaker than expected for Yahoo.

Some analysts said they were encouraged by AOL's ad revenue but felt it was too early to say whether the firm was grabbing market share from Yahoo.

"It's true AOL's growth rate is much higher than Yahoo's, but even at a lower growth rate, Yahoo's absolute gain on revenue is quite a bit larger than AOL's," said Jonathan Schrader, senior analyst at Morningstar Inc.

Jennifer Simpson, a Yankee Group analyst, said AOL's numbers indicated the company was executing its plan well. But, she added, "it's going to be a much longer process than one quarter."

In August, AOL announced plans to lay off 5,000 employees worldwide and yesterday confirmed that 2,000 of those employees in Europe had been transferred to other firms that acquired AOL's assets. AOL sold its Internet access business in Germany, France and Britain for $1.9 billion.

Reported By TechNews.com, http://www.TechNews.com

(20061102/WIRES /)

Source: Newsbytes

More News in this Category