AOL Reports Steep Ad Revenue Decline, Projects Q1 Drop

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AOL's ad revenues dropped 18 percent in the fourth quarter of 2008, and 6 percent for the full year compared to 2007.

The Time Warner-owned firm was hit hard by the ad spending slowdown in 2008, said Jeff Bewkes, chairman and CEO of Time Warner. "The economy clearly affected our business, particularly in advertising at AOL and publishing," he said during the company's earnings call with investors this morning. "We're prepared for 2009 to be challenging too, in particular."

In Q4, display advertising on the AOL network fell 25 percent compared to Q4 2007. Several advertiser verticals lowered ad spending, including personal finance, technology, telecom, autos, and retail. AOL also experienced a reduction in yield and inventory monetization due to lower ad prices.

The firm's third party ad network revenues were also down 25 percent. The continued impact of the loss of advertiser client Apollo Group, which owns frequent online advertiser University of Phoenix, contributed to much of that drop, as did lower conversion rates on performance ads. Paid search revenues also fell.

Ad spending on Time Inc.'s digital properties such as Time.com and SI.com was down for nine of the publishing unit's top ten 10 advertiser verticals.

The future doesn't look bright, either. The firm said advertising is on pace to plummet nearly 20 percent this quarter. Reduced ad spending by retail and personal finance advertisers is having a significant impact. AOL also expects lower cost-per-click ad growth to affect search revenues.

Bewkes flatly denied rumors that AOL plans to sell Bebo, the social network firm it acquired recently. "No we don't plan to sell it," he stated, noting AOL has been focused on integrating and launching products in conjunction with the social network, and eventually consolidating its People Networks properties such as Instant Messenger and AOL Mail under Bebo.

Like many media firms, AOL has restructured operations and announced layoffs in order to help cope with the economic recession. Bewkes said the organization of AOL's properties into three units -- its Platform-A advertising unit, People Networks social media division, and its MediaGlow group of owned and operated sites -- "should reduce AOL's headcount by 10 percent and allow us to close some facilities."

Yesterday, AOL surprised observers by replacing its President of Platform-A Lynda Clarizio with former Yahoo sales exec Greg Coleman. The company said the move was part of its mission to push ad sales through its media units in conjunction with Platform-A's ad offerings, which AOL says have been fully integrated.