AOL Sees Ad Growth, Subscriber Decline

  |  November 2, 2005   |  Comments

Time Warner confirms it's engaged in talks to speed AOL's transition to an ad-supported business.

The company has been transitioning its business from the languishing dial-up business of its past to focus on an ad-supported content business, led by the recently launched AOL.com portal. Apparently, the transition isn't moving fast enough for Time Warner as today, the company confirmed it's engaged in talks with multiple companies to find ways to speed that process.

"It's a priority for us to accelerate the transition of AOL to an audience-based business," Dick Parsons, Time Warner's chairman and CEO, told investors on a conference call. "We think AOL has what it needs to get there on its own, but we think that either through an enhanced relationship on the technology side, or an enhanced relationship to deliver more traffic to sites AOL controls, we can accelerate that transition."

Parsons addressed the persistent rumors the company is in talks with any of several key players, including Microsoft, Yahoo and Google, to buy or invest in AOL. He confirmed the company is involved in "strategic discussions" with several companies to discuss "a range of potential strategic investments and transactions," but declined to name the parties involved or reveal details about the nature of the deals being discussed.

"It's too early to go into details on the nature of the discussions. There may not even be any deal to discuss," he said.

AOL stayed true to its recent tendency to grow ad revenue while losing subscribers. AOL's ad revenue rose by $71 million, a 28-percent increase over the year-ago period. Paid search grew $31 million, and Advertising.com added $31 million, while only contributing revenue for a partial quarter a year ago after it was acquired in August 2004. On a pro-forma basis, advertising revenue would have been up by 20 percent, counting Advertising.com's pre-acquisition revenue.

A $175 million, 10-percent drop in subscription revenues brought income for that AOL unit down 5 percent to $2.04 billion, compared to $2.14 billion in the same period last year. AOL lost 2.6 million U.S. subscribers in the last 12 months, leaving it with 20.1 million. In Europe, the AOL service had 6.1 million members, a decrease of 98,000 from the previous quarter and a decline of 170,000 from last year's quarter.

Overall, revenue at Time Warner rose 6 percent to $10.54 billion for the quarter, up from $9.94 billion in the year-ago quarter. Net income rose to $897 million, or $0.19 per share, up from the year-ago $499 million, or $0.11 per share. Wall Street analysts expected Time Warner to post earnings of $0.17 per share on revenue of $10.37 billion.

The company responded to outspoken investor Carl Icahn's calls to quadruple the $5 billion stock buyback plan announced in August with a compromise, announcing the board of directors authorized a $7.5 billion increase in the program to a total of $12.5 billion over the next 21 months. Parsons responded to Icahn's calls for an immediate spin-off of its cable TV unit, though Parsons took several opportunities to highlight the unit's growth.

"With our strong balance sheet, industry-leading free cash flow and solid earnings, we can expand our stock buyback while still having the resources to invest meaningfully in future growth as well as to pay our regular quarterly cash dividend," Parsons said.

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ABOUT THE AUTHOR

Kevin Newcomb

Kevin Newcomb joined ClickZ in August 2004, covering search marketing and other online marketing topics. He has been reporting on web-based businesses since 2000.

Before the bubble burst, Kevin was a marketing manager for an online computer reseller, handling copywriting, e-mail marketing, search marketing and running the affiliate program.

With a combination of real-world marketing experience and years of business journalism, Kevin brings to ClickZ a unique ability to deliver news and training materials that help online marketers do their jobs better.

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