AOL News Not All Bad

Struggling America Online reported member losses, a drop in advertising dollars and flat revenues for the first quarter, but the online giant also saw a rise in operating income due to cost cutting.

AOL’s operating income rose 43 percent year-over-year on “essentially flat” revenues of $2.2 billion, the ISP said.

Parent Time Warner Inc. posted net income of $961 million, or 20 cents per share. The company reported a 9 percent revenue jump from the same period in 2003, to $10.1 billion. The jump was fueled by increases in its film, cable and networks segments.

AOL lost 237,000 subscribers in the first quarter, reporting a final total of 24 million U.S. subscribers. However, AOL Europe gained 38,000 subscribers in the quarter, ending with 6.4 million members. The overseas entity also helped boost overall subscription revenues, which went up a slim 1 percent, because of favorable currency exchange rates. Expansion of the AOL for Broadband service also contributed positively to subscription revenue.

“We said last year we looked at AOL Europe as one of the growth areas,” a Time Warner executive commented. “We’re pleased with the performance to date. Germany and the UK are exceptionally strong, though France has some issues. We expect them [overseas countries] to be a high growth area for years.”

Advertising revenues fell by 5 percent due mainly to lower inter-company revenues and the impact of legacy deals, according to Don Logan, chairman of Time Warner’s media and communications group. However, Logan said the numbers still don’t reflect strong underlying organic growth.

“Revenues from new third party ad sales are up,” Logan said. Paid search, the force driving the current renaissance in online advertising, was an important factor in the increase, according to Logan.

“Paid search is leading the way,” said Logan. For the quarter, domestic paid search increased to $74 million, up 57 percent over the first quarter of last year, he said. AOL has a partnership with Google, which has it displaying the search company’s paid listings and sharing revenue.

“We are going to see sequential growth in paid search quarter over quarter,” a Time Warner executive commented. “We are going to grow advertising. Search revenue is going to grow significantly. Legacy deals are beginning to run off and you’ll see the delta increase.” Presumably referring to the momentum currently enjoyed by paid search, he said, “We’ve got the wind at our back. AOL is positioned to take advantage of that.”

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