AOL Q4 Ad Revenue Down Again, Road to Recovery Gets Longer

AOL continues to blame its declining ad revenues on its own decisions. The company this morning reported a 30 percent drop in ad revenues year-over-year from $468.6 million in Q4 2009 to $331.6 million in Q4 2010. Display, along with search and contextual ad revenues, continued falling in Q4.

“A year ago we were dealing with a sick company,” said AOL CEO Tim Armstrong, suggesting the firm has restructured its finances, setting it up for future success. “Our journey is just beginning.”

Armstrong told investors he expects AOL’s ad business to grow in the second half of this year.

Display revenue fell 14 percent to $151 million in Q4. While U.S. display revenue dropped 8 percent to $139.6 million, international display plummeted 53 percent. Search and contextual ad revenue decreased by 34 percent year-over-year to $96.4 million in Q4 2010. In Q3 2010, the company’s overall ad revenue fell nearly the same amount as this quarter, 27 percent year-over-year.

The other struggling big portal, Yahoo, reported a 17 percent growth in display revenue in Q4.

As Armstrong stressed AOL’s brand advertiser opportunities, the firm reported that display revenue declines of $11.9 million were the result of a “slight decline in domestic premium inventory sales” in addition to inventory reduction.

“You should see us growing brand advertisers… We’re [redesigning] properties around Project Devil,” Armstrong said, referring to the company’s large rich media ad unit introduced in September 2010. Armstrong said the company recently sold the first three Devil ads for the homepage, adding that if CPM trends are maintained, he expects “positive pricing momentum.”

Armstrong touted an RIM ad for Blackberry on AOL’s News homepage employing the Project Devil format. Although he suggested lead gen-driven offerings such as couponing are a poor way for brands to reach consumers, Armstrong later told investors AOL will roll out coupon-related offerings this year.


Building traffic, display and local are key focus areas, according to Armstrong. The three are entwined. As AOL aims to significantly increase pageviews on its properties, including local content network Patch, it hopes to generate higher CPMs as a result. A leaked document published by Business Insider yesterday details the company’s approach to building pageviews and traffic through SEO- and trending topic-driven content development.

In the document, AOL notes that a SEED Network article costing $25 should generate a $5 CPM and would require 7,000 pageviews to break even. In addition to traffic potential and editorial integrity, AOL’s assignment editors are asked to consider “what CPM will this content earn,” according to the document describing “The AOL Way.” AOL’s SEED content platform launched in 2009.

“Video Everywhere” is a mantra among AOL’s content development teams. The leaked document showed the company aims for a featured video spot on branded sites to increase related CPMs to $35 or more. During today’s earnings call, AOL said video content is now featured on over 30 percent of AOL’s pages, up from about 4 percent last year.

As it did last quarter, AOL attributed some of its ad revenue decline to closings of European businesses and a reduction in low margin contextual link inventory. The company said it reduced contextual links by 80 percent year-over-year in Q4.

Also as it had in the past, the firm said its display revenue fell in part because the company was offering less inventory through its network in order to reduce clutter and improve user experience. AOL also said a sales force restructuring around industry verticals had an impact on the display business.

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