AOL Struggles to Match Competitors’ Growth

Ad revenue from AOL’s owned and operated properties declined by $42 million in the first quarter, as the Time Warner unit struggled to grow its ad network business fast enough to make up the difference. It just barely accomplished that goal, increasing its own and third-party advertising 1 percent to $552 million.

However that modest growth was within the company’s guidance and investors’ expectations, owing to some largely anticipated factors such as the cancellation of unprofitable sponsorship programs like Gold Rush and a “revised relationship” with advertiser Apollo Group.

Time Warner executives made the case AOL had finally set the stage for better ad growth through a combination of factors. Those factors include structural improvements at Platform A, better yield management and operational separation of its advertising and access businesses.

AOL said what little growth it eked out was fueled by acquisitions in its Platform A ad network business and solid performance in search advertising revenue, which grew 89 percent year over year.

Time Warner CEO Jeff Bewkes said the company deserved blame for failing to create sales efficiencies between its various network units, including Tacoda, Quigo, and Advertising.com.

“We didn’t integrate our Platform A acquisitions fast enough and that created a sales channel conflict,” Bewkes said. He said the company would benefit from the recent decision to bring in new sales management, a reference to the ouster of Curt Viebranz and his replacement by Lynda Clarizio. More recently the company laid off numerous other senior execs at Tacoda.

“We’ve now integrated the sales organizations to create one sales team which is… motivated to sell across Platform A,” he added. “We don’t expect to see full benefits in this quarter, but we are optimistic that this [challenge] is behind us.”

The loss of an exclusive deal with education advertiser Apollo Group, which owns online college University of Phoenix, continued to punish the company. Apollo bought $56 million in ads during the year-ago period versus only $17 million in Q1 2008.

AOL’s total revenue shrank 23 percent ($330 million) to $1.1 billion, and as usual most of the drag came from subscription revenue losses, which dropped by 38 percent. The access business had 8.7 million U.S. subscribers by quarter’s end, a sequential decline of 647,000 and a year-over-year drop of 3.3 million.

Bewkes said by the end of Q2 the company expects to have made the financial and operating decisions necessary to extricate the access and advertising units completely.

In its Time Inc. unit, Time Warner remarked online ad revenue had for the first time grown enough to offset losses in print.

Overall revenues at Time Warner grew 2 percent over the year ago period to $11.4 billion, and the company also announced a decision to spin off its cable unit.

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