AOL Time Warner Feels Little Pain From Ad Sector Woes

While the bleak advertising market was largely to blame for lower-than-expected revenues, media behemoth AOL Time Warner still showed strength in its online sector — compared to peers in the Web publishing industry — and a growing aptitude for lucrative cross-media deals.

The company’s America Online unit posted revenues of $2.13 billion, $706 million of which came from advertising and commerce. (The company doesn’t break out revenues further.) That’s actually a two percent decrease from last quarter.

But co-chief operating officer Bob Pittman described a performance better than most other online competitors — which don’t have an offline channel with which to tie ad deals.

“Our synergies are hitting, and they’re hitting big,” Pittman said. “This quarter … shows just how critical our diverse revenue streams are in this economy.”

Pittman said America Online had been successfully side-stepping most of the stigma attached to Internet ads thanks to efforts at integrating client brand messaging with content.

“All of our online promotions are customized,” he said. “Subscribers … find these ads more compelling than traditional advertising.”

Evidently, those promotions also helped the offline portions of the company to shoulder the advertising slowdown. Using house ads on the America Online service, AOL Time Warner generated about 100,000 new subscriptions per month to Time Inc. magazines.

Additionally, promotion on America Online boosted traffic to former Time Warner Web sites 54 percent, while integration of the company’s entertainment content has made AOL’s Entertainment Channel one of the leading such sites on the Internet.

Pittman also referenced the vast slate of marketing agreements inked with traditional advertisers — such as deals earlier this month with Nestle, Philips and Samsung, deals that he described as “now becoming a way of life at AOL Time Warner.”

One example was described in a separate announcement on Tuesday, in which AOL Time Warner signed yet another cross-platform deal with a large advertiser — Clinton, Miss.-based telecom giant WorldCom. That multi-million dollar agreement, a revamping of a previous ad deal, will see ads for WorldCom’s MCI Group appearing on the America Online service, on Turner Broadcasting and Time Inc.

However, Pittman admitted that much of the company’s cross-platform synergies currently are being used for internal promotion. But executives said that when the ad market begins to turn around at the end of the year, those synergies will place AOL Time Warner in good stead with advertisers.

“In a funny way, the ad market has forced us to speed up integration … and these benefits will be amplified in a normal ad market,” Pittman said.

Based on those expectations of a firming ad market in late 2001, chief financial officer Mike Kelly gave guidance of a full-year cash earnings performance of $1.28 to $1.32 per share, or $40 billion in revenue and $11 billion in earnings — well above analyst consensus of $1.23 per share.

Furthermore, chief executive Gerald Levin described an effort designed to take advantage of a coming reversal in advertising’s fortunes. During the company’s conference call Tuesday, Levin outlined an initiative that would begin later this year and which would integrate broadband, wireless and mainstream Internet content with local advertising.

“We have three local zones in the company: AOL Digital City, Time Warner and Time Inc.,” Levin said. “We’re now integrating and selling together these local platforms, tapping into $100 billion a year market.”

Levin and other executives did not discuss the initiative in greater detail, aside to say that it was in conjunction with the fall rollout of version 7.0 of the America Online software.

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