AOL’s Ad Sales Drop 19%, Reinforcing Struggling Brand Image

AOL saw significant drops in display, search/contextual, and network ad sales in Q1 2010 compared to the same period last year, the New York-based company announced today. Overall, ad sales were down 19 percent, seeing a 16 percent dip domestically and a 34 percent fall internationally.

General display sales dropped 13 percent. In the U.S., display revenue fell by 10 percent due to declining sales of AOL inventory through third-party networks and “legacy business development deals,” said Artie Minson, CFO for the firm. International display revenues were down 29 percent, which Minson attributed to the company’s operational cutbacks of the past year in the U.K., Germany, and France.

In terms of both global and domestic display revenues, the CFO said that sales force cutbacks were at the heart of the declines. The longstanding Web brand cut its employee numbers from 7,000 to around 5,000 before its spin-off from Time Warner late last year. “We continue to work through our international closures, and their impact on revenue is likely to be more significant for the remainder of the year,” Minson added.

Overall, AOL’s profits fell by 58 percent compared to Q1 2009. CEO Tim Armstrong stayed positive during a one-hour conference call to discuss the earnings, stating that AOL stands to gain as big brands will likely increase online advertising spends during the next five years.

“We are not happy with the overall lagging ad market, but I am very happy with the decisions this company is making for the future,” he said. “And we are going to put our foot on the gas pedal and accelerate aggressively into our strategies.”

AOL’s search/contextual category was hit even harder than display, decreasing by 27 percent compared to Q1 2009. Minson blamed a 26 percent drop in Internet access subscribers for the sizable downturn in search dollars. “Our access users tend to be more active searchers,” he said.

Minson again pointed to international shutdowns for a 47 percent fall in contextual numbers compared to Q1 2009, adding that sales for the category would likely be worse for the rest of the year. “Q1 declines also reflect a reduction in the number of contextual advertising links displayed on our properties, which… is part of the broader initiative to improve the consumer experience,” he said.

The financial struggles probably shouldn’t shock industry players, since AOL is trying to marry a leaner sales team with a new self-service sales platform for Advertising.com, designed to compete with Google. A silver lining in the report was the company’s Advertising.com sales lifting by 16 percent domestically compared to Q1 2009. Though for all sales through third-party ad network partners, Minson said, revenues were down 17 percent.

Meanwhile, Armstrong’s firm today announced the sale of the company’s instant-messaging service, ICQ, to Russian investment firm Digital Sky Technologies for $187.5 million. In addition, AOL reiterated it may sell or close Bebo, a social networking site.

Update: This story has been changed to reflect that AOL experienced a 26 percent drop in Internet access subscribers. It originally said the drop was 28 percent.

You can follow Christopher Heine on Twitter at @ChrisClickZ.

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