AOL Ad Revenues Way Down

In what is likely to be its last full quarter as a unit of Time Warner, AOL reported an 18-percent year-over-year drop in advertising revenue, down to $415 million from $507 million in the third quarter of 2008. Ads on AOL’s own sites, including both display and search ads, dropped 21 percent to $288 million, while revenue from third-party ads sold through its network dipped 12 percent to $127 million.

The pace of ad revenue losses is slowing, at least. AOL reported a 21-percent year-over-year loss in the previous quarter, but search revenue took a bigger hit this quarter than last.

Paid search revenue from AOL’s deal with Google dropped by 24 percent during the third quarter, primarily due to lower query volume and lower clickthrough rates on the AOL client, according to Time Warner CFO John Martin.

In addition, Martin laid some of the blame for revenue declines at Google’s feet, saying the cost-per-click advertisers pay for ads showing on AOL’s site were down due to algorithmic changes by Google.

Overall revenues for AOL, which include $332 million in subscription fees, were down 23 percent over the same period last year, to $777 million.

Time Warner is still on track to complete the spin-off of AOL before the end of the year, Time Warner CEO Jeff Bewkes said. When asked about the post-spinoff prospects of AOL in a tough market, Bewkes expressed optimism.

“AOL has a lot of scale, and some very successful consumer products inside the AOL experience,” Bewkes said. Some of the core strengths that AOL will focus on include Web content, communications tools, and ad monetization, he said.

Those three areas of focus are not new, as AOL has been working toward them for the past year or two — especially since Tim Armstrong was named CEO in March and the spin-off from Time Warner was approved in May.

AOL has been building out its content properties lately, and pursuing a local content initiative with its Patch.com network of local news sites that AOL acquired in June.

AOL will also have the cash flow from its leftover subscriber business, which brought in $332 million during the third quarter. In addition, Time Warner will not be saddling AOL with debt during the spinoff, so it will enter independence in a position to succeed, Martin said.