Switchboard, AOL Tweak Marketing Deal

Troubled online yellow pages play Switchboard will save cash but cede some future revenue through a new restructuring of its agreement with America Online.

The restructured agreement will help Westborough, Mass.-based Switchboard out of $12 million in payments due the Internet unit of AOL Time Warner , in connection with the companies’ joint operation of yellow pages on America Online and other AOL brands.

Additionally, New York-based AOL’s waiver of the future payments — which were to have been paid over the next two years — releases to Switchboard funds that had been held in escrow.

America Online and Switchboard have collaborated on AOL Yellow Pages and shared in advertising sales since late 2000. Under the agreement between the partners, Switchboard paid AOL $13 million and owed an additional $14 million, payable over seven quarterly installments of $2 million each beginning last quarter.

Additional payments that Switchboard was to have paid AOL in the event of revenue shortcomings also have been eliminated, the company said.

In return for providing the technology that powers the site, Switchboard initially was to receive the first $35 million in ad revenue, and a smaller, undisclosed share of future sales. Under the newest revisions to the agreement, however, Switchboard will receive a gradually diminishing cut, though precise details are not known.

The term of the agreement also was reduced through the new revisions, and now will conclude at the end of 2004, rather than 2005.

Additionally, AOL will receive access to unspecified “enhanced merchant data” that Switchboad has been compiling for its own use, from advertisers on its own site, Switchboard.com.

The change is the second time that AOL has allowed its partner to restructure terms of the deal. In early 2002, America Online agreed to let Switchboard pay $14 million over the next two years, rather than $13 million by March — which would have cut deeply into the $55 million it had at the time.

“The restructuring of our agreement once again demonstrates America Online’s commitment to developing its online yellow pages business, and creating a win-win environment for its strategic partners,” said Switchboard President Dean Polnerow.

It’s also the first good news in some time for Switchboard. On Thursday, the company received a delisting notice from Nasdaq. In July, shortly after lowering quarterly guidance, the firm’s chief financial officer announced his resignation. Weeks later, Switchboard announced it had overstated ad revenue by $2.7 million during the previous fiscal year, and would restate the year’s results.

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