Time Warner to Split AOL in Two

Time Warner plans to split its AOL unit into two divisions separately focused on Internet access and online services and advertising, executives announced during the company’s Q4 earnings call today.

The company did not elaborate on its exact motives for the separation. One option, oft-discussed by executives and investors, would be to sell or spin off its access business at some future point. Time Warner may also feel the move will draw more attention to its considerable investment in online ad networks and services, including at least five acquisitions in the past year. Just this week, the company announced it has acquired affiliate marketing firm buy.at and widget technology provider Goowy to support its Platform A division.

During the earnings call, TW execs signaled AOL ad revenue for the current quarter will be flat or down, owing partly to a $19 billion accounting benefit in 2007 and partly to the cancellation of certain low-performing sponsorships. The unit expects growth to return in Q2 as the company integrates and benefits from its recent acquisitions.

“We would expect that AOL ad growth is going to improve by the end of the second quarter of this year,” said CFO John Martin. “AOL is really focusing on building its leading display monetization platform. It’s got scale, got the behavioral and contextual capabilities.”

AOL’s full-year 2007 revenues declined 33 percent ($2.6 billion) to $5.2 billion, and ad revenues increased 18 percent ($345 million) to $2.2 billion. Revenues for the quarter meanwhile declined 32 percent ($587 million) to $1.3 billion, while ad revenues grew 10 percent to $620 million.

“AOL has maintained a substantial base of profits. That’s no small feat,” said Jeffrey Bewkes, president and CEO of Time Warner. “At the same time… we’ve been actively reducing costs and redesigning AOL’s historic business.”

Google holds a 5 percent stake in AOL. Bewkes and Martin said that investment and Google’s influence would not affect how Time Warner approaches the division of the business.

“It’s not clear at all that they necessarily would want to act on it,” said Bewkes. “And it’s fine if they were to act on it. We probably shouldn’t predict or discuss any ongoing talks.”

During the quarter AOL had 109 million average monthly domestic unique visitors and 49 billion domestic page views, according to comScore Media Metrix.

Zach Rodgers contributed reporting.

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