RealTime IT News

AOL Ad Revenue Tumbles 21% in Q2

AOL continues to feel the pain of the frigid advertising economy, with revenues for the second quarter falling 21 percent from the same period last year, corporate parent Time Warner said this morning.

"We are not yet seeing signs of a recovery in demand in this division," John Martin, Time Warner's (NYSE: TWX) CFO, said on the company's earnings call this morning, projecting that advertising losses would continue through the end of the year.

The media conglomerate is in the process of ending its rocky marriage with the Internet pioneer, which CEO Jeff Bewkes said was a "big stride in reshaping Time Warner."

"It's also the right decision for AOL because it should improve AOL's operational and strategic flexibility," Bewkes said. "With that process underway, we're on track to complete the transaction around the end of the year."

Overall, Time Warner reported second-quarter revenues of $6.8 billion, down 9 percent from the year-earlier period.

Net income for the quarter slipped to $519 million, or $0.43 cents a share, down from $792 million, or $0.66 per share last year, though it was enough to top analysts' expectation of $0.37 a share, according to polling by Thomson Reuters.

In addition to the sustained advertising weakness at AOL, the unit continued to see its dial-up shrink, though it lost fewer subscribers in the second quarter than in any period in more than two years. AOL saw 510,000 subscribers cancel their dial-up service in the second quarter, leaving the unit with 5.8 million U.S. customers.

Subscription revenues were down 27 percent, or $135 million, for the period.

Overall, AOL saw its revenues drop 24 percent, or $253 million, from the same quarter in 2008, posting $804 for the quarter.

Three weeks ago, Time Warner bought back a 5 percent stake in AOL from Google (NASDAQ: GOOG), and earlier this week set in motion the process of spinning the unit out as a publicly traded company with a filing with the Securities and Exchange Commission.

TV Everywhere

Like all media and entertainment companies, Time Warner has been wrangling with the rise of broadband and consumers' increasing expectations that video content be available on any device at any time.

"We have a long history of capitalizing on changes in technology and consumption," Bewkes said. "Today, we're as determined as ever to ensure that new models are additive, not cannibalistic."

As exhibit A, Bewkes cited TV Everywhere, Time Warner's initiative to deliver television content on the Web from channels like HBO, but only to customers who subscribe to the premium cable channels.

In the second quarter, Time Warner announced a partnership with Comcast laying out a set of principals for the TV Everywhere initiative, and unveiling plans to begin a technical trial, which is currently underway.

Bewkes said Time Warner is in active discussions with numerous other cable and satellite providers to develop similar frameworks.

"At the same time that it's right for consumers, TV Everywhere is also right for the industry," Bewkes said, noting that the model would enable entertainment companies to maintain a "dual revenue stream" of advertising and subscription dollars from both TV and the Web.

Still, he was quick to add, "for the foreseeable future, we expect that consumers will continue to watch programs mostly on TV."