AOL Leans on Google, Dial-Up to Go It Alone

AOL and Time Warner earnings

As it prepares to part company with Time Warner, Internet pioneer AOL is gearing up to once again become a publicly traded, independent company — even it it means having to rely heavily on the online world’s current heavyweight, Google.

In a regulatory filing Monday, AOL detailed several aspects of its strategy going forward, which hinges largely on building out its content and advertising networks.

AOL revealed that it has signed an exclusive agreement with (NASDAQ: GOOG) Google to provide its search services through Dec. 19, 2010.

The filing also indicated that Time Warner (NYSE: TWX) finalized the transaction to repurchase the 5 percent stake in AOL that Google had acquired in 2005. Time Warner paid Google $283 million for its stake in AOL, giving the unit a valuation of $5.66 billion, well off the $20 billion mark tagged to the Google buy-in.

AOL is not a major player in search, with just 3.1 percent of the market. At the same time, with a potential shakeup looming in the form of a partnership between Microsoft (NASDAQ: MSFT) and Yahoo (NASDAQ: YHOO), the expiration of AOL’s deal with Google could make it an attractive property for the search heavyweights vying for market share.

A spokesman for Time Warner told that the spin-off is due to be completed toward the end of the year.

In March, AOL brought Tim Armstrong, formerly a top Google executive, on board as its chief executive. Armstrong has begun a review of the company’s operations, and rumors have been kicking around that layoffs are on the horizon.

Among other things, AOL pledged in the filing to continue to expand its ad network, which it claims reaches more users on the Web than any other.

It also signaled that it’s planning a big push into locally targeted content and advertising, a business line that would tie in with AOL’s popular MapQuest brand.

Dial-up’s not dead

AOL’s future may be in advertising, but for the time being, it’s not letting go of its dial-up Internet service business, a legacy unit that remains highly profitable despite the exodus of upwards of half a million subscribers each quarter.

AOL described the dial-up business as “an important source of revenue and cash flow for us in the near term” that it hopes will tide it over until its advertising business spruces up.

“We have not been able to generate sufficient growth in our advertising revenues to offset the loss of subscription access service revenues we have experienced in recent years,” the filing noted.

Time Warner had announced last year that it planned to spin off AOL’s subscription business from the content and advertising unit.

AOL’s ad revenues declined 20 percent last year.

AOL said it plans to maintain certain commercial relationships with Time Warner, including an agreement to cross-license intellectual property.

The new company is planning to be listed on the New York Stock Exchange under the ticker symbol “AOL.”

Time Warner is due to report its second-quarter earnings Wednesday morning before the market opens.

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