eBay, AOL Renegotiate Ad Deal

Online auctioneer eBay has renegotiated its extensive advertising deal with AOL Time Warner , reducing its commitment to the media conglomerate in response to continued weakness in ad pricing.

Under the previous, three-year-old agreement, eBay had agreed to pay $18.75 million per year for advertising on America Online and other AOL Time Warner properties through March 2004.

Through new terms signed in April, however, eBay is obligated to pay $18.75 million only through March 2003. The agreement will extend through 2004 only if AOL meets certain unspecified performance criteria. In that case, eBay would be required to pay up to $15 million for the year.

The deal will continue through 2005 if AOL meets a second tier of performance criteria, under which case eBay is responsible for a maximum of $10 million during that year.

The renegotiations also entailed changes to the commission agreement that eBay pays to AOL for selling eBay ad inventory to advertisers. In addition to limiting the term of the deal from December 2003 to March 2003, the revised ad representation agreement also reduces the payout to AOL “to reflect changes in the online advertising market,” the Web auction site said in its latest 10-Q filing.

Again, should AOL meet performance goals, the ad rep deal can be extended through March 2004.

AOL spokespeople declined to comment.

The changes to the agreement, which reduce eBay’s costs and limit its liability for underperforming advertising, attests to the clout held by advertisers in a down market for media. When eBay and America Online signed their ad pact in 1999, both were already widely recognized as Internet superstars. Having worked together since 1997, when America Online began carrying eBay listings, the pair’s 1999 ad agreement stipulated a four-year, $75 million, payout to the Web portal.

Since then, however, times have changed. eBay, which recently beat Wall Street earnings expectations, is seeking to hit ambitious revenue targets of $3 billion by 2005. That requires a commitment to acquiring new customers and, to a lesser degree, selling advertising on its sites (which currently represents about 8 percent of the auctioneer’s quarterly income).

AOL, at the same time, is struggling to meet revenue targets in the worst advertising climate since the Great Depression. In August, the New York media conglomerate added its broadcast TV and magazine divisions to the advertising mix it had promised eBay, ostensibly in a bid to offset the declining value of Internet media with offline assets.

AOL’s not the only major Web portal to be forced back to the contract negotiations table by the weak ad market. Last month, Web portal Terra Lycos said it had entered into negotiations with Bertelsmann AG, which was seeking to reduce a $675 million advertising commitment, originally concluding in 2005.

Likewise, in addition to AOL, eBay is pursuing similar contract renegotiations with “several hundred” companies and Web sites, said company spokesman Kevin Pursglove.

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