Ad Revenue, Subscribers Drop for AOL

NEW YORK AOL Time Warner yesterday reported that second-quarter ad revenue for its struggling America Online division plummeted 48 percent compared to the year-earlier period.

The New York-based media giant attributed the falloff to the reduction of benefits of prior-period contract sales of about $140 million, as well as lower inter-company revenues.

Overall Q2 revenue for the Internet unit was $2.1 billion, down 6 percent from $2.3 billion in the year-ago quarter.

The America Online results were released as a part of AOL Time Warner’s second-quarter earnings report. The company as a whole recorded second-quarter revenue of $10.8 billion, a 6 percent rise over $10.2 billion in the year-ago period. Q2 net income totaled $1.06 billion, or 23 cents a share, compared to $396 million, or 9 cents a share, a year earlier.

AOL Time Warner also reported that America Online had 25.3 million domestic members as of June 30, a decrease of 1.2 million from the same quarter last year and 846,000 from the end of Q1. The company attributed nearly half of the quarter-to-quarter decline to the removal of non-paying subscribers.

Over the past year, the Dulles, Va.-based division has lost ground as narrowband subscribers have migrated to competitors’ high-speed Internet services. Still, subscription revenue grew 6 percent, due primarily to strong gains at AOL Europe. The overseas online service benefited from favorable foreign currency exchange rates, higher prices and year-over-year membership growth. AOL claimed 6.2 million European subscribers at the end of the second quarter, up 238,000 over Q2 2002, but down 52,000 from the first quarter.

The rise in subscription revenues, however, was more than offset by declines in advertising and other revenues. Other revenues dropped 62 percent, due mainly to AOL’s previously announced strategy to reduce the promotion of its merchandise business.

The Securities and Exchange Commission continues to investigate a range of transactions principally involving the America Online unit. The SEC has determined that the accounting of two related transactions between America Online and Bertlesmann A.G. was not correct. AOL Time Warner said that it continues to believe that the accounting for those transactions was appropriate. However, the company said that it might learn additional information as a result of its own review, discussions with the SEC and/or the SEC’s ongoing investigation that would then lead it to reconsider its views.

Shares in AOL Time Warner (AOL) closed on the New York Stock Exchange today at $15.31, down 40 cents, or 2.6 percent. The stock’s 52-week high is $17.89 and 52-week low is $8.70.