AOL Sees Double-Digit Drops in Ad Revenues in Q1

Time Warner blamed a 7 percent drop in Q1 revenues in part on poor ad sales at AOL. Ad dollars at AOL fell 20 percent compared to Q1 2008.

AOL revenues plummeted 23 percent to $867 million in the quarter. In addition to the 20 percent drop in ad revenues, the firm reported a 27 percent decline in subscription revenues. The company’s ad business has been hit from multiple angles. As many online media firms have experienced, AOL has seen falling display ad revenues. However, the firm also reported declines in its third-party ad network and paid search businesses.

“Advertising is proving even tougher than we expected,” said Time Warner CEO Jeff Bewkes. The company cited online telecom and auto ad sales as particularly soft.

Display ad revenues fell 17 percent to $158 million; the company noted drops in inventory yield since more of its ad inventory is being sold at lower CPMs. Yet again, the firm blamed its third-party ad sales drop on the loss of its once major advertiser account, Apollo. Third-party ad revenues fell 29 percent to $133 million, with the Apollo loss accounting for a year-over-year drop of about $16 million. Barring the Apollo factor, the firm’s third-party ad revenues were still down 23 percent as a result of falling performance-based and brand ad sales.

AOL’s paid search revenues were also down due to lower query volume and falling search click-through rates. The firm expects continued pressure on its search business.

The difficult advertising environment is not helping AOL in its aim to focus more on its ad business while focusing less on its Internet access subscription business. As a result of the company’s decision to offer its e-mail service for free, access subscriptions continue to fall. Since the first quarter of last year, they’ve dropped 2.4 million.

Despite economic pressures, AOL appears to be dedicated to growing its advertising business, as exemplified by its hiring of Google ad sales veteran Tim Armstrong as AOL CEO in March. Bewkes told investors during this morning’s earnings call that Armstrong will make an effort to increase AOL’s inventory yield management.

“It’s fair to say that Tim wouldn’t have come to AOL if he didn’t see a lot of upside…in its inventory,” said Bewkes, adding that Armstrong will “make AOL once again a must-buy for advertisers.”