AOL's Ad Revenue Rises Slightly as Income Drops

AOL saw only a slight gain in its online advertising business for the first quarter of 2008, suggesting the company has a way to go in shifting away from its declining ISP (Internet service provider) business.

AOL's revenue dropped 23 percent to US$330 million, compared to US$1.1 billion for the same quarter last year, said parent company Time Warner on Wednesday. Subscriber revenue declined 38 percent, or $334 million.

Online advertising revenue was up 1 percent to $3 million, a gain that came from growth in ad sales on thirty-party Web sites and paid-search advertising. Display advertising declined, Time Warner said.

AOL is trying to transform itself into an online advertising powerhouse to compete with Google and, to a lesser, extent Microsoft and Yahoo. All are trying to capitalize on the shift of advertising dollars from television and print media to the Internet.

AOL's operating income fell from $1.284 billion a year prior to $284 million this quarter, a 74 percent decline. The sharp decline was also due to AOL selling part of its German ISP business in the quarter a year before, which added a $670 million gain.

At the end of March, AOL counted 8.7 million subscribers in the U.S., a loss of 647,000 from the previous quarter, the company said. The declines were expected, Time Warner said.