America Online 2009 Annual Report Download - page 49

Table of Contents
Advertising revenues generated on AOL Properties decreased 16%, or $236.7 million for the year ended December 31, 2009, as compared to the year
ended December 31, 2008 driven by decreases in display advertising and search and contextual revenues. The decrease in display advertising was due to weak
global economic conditions that resulted in lower advertising demand. Specifically, international display revenue declined reflecting weakness in the U.K.,
Germany and France and domestic display revenue reflected weakness in certain advertiser categories, including Classifieds, Finance and
Telecommunications. The decline in search and contextual revenue was primarily due to a decline in search revenues due to decreases in search query volume
(partially due to the decline in domestic AOL-brand access subscribers) on certain AOL Properties which contributed $71.8 million to the decline and lower
revenues per search query on certain AOL Properties which contributed $30.4 million to the decline. Contextual revenues declined $10.4 million primarily
due to reduced monetization on MapQuest, partially offset by increased prioritization of certain contextual links in the first half of 2009.
Advertising revenues generated on AOL Properties decreased 7%, or $102.7 million, for the year ended December 31, 2008, as compared to the year
ended December 31, 2007. The decrease in display advertising was due in part to a benefit to revenue for the year ended December 31, 2007 of approximately
$19 million related to a change in an accounting estimate as a result of more timely impression delivery data. The remaining decrease in display advertising
revenue of approximately $148 million was due to weak global economic conditions which resulted in lower advertising demand, as well as the challenges of
integrating businesses acquired in late 2007 and early 2008. The increase in search and contextual revenue was primarily driven by higher revenues per search
query on certain AOL Properties and broader distribution of paid-search through AOL Properties, which contributed $76 million and $30 million,
respectively, to the increase, partially offset by a $75 million decrease due to a decline in search query volume on certain AOL Properties. The remaining
increase in search and contextual revenue was due primarily to the acquisition of Quigo Technologies, Inc. in late 2007, which contributed $22 million to the
increase for the year ended December 31, 2008 as compared to the year ended December 31, 2007.
For all periods presented in this Annual Report, we have had a contractual relationship with Google whereby Google provides paid text-based search
and contextual advertising on AOL Properties. For all of the periods presented in this Annual Report, revenues under the Google arrangement represented a
significant percentage of the advertising revenues generated by AOL Properties. For the years ended December 31, 2009, 2008 and 2007, the revenues
associated with the Google relationship (substantially all of which were search and contextual revenues generated on AOL Properties) were $556.7 million,
$677.9 million and $642.1 million, respectively.
The 17% decrease in advertising revenues on the Third Party Network for the year ended December 31, 2009, as compared to the year ended
December 31, 2008, was due to weak global economic conditions that resulted in lower advertising demand, as well as a decrease of $23 million due to the
wind-down of a contract with a major customer. Revenues associated with this major customer were $3 million for the year ended December 31, 2009
compared to $26 million for the year ended December 31, 2008.
The 5% decrease in advertising revenues generated on the Third Party Network for the year ended December 31, 2008, as compared to the year ended
December 31, 2007, was due to a decrease of $189 million resulting from the wind-down of a contract with a major customer, which was partially offset by
increased revenues of $131 million attributable to acquisitions completed in 2007 and other advertising growth of $27 million. Since January 1, 2008, the
major customer noted above has been under no contractual obligation to do business with us, and our advertising revenues from this customer declined to $26
million in 2008 from $215 million in 2007.
We expect that our advertising revenues on both AOL Properties and the Third Party Network will decline significantly in 2010. We believe that
advertising revenues generated on AOL Properties will be negatively impacted by the decline in our domestic AOL-brand access subscribers, particularly as it
relates to search and contextual revenues, as well as our plan to cease or reduce operations in a number of countries. Visibility into
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