America Online 2010 Annual Report Download - page 13

Table of Contents
SUBSCRIPTION REVENUES
We generate subscription revenues through our subscription access service. As of January 2011, our primary AOL-brand price plans were $25.90 and
$11.99 per month. We also offer consumers, among other things, enhanced online safety and security features and technical support for a monthly
subscription fee. As noted above, our access service subscriber base has declined and is expected to continue to decline. This has resulted in year-over-year
declines in our subscription revenues. The number of domestic AOL-brand access subscribers was 3.9 million, 5.0 million and 6.9 million at December 31,
2010, 2009 and 2008, respectively. For the years ended December 31, 2010, 2009 and 2008, our subscription revenues were $1,023.6 million, $1,388.8
million and $1,929.3 million, respectively.
Although our subscription revenues have declined and are expected to continue to decline, we believe that our subscription access service will continue
to provide us with an important source of revenue and cash flow in the near term. The revenue and cash flow generated from our subscription access service
will help us to pursue our strategic initiatives.
Third Party Network
We also generate advertising revenues through the sale of advertising on third party websites. Our advertising offerings on the Third Party Network
consist primarily of the sale of display advertising and also includes search and contextual advertising. In order to generate advertising revenues on the Third
Party Network, we have historically had to incur higher traffic acquisition costs (TAC) as compared to advertising on AOL Properties. We currently market
our offerings to publishers on the Third Party Network under the brand "Advertising.com" and also market offerings as video advertisements distributed
through goviral and 5 Minutes Ltd. In order to effectively connect advertisers with online advertising inventory, we purchase advertising inventory from
publishers and utilize proprietary optimization, targeting and delivery technology to best match advertisers with available advertising inventory. A significant
portion of our revenues on the Third Party Network is generated from the advertising inventory acquired from a limited number of publishers. We plan to
expand the Third Party Network in order to allow us to serve many more publishers and advertisers than at present.
The Third Party Network includes a display advertising interface that gives advertisers the ability to target and control the delivery of their
advertisements and provides advertisers and agencies with relevant display analytics and measurement tools. We intend to utilize self-service systems and
tools in order to expand our relationships with advertisers. For our publishers, inclusion in the Third Party Network offers a comprehensive set of tools and
technologies to manage and maximize their return. We aim to develop our current relationships with publishers and advertisers and continue to expand the
number of publishers and advertisers we serve through the products and services we offer on the Third Party Network.
We utilize a proprietary scheduling, optimization and delivery technology that employs a set of complex mathematical algorithms that seek to optimize
advertisement placements across the Third Party Network and the available inventory on AOL Properties. This optimization is based on expected user
response, which is derived from previous user response plus factors such as user segmentation, creative performance and site performance. AdLearn allows
performance to be analyzed quickly and advertisement placement to be frequently optimized based on specific objectives, including click-through rate,
conversion rate, sales volume and other metrics. We also offer advertisers the ability to target advertisements to specific users using technology that utilizes
non-personally identifiable information, such as geographic location, previous exposure to certain advertisements or user behavior online.
In the fourth quarter of 2009, we began proactively de-emphasizing the search engine campaign management and lead generation affiliate products on
the Third Party Network in order to focus and strengthen our efforts in display advertising solutions. Given the relatively high level of direct costs associated
with these products, this change did not have a significant adverse impact on operating income for the year ended December 31, 2010.
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