America Online 2010 Annual Report Download - page 41

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
content, products and services, we seek to retain our access subscriber base by offering our access subscribers certain products and services that are available
to Internet consumers generally for no additional charge or at a discounted rate. Further, we have transitioned and will continue to seek to transition a
substantial percentage of those access subscribers who are terminating their paid access subscriptions to free AOL Properties offerings.
Historically, our primary subscription service has been our subscription access service. Moving forward, we seek to market new products and services
that are either co-branded, third party or AOL-developed products. To facilitate this goal, in 2010 we launched the initial phase of a single consumer-facing
platform that allows us to manage and distribute these additional products to Internet consumers along with our subscription access service. We offer those
products to our access subscribers as well as other Internet consumers. Revenue related to these new product and service offerings was not material for the
year ended December 31, 2010.
Our subscription revenues have relatively low direct costs, and accordingly, our subscription access service represents the source of the vast majority of
our operating income. 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 for the foreseeable future. The revenue and cash flow generated from
our subscription access service will help us to pursue our strategic initiatives and continue the transition of our business toward attracting and engaging
Internet consumers and generating advertising revenues. We expect our total revenues and operating income (excluding the goodwill impairment charge
recorded in 2010) to decline in the near term, even if our strategy is successful and we are able to grow our advertising revenues, primarily due to declines in
subscription revenue and search and contextual revenue as a result of the continuing decline in our subscriber base.
Key indicators to understanding our operating results include:
• Growth of advertising revenues, particularly display revenues on AOL Properties;
• Unique visitors to our properties;
• Monthly average churn and average paid tenure of our AOL-brand access subscribers;
• Our investment in growth areas, such as the local online market; and
• Our ability to manage our operating cost structure.
Current Economic Environment
The global economic recession adversely impacted our advertising revenues for the years ended December 31, 2009 and 2008. We do not believe that
the global economic environment had a material impact on our advertising revenues for the year ended December 31, 2010. Further, we do not believe the
global economic recession had a material impact on our subscription revenues for any period presented in this Annual Report.
Trends, Challenges and Uncertainties Impacting Our Business
The web services industry is highly competitive and rapidly changing. Trends, challenges and uncertainties that may have a significant impact on our
business, our opportunities and our ability to execute our strategy include the following:
• Advertising, commerce and information continue to migrate to the Internet and away from traditional media outlets at both the national and local
levels. Additionally, traditional media outlets are facing significant economic challenges. We believe these continuing trends will create strategic
growth
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