America Online 2010 Annual Report Download - page 48

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
advertising inventory from publishers (both large and small) in the Third Party Network using proprietary optimization, targeting and delivery technology to
best match advertisers with available advertising inventory. Advertising arrangements for the sale of Third Party Network inventory typically take the form of
impression-based contracts or performance-based contracts.
Advertising revenues on AOL Properties and the Third Party Network for the years ended December 31, 2010, 2009 and 2008 are as follows (in
millions):
Years Ended December 31,
2010 2009
% Change
from 2009
to 2010 2008
% Change
from 2008
to 2009
AOL Properties:
Display $ 520.4 $ 603.9 (14)% $ 729.2 (17)%
Display—domestic 472.6 513.7 (8)% 583.4 (12)%
Display—international 47.8 90.2 (47)% 145.8 (38)%
Search and Contextual 428.1 609.8 (30)% 721.2 (15)%
Total AOL Properties 948.5 1,213.7 (22)% 1,450.4 (16)%
Third Party Network 335.6 523.0 (36)% 632.9 (17)%
Total advertising revenues $ 1,284.1 $ 1,736.7 (26)% $ 2,083.3 (17)%
2010 vs. 2009
Advertising revenue declined $452.6 million for the year ended December 31, 2010 as compared to the year ended December 31, 2009. Of this decline,
$268.2 million was related to AOL-implemented initiatives to wind down or shut down certain products and shut down or reduce operations internationally.
The most significant impact from these initiatives drove declines in Third Party Network revenue of $177.1 million associated with European shutdowns and
de-emphasis of the typically low margin search engine campaign management and lead generation affiliate products. In addition, we experienced declines in
search and contextual revenue of $54.2 million, primarily due to the de-emphasis of our contextual products, fewer queries in Germany and France where we
have reduced operations and declines of $14.3 million from ICQ which we sold in the third quarter of 2010. International display revenues declined by $36.9
million related to our reduced operations in Germany and France, declines from Bebo, Inc. ("Bebo") which we sold in the second quarter of 2010 and declines
of $5.7 million from ICQ which we sold in the third quarter of 2010.
Apart from the impacts of the AOL-implemented initiatives, advertising revenue reflects further declines in search and contextual, display and Third
Party Network revenue. Search and contextual revenue for the year ended December 31, 2010 declined $127.6 million as compared to the year ended
December 31, 2009. Of this decline, $93.7 million reflects the impact of fewer domestic search queries on AOL Properties, related primarily to a 23% year-
over-year decrease in domestic AOL-brand access subscribers as well as lower traffic on AOL Properties. The search and contextual revenue declines also
include international declines of $33.9 million due to fewer queries primarily in the United Kingdom. Domestic display revenue declines of $43.4 million
reflect a slight decline in premium inventory sales as well as the impact of less inventory from AOL Properties being monetized through the Third Party
Network, resulting primarily from our efforts to improve the user experience. Premium inventory sales declines reflect the impact on sales of a salesforce
reorganization in the first quarter of 2010, which resulted in subsequent quarters beginning with a significantly smaller sales pipeline. Domestic display
revenue declines were partially offset by approximately $2.0 million related to acquisitions made in
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