America Online 2011 Annual Report Download - page 19

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Table of Contents
ITEM 1A. RISK FACTORS
The risks and uncertainties described below are those which we consider material and of which we are currently aware. In addition, this Annual Report
contains forward-looking statements that involve risks and uncertainties. You should carefully read the section "Cautionary Statement Concerning Forward-
Looking Statements".
If any of the following events occur, our business, financial condition or results of operations could be materially and adversely affected and the
trading price of our common stock could materially decline.
Risks Relating to Our Business
Our focus on our online advertising-supported business model involves significant risks.
As our subscription revenues continue to decline, we have become increasingly dependent on advertising revenues. We have not been able to generate
sufficient growth in our advertising revenues to offset the loss of subscription revenues we have experienced in recent years. In order for us to increase
advertising revenues in the future, we believe it will be important to increase our overall volume of advertising sold, including sales of advertising through our
higher-priced channels, and to maintain or increase pricing for advertising. Our cash flows continue to be adversely affected by the continued decline of
access subscribers. Additionally, advertising revenues are more unpredictable and variable than our subscription revenues, and are more likely to be adversely
affected during economic downturns, as spending by advertisers tends to be cyclical in line with general economic conditions. Furthermore, we compete with
traditional offline advertising media such as television and radio. The continued growth of online advertising will depend on its perceived effectiveness and
the growth in consumers' use of the internet. Lack of growth in the online advertising market could decrease the value of online advertising and would
adversely impact our business model. Further, because subscription revenues have relatively low direct costs, the expected decline in subscription revenues
could result in declines in operating income and cash flows, even if we achieve significant growth in advertising revenues. If we are unable to successfully
implement our strategic plan and grow the earnings generated by our online advertising services, we may not be able to support our business in the future.
If we do not continue to develop and offer compelling content, products and services, our ability to attract new consumers or maintain the engagement of
our existing consumers could be adversely affected.
In order to attract consumers and generate increased engagement on AOL Properties, we believe we must offer compelling content, products and
services. However, acquiring, developing and offering new content, products and services, as well as new functionality, features and enhanced performance of
our existing content, products and services, may require significant costs and time to develop. In addition, consumer tastes are difficult to predict and subject
to rapid change. If we are unable to provide content, products and services that are sufficiently attractive and relevant to consumers (including subscribers to
our subscription access service), we may not be able to attract new consumers or maintain or increase our existing consumers' engagement. Even if we
successfully develop and offer compelling content, products and services, we may not be able to attract new consumers and maintain or increase our existing
consumers' engagement. We may acquire businesses in order to produce and offer new content, products and services, and the costs related to such
acquisitions may be more expensive than developing new content, products and services internally.
In general, subscribers to our subscription access service are among the most engaged consumers on AOL Properties. As our subscriber base declines,
we need to maintain the engagement of former subscribers and increase the number and engagement of other consumers on AOL Properties in order to
successfully execute our business model. There can be no assurance that we will be able to maintain the engagement of former subscribers or attract and
engage sufficient other consumers to sustain or increase historical engagement levels on AOL Properties. If we cannot do so, our business could be adversely
affected.
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