America Online 2011 Annual Report Download - page 37

Table of Contents
AOL INC.
PART II—ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Growth of our advertising revenues depends on our ability to attract consumers and increase engagement on AOL Properties by offering compelling
content, products and services, as well as on our ability to provide effective advertising solutions and optimize our inventory monetization. In order to attract
consumers and generate increased engagement, we have developed and acquired, and intend to continue to develop and acquire, content, products and
services designed to meet these goals. These actions include the development and acquisition of a number of platforms that are designed to facilitate the
production, aggregation, distribution and consumption of national and local content. Additionally, through our acquisition of The Huffington Post on March 4,
2011 and the creation of HPMG, we have accelerated our strategy to deliver a scaled and differentiated array of premium news, analysis, commentary,
entertainment and community engagement.
Historically, our primary subscription service has been our subscription access service. To supplement our subscription access service, we are
marketing new products and services that are either third party or AOL-developed products. We earn performance-based fees in relation to marketing third
party products and services. To facilitate this, in the first quarter of 2011, we launched the next phase of a single consumer-facing platform that allows us to
manage and distribute these additional products to internet consumers. We offer these products to our current and former access subscribers as well as other
internet consumers.
During the first quarter of 2012, we expect that our total revenues will continue to decline as compared to the same period in 2011, but at a lower rate of
decline than we experienced in the first quarter of 2011. We expect the overall decline to be driven by declines in subscription revenue and search and
contextual advertising revenue, primarily due to the decline in our domestic AOL-brand access subscribers. We expect the rate of decline in both subscription
revenue and search and contextual advertising revenue to be lower than the rate of decline in the first quarter of 2011 and to be partially offset by growth in
global advertising revenue.
Key indicators to understanding our operating results include:
• Growth of advertising revenues;
• Unique visitors to AOL Properties;
• Monthly average churn and average paid tenure of our AOL-brand access subscribers;
• Our investment in the local online market, which we believe is a potential growth area; and
• Our ability to manage our operating cost structure.
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. We believe this continuing
trend will create strategic growth opportunities for us to attract new consumers and develop new and effective advertising solutions. Additionally,
the amount of content that is available online continues to expand. We believe our strategy is aligned with this rapid expansion as we aim to
create a global content brand network while providing our consumers with an array of news, analysis, commentary, entertainment and community
engagement. We offer a variety of sites that we expect to continue to drive consumer engagement, focusing on target audiences such as women,
local and influencers. We continue to expand our distribution of our content, products and services on multiple platforms and digital devices (e.g.,
PCs, laptops, mobile phones and tablets).
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