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Highlights from Time Warner 2Q07 Earnings Call August 2, 2007

Posted by David Card in Media.

Details are here. I’m going to focus on AOL’s ad revenues, because that’s the most interesting topic, and the one TWX got grilled on.

Online Advertising

From the call, and from looking at the 10-Q, it seems that there are some hiccups in the transition. I still buy that AOL is on the right path — and its acquisition of Advertising.com is looking very smart — but after a healthy growth spurt, AOL is looking decidedly Yahoo-like. That’s not all good, but it’s not all bad, either.

2Q07 Ad $$, growth year over year:

– US ex-TAC (that is, minus the revenue shared with network partners, or, the number we use for market share) $329M, up 12%
– Total ad revenue: $522M, up 16%
– Display ads on AOL properties: $221M, up 15%
– Paid search on AOL (Google-powered): $156M, up 6%
– Network partners $145M, up 32%
– A single network partner (gee, could it be MySpace?) $48M, up 33%
– Guidance: growth for the rest of the year will look like this quarter, not like last (40%); and we don’t expect to outperform the market anymore.

Let the ‘splainin’ begin:

Execs said AOL re-designed search, and there was a bad lull both in usage and by advertisers, in the middle of the quarter. They claim traffic and query counts are now back.

Likewise, major sections got re-designed (e-mail, health, music, autos), which had a similar effect on both users and advertisers. But page views are actually up for the first time since the new strategy was unveiled. Execs claim that real pageview growth, after accounting for comScore changes, was up 4% sequentially.

E-mail page views are a leading indicator. They’re up 27% sequentially. They also account for 43% of pageviews. Ugh. Execs think they can monetize mail via behavioral targeting (partially via recently acquired Tacoda), but also by other tactics.

AOL claims 21M registered users (10.5M free; 11M still paying for access), so targeting should be possible.

Blah blah. Somebody finally asked about display ad pricing. Execs claimed that wasn’t a problem, but that it was working hard on platform efficiencies that would help both AOL and the network partners. I say the same thing as I said about Yahoo: either you’re not targeting well enough or your inventory is too expensive.

Other Tidbits

Time Warner Cable:
– triple play – 13% penetration
– Digital – 7.7M, 184K net adds, 58% penetration
– Broadband – 7.2M, 188K net adds, 28% penetration
– VOIP – 2.3M, 241K net adds, 12% penetration

Day-and-date VOD trials. Take rate is 50% higher than average. Still isn’t affecting DVD sell-through. Is affecting DVD rental, but who cares, that’s Blockbuster’s problem, and margins are three times higher.

Turner networks did great in the cable upfront (high single digit growth). Kids fairly week, though. Scatter looks good, and political advertising should start in Q4.

Ad sales on digital magazines, driven by People.com and CNN Money, are growing fast enough to offset print magazine declines.

DVD pricing may look bad, but it’s because of mix issues: a lot of catalog sales this Q. New titles coming.

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