• by Shankar Gupta , August 4, 2005

Media conglomerate Time Warner reported Wednesday that America Online's second-quarter revenue declined to $2.09 billion from $2.17 billion last year, led by a 9 percent drop in subscription revenues. But the online service also saw a 45 percent increase in ad revenues to $99 million, a substantial amount of which came from the Advertising.com acquisition last year.

The company also reported that lower network and marketing costs offset the decrease in revenue, so that AOL's adjusted operating income before depreciation and amortization increased 11 percent year-over-year to $53 million.

The decline in subscribers was largely local. The service lost 917,000 members in the United States since the first quarter, bringing its U.S. membership to 20.8 million. In Europe, AOL lost 99,000 subscribers, bringing membership to 6.2 million.

Jupiter Research Analyst David Card said AOL's growth in advertising revenue, while substantial, is not as much as competitors like Yahoo! But, he said, AOL has reason to be optimistic that the debut of its free portal will pay off. "I would say that they're still sort of getting their act in gear around things like traditional online display ads or sponsorships or things," Card said. "AOL.com made a pretty solid debut, and that's going to be the platform for that kind of thing."

The Time Warner earnings report also disclosed that the company set aside $2.4 billion to settle class-action lawsuits over an accounting scandal related to the AOL-Time Warner merger.