• by Wendy Davis  @wendyndavis, February 1, 2007

Ad revenue at Time Warner's AOL increased by $548 million last year, marking a 41% surge from 2005, the company reported Wednesday.

"Advertising revenues reflected strong growth in display advertising, advertising run on third-party Web sites generated by Advertising.com and paid-search advertising," the company stated in its SEC filing.

Despite the ad surge, overall revenue at AOL fell to $7.9 billion last year--marking a 5% drop, which the company said was largely due to a $971 million loss of subscription revenue. AOL last August dropped subscriber fees for people connecting via broadband as part of a plan to increase ad dollars by drawing more visitors and keeping them on the site as long as possible, in order to serve more ad impressions.

At the time the company dropped its fees, 6.2 million U.S. subscribers with broadband connections paid $15 a month for their AOL e-mail addresses and other services. In the fourth quarter, the company lost 2 million subscribers, bringing the total number of AOL paid U.S. members to 13.2 million.

Fourth-quarter defections, however, came in lower than some estimates. Merrill Lynch had anticipated at least 2.25 million fourth-quarter subscriber departures, the brokerage house said in a report Wednesday.