After months of speculation, Time Warner has confirmed that it will split AOL’s media and internet access divisions. Despite TW’s revenue increase of 5%, the internet property’s operating income dropped a whopping 36% in the second quarter of 2008, a loss of $230 million.
The loss is due primarily to a decline in subscription revenues. Subscriptions are down based on AOL’s decision to allow members to keep their emails for free. They lost 604,000 subscribers quarter-over-quarter and 2.8 million year-over-year.
Of course, this was all initially driven by a desire by consumers to have broadband internet access in their homes, provided by the cable companies. Time Warner is a provider of cable services.
The silver lining is AOL’s advertising, which was up 2%, an $8 million increase. Even then, there was a slight decline in display advertising across AOL Network sites.
Still, AOL has been refocusing its business model on advertising as opposed to internet access subscriptions. This is an obvious move, especially considering its Platform-A digital advertising division is #1 in online advertising networks.
It is widely rumored and expected that Time Warner will sell off AOL altogether to a buyer in the online advertising space. They’ve talked to both Yahoo and Microsoft in attempts to strike a deal, but much like the aforementioned companies, an agreement has yet to be reached.