September 2, 2010 8:07 pm

AOL and Google expand advertising deal

AOL on Thursday renewed a deal with Google on internet search advertising, expanding it to include searching on mobile devices and on the YouTube online video service.

Financial terms of the deal, which expands a near decade-long partnership between the two media groups, were not furnished. Google and AOL will share a percentage of revenue generated by search advertising across AOL’s range of websites.

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The new deal, which includes AOL contributing video content to YouTube, expands upon a landmark partnership between the two companies that helped cement Google’s leadership in internet search advertising. In 2005, Google announced the purchase of a 5 per cent stake in AOL for $1bn, beating rivals Yahoo and Microsoft. Google also extended a $300m credit agreement to AOL to use on Google’s network at the time.

Google first started providing search advertising services to AOL in 2002.

The relationship has proved vital to AOL, which credits it with generating a “significant” portion of its own advertising revenue, according to regulatory filings. Companies bid for their ads to appear alongside search results containing relevant keywords. In the first six months of this year, AOL’s ad revenue generated from the relationship was $209m, down from $274.9m in the same period in 2009. Last year, Google search ad revenue from the deal accounted for about a third of AOL’s overall ad revenue.

Time Warner repurchased the stake for $283m last year ahead of its spin-off of AOL in December. The new deal, announced months before the existing deal expires on December 19, settles one long-term issue faced by Tim Armstrong, chief executive of AOL.

Mr Armstrong, who took over as the company’s top executive last year, has vowed to restructure the once formidable internet service provider into one of the internet’s biggest content producers. “Today is another important step in the turnround of AOL,” Mr Armstrong said.

This turnround has proved challenging. Even as AOL unwinds deals made in a $2bn buying spree in recent years that left it bloated and unmanageable, its ad business has continued to suffer.

Ad and subscription revenue fell 27 per cent in the second quarter, when it also reported a net loss of $1.05bn, or $9.89 per share.

A recovery in earnings is not expected until 2011, Mr Armstrong has said.

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