TW: Yahoo deal would affect AOL

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Wall Street observers have argued that AOL would come under additional pressure if Microsoft ends up acquiring Yahoo, and corporate parent Time Warner on Friday acknowledged the challenges of potential further Web consolidation.

"The competition AOL's advertising businesses face could intensify when Google's acquisition of DoubleClick is completed, and if Microsoft's proposed acquisition of Yahoo or other similar consolidations occur," TW said in its annual report, filed Friday with the U.S. Securities and Exchange Commission.

As the company continues to transition from an access-focused business to a programming-heavy one, the filing listed the company's biggest competitors in the online advertising space as Google, Yahoo, Microsoft, News Corp.'s MySpace and Facebook.

"The Internet is dynamic and rapidly evolving, and new and popular competitors, such as social networking sites, frequently emerge," TW said in its filing.

TW also said in its annual report that AOL continues to generate the "majority" of its revenue through its subscription business. In 2007, AOL's subscription business had revenue of $2.8 billion, which was down 52% year-over-year, and its advertising business had revenue of $2.2 billion, up 18% year-over-year.

As of December, AOL had 9.3 million subscribers paying either $25.90 or $9.99 for access.

TW also detailed AOL's programming business, noting its AIM, MapQuest, TMZ, Moviefone and other properties. It touted the importance of such content brands, arguing that consumers often still associate the AOL brand with the dialup Web business.

The company said part of its strategy is to attract old AOL subscribers and other Web users to its sites "by offering compelling and differentiated free programming, products and services."
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