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Google and the future of AOL

December 22, 2005


America Online (AOL) and Google are expanding their current strategic alliance to create a global online advertising partnership. The deal will make AOL content more accessible to Google web crawlers, expand display advertising through the Google network, enable Google Talk and AIM instant messaging users to communicate with each other, and allow for collaboration on online video offering. It includes a $1 billion investment in AOL by Google for an effective 5% equity stake.

This strategic alliance expands on the original relationship between the two companies which launched three years ago.

Time Warner chairman and CEO Dick Parsons says: “We’re very pleased to build significantly on our special relationship with Google in a way that will meaningfully strengthen AOL’s position in the fast-growing online advertising business and help drive more advertisers to its Web properties. This agreement is key to fulfilling our commitment to realise the potential of AOL’s very large online audience. As digital technologies continue to drive industries together, the great value and opportunity inherent in Time Warner’s structure and array of premier businesses becomes increasingly clear. A critical piece of this strategic alliance will be our content, which we will be making more accessible to Google users.”

Google CEO Eric Schmidt adds: “AOL is one of Google’s longest-standing partners, and we are thrilled to strengthen and expand our relationship. Today’s agreement leverages technologies from both companies to connect Google users worldwide to a wealth of new content. We’ve also created a simple way for AOL Marketplace advertisers to buy and place search-related advertising across the AOL network. This partnership is an important next step for our companies.”

Under the strategic alliance, Google and AOL will continue providing search technology to AOL’s network of Internet properties worldwide. AOL and Google have also agreed to extend the term of their existing European relationship, and, subject to mutual agreement, may extend the AOL marketplace internationally. In addition, Google, AOL and Time Warner may choose to expand the new partnership to Time Warner’s other advertising opportunities.

Google and the Future of AOL

When we assembled our new management team more than three years ago, AOL’s business model required serious attention. At the same time, there were huge distractions – from a broken advertising business to legal and regulatory issues – that we needed to sort through. So Don and the AOL team attacked the issues in a very deliberate way. First, even as we dealt with the distractions, we stabilized AOL and then began rebuilding it in a number of ways. Thanks to the great people at AOL, it has been delivering strong profit growth and free cash flow for the past two years. Second, while keeping our traditional narrowband service as profitable as possible, we accelerated our transition to take advantage of the growth in broadband and online advertising. To that end, we turned into a vibrant Web portal and made it – with the best of Time Warner’s content and AOL’s features, all optimized for broadband – available for free to all Internet users.

And we’ve worked to overhaul our whole approach to online advertising. As part of that effort, we acquired, a premier provider of results-based marketing services, and established an important paid-search relationship with Google – helping AOL to grow its advertising revenue in 2005 for the first time in years. Many months ago, we began exploring the possibility that a partner might help us earn an even greater share of online advertising revenues faster. We were looking for an agreement that would enable us to: sell the full range of online advertising formats; build our Internet audience; capitalize on AOL’s access to Time Warner’s premier branded content; and preserve the Internet’s tremendous upside potential for Time Warner shareholders.

Our strategic alliance with Google promises to fulfill all of these objectives – starting with making AOL an even more effective player in online advertising. With this agreement, AOL’s sales force will now be able to sell all types of online advertising – including paid search – and we’ll explore expanding the partnership into selling television and print advertising. Google will also provide substantial promotion for our Web properties, driving traffic to AOL’s Web properties and making its content, particularly video, more easily accessible to Google users. In addition, Google will invest $1 billion for a 5% stake in AOL. We are very pleased that every one of our shareholders will benefit from our hard-won success in revitalizing AOL, as well as from this special relationship with Google. As this agreement shows, we continue to be leaders in turning the digital opportunities across all of our businesses into sustainable long-term value for our shareholders.

From internal memo from Dick Parsons

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