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Time-Warner Inc.'s attempts to transition its AOL LLC Internet arm from a company that relies on subscription revenues to one supported by advertising has been rocky at best, but that is not stopping AOL from snapping up new ad properties. On Tuesday AOL announced the acquisition of content-targeting advertising firm Quigo Inc.

Though terms of the deal were not disclosed, a source close to the acquisition said the purchase price was higher than the $340 million figure cited by some media reports.

Quigo's technology lets advertisers purchase ads on Web sites based on specific pages, sections, topics or keywords. Though the New York-based company was on track to pursue a public offering in 2008, its prospects were better inside a larger entity with a broader reach, said its chief revenue officer, Henry Vogel.

"I think the timing was right to team up with another company with the commitment and assets AOL has," Vogel said. "We'll be able to take full advantage of the technology and the network AOL has built and will be able to complement AOL's existing audience."

Though Google Inc., Microsoft Corp. and Yahoo! Inc. have made the most high-profile acquisitions in the online advertising sector this year with the additions of DoubleClick Inc. for $3.1 billion (still pending), aQuantive Inc. for $6 billion and Right Media for $680 million, respectively, AOL actually was ahead of the game when it purchased Advertising.com for $435 million back in 2004.

Since then, it has picked up the pace of advertising deals this year, adding behavioral advertising firm Tacoda Inc. for $274 million in July, mobile advertising firm Third Screen Media for $104 million in February and Germany-based online advertising firm Adtech AG in May.

Greg Sterling, principal of Sterling Market Intelligence, a research firm focusing on Internet advertising, said AOL has made prudent acquisitions of online advertising companies, but must now show that it can make them work together. In September, the company announced a major initiative, dubbed Platform A, that integrates all of its advertising properties.

"The challenge AOL has is that they've announced this Platform A initiative, now the question is can they make good on that?" he said. "I'm not expressing skepticism about their ability to integrate these companies, but integrating and leveraging is always somewhat challenging and more difficult than people expect."

Indeed, weakness at AOL had an impact on Time Warner's third-quarter earnings, which were posted Wednesday. AOLÕs revenues declined by $745 million to $1.2 billion in the quarter due to an $820 million decrease in subscription revenues that was only partially offset by a $61 million increase in advertising revenues over the year-ago period.

In a regulatory filing, Time Warner said AOL's advertising business has been "adversely impacted" by a number of trends, including "accelerated fragmentation of online audiences away from the top portals, downward pricing pressures on AOL Network advertising inventory, and the increasing usage by online advertisers of third-party advertising networks."

There has been some speculation that Time Warner could spin off AOL if the unit's results continue to drag on its parent's, but Sterling said he still expects the New York-based media conglomerate to hang on to AOL. Officials at AOL were unavailable for comment.

AOL did not use a financial adviser in connection with the Quigo deal, but turned to Jeremy London, Jose Esteves, Jessica Hough and David Schwartz of Skadden, Arps, Slate, Meagher & Flom LLP for legal advice. AOL's chief M&A counsel, Christian O'Connor, also participated.

Mike Ronen, Scott Stanford, Marin Mengwahl and Jeffrey Gordon of Goldman, Sachs & Co. served as financial adviser to Quigo. Robert Clarkson, Daniel Mitz, Richard Meamber, Nevin Boparai and Spencer Simon of Jones Day provided legal counsel to Quigo.

Quigo was backed by between $30 million and $40 million in venture funding from Highland Capital Partners Inc., Steamboat Ventures, Glenrock Ventures, Institutional Venture Partners and Meritech Capital Partners.

Source: AOL's Quigo Acquisition: 'The Timing Was Right'