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eBay, AOL renegotiate marketing pact

The online auction site has amended its marketing deal with AOL Time Warner, decreasing its future payments and making them contingent on performance.

eBay has amended its marketing deal with AOL Time Warner, decreasing its future payments and making them contingent on performance.

As part of the new deal, which the companies signed last month, AOL can choose to continue the marketing relationship into 2005, but only if it meets certain "performance goals," eBay reported in a document filed with the Securities and Exchange Commission. eBay did not disclose what those goals are.

eBay and AOL representatives did not return calls seeking comment.

The amended contract comes in the wake of a steep fall in advertising revenue for online media companies such as AOL. The sagging economy, the death of dozens of dot-com companies, and the downturn in the market all helped drive down demand for advertising, and companies such as AOL and Yahoo have been forced to cut their rates and renegotiate deals.

Last fall, e-business software developer PurchasePro renegotiated its own relationship with AOL, ceasing its advertising payments to the company. Over the last two years, companies such as 1-800-Flowers.com, Drkoop.com and VitaminShoppe.com have all reworked their marketing deals with AOL, many of which were signed during the dot-com boom of the late 1990s.

Under the companies' new agreement, eBay will pay AOL $18.75 million for online advertising for the contract year ending March 23, 2003. That's essentially the same amount the online auction giant was obligated to pay under the four-year contract the companies signed in 1999.

But instead of the $18.75 million that eBay was obligated to pay in the 2004 contract year, the continuation of the contract into that year has become contingent upon AOL meeting the new performance goals. If AOL meets those goals in the current contract year and it chooses to extend the contract, eBay will pay a maximum of $15 million for the contract year ending March 2004.

AOL can then extend the contract into 2005, providing it meets the goals set for the previous year and it chooses to do so. But eBay will pay no more than $10 million for advertising services in the contract year ending March 2005.

eBay first signed a marketing agreement with AOL in 1997. The companies signed a new four-year, $75 million agreement in 1999 that they extended last year for one more year.

As part of the companies' partnership, AOL has promoted eBay to its users, through co-branded Web sites and most recently through its AOL Instant Messenger (AIM) program. AOL also sells advertising placements on eBay.

As part of their renegotiated agreement, the two companies revised the terms by which AOL acts as an ad sales representative for eBay. The companies moved up the termination date of the agreement from December 2003 to March 2003 and the companies adjusted the commission rate that eBay pays AOL.

eBay did not disclose the commission rate or how it was adjusted. AOL can extend the ad sales agreement to March 2004 if it meets certain unmentioned performance goals.

CNET News.com's Jim Hu contributed to this report.