The slump hitting the advertising industry is far from over - at least for market-leading US online service America Online.

AOL, part of media giant AOL Time Warner, is set to see its revenues from adverts and online commerce fall by almost half in 2003.

It is clear that 2003 will be a transition year

Wayne Pace, chief financial officer, AOL Time Warner

In the group's first strategic update since federal authorities revealed in the summer that they were investigating alleged accounting irregularities, the company said it expected subscriber numbers to continue to swell.

But the 45-50% slump in ad and e-commerce business meant total sales would remain "essentially flat", with profits before tax, interest and one-off costs set to slip 15-25%.

The bad news sent the company's shares down 12% to $14.57 in the first hour of trading.

Problems galore

It is just the latest blow of many in the three years since AOL, flush with new-economy success, merged with media major Time Warner in January 2000.

The group has written off $54bn this year, creating one of the largest losses in US corporate history, as it tries to shake off investments rendered near-worthless by the bursting of the 1990s' technology bubble.

A succession of departing executives - most recently the head of America Online itself, James de Castro, after just seven months in the job - and the restatement of 2000 and 2001 results, clipping almost $100m from profits, have added to the group's troubles.

And an accounting probe by the Justice Department and the Securities & Exchange Commission, at a time when the likes of Enron and WorldCom were souring the reputation of USA Inc, was scarcely welcome either.

Prior access

Tuesday's statement from AOL put the best face it could on the figures.

"It is clear that 2003 will be a transition year," said Wayne Pace, AOL Time Warner's chief financial officer, promising growth in earnings before interest, tax, depreciation and amortisation (ebitda) by 2004.

For 2002, he said sales would be $8.8-9bn, with ebitda of $1.5-1.6bn.

Plans for the future include the publishing of the group's massive magazine stable online free to AOL's 37 million subscribers, and for a fee to internet users in general.

And its broadband customers, it said, would be getting music videos, film and TV from Warner and pay-news from CNN before anyone else.