Federal investigators from America’s Justice Department and Securities and Exchange Commission have uncovered yet more evidence of cosy contra-deals booked as advertising revenues by the AOL unit of AOL Time Warner.

Following last week’s revelation of AOL’s chummy reciprocal arrangement with WorldCom [WAMN: 23-Aug-02], a similar chummy understanding has been disinterred by scrutineers – this time concerning female-focused fledgling cable channel Oxygen Media.

There had been no attempt to hide the deal which received a fair degree of publicity last year. As Robert Pittman, AOL TW’s former chief operating officer (who walked the corporate plank last month) put it at the time: “If we're one of their big customers, we expect them to be one of our big customers.”

Nor do investigators suggest there is anything wrong with contra-deals per se – it is the subsequent treatment of associated revenues in the company’s accounts that give rise to concern.

In the case of Oxygen, AOL invested between $30 million (€30.96m; £19.76m) and $50m of shareholders’ money in the new channel and also agreed to carry Oxygen content on its parent’s cable systems. In return Oxygen pumped advertising worth around $100m into the media mammoth’s coffers – mainly into AOL. Big money by any standards, say informed onlookers, especially for a cash-conscious start-up.

While government officials keep digging, AOL TW itself is conducting a rigorous internal probe into these and other transactions at its internet division. It hopes to complete the investigations by the end of September and may then restate past results.

According to Oxygen’s chief operating officer, Lisa Gersh Hall, the agreement met three key criteria sought by her company and represented an “excellent deal for us”. The triple tempationss were: equity investment, cable carriage and online promotion.

But although insisting Oxygen didn’t commit to buying ads in return for cable carriage, she ducked the question as to whether it would have done had it not been seeking carriage. It was, said Hall, a three-part deal, the elements of which she declined to separate.

Data sourced from: The Wall Street Journal Online; additional content by WARC staff