AOL may give away more
of its services
By ANICK JESDANUN,
AP Internet Writer
AOL LLC may give away even more of its services, including its vaunted AOL.com e-mail accounts now limited to paying subscribers, to boost ad revenues and offset declines in subscriptions, a person familiar with the discussions said Thursday.
One proposal under consideration among top AOL executives calls for Time Warner Inc.'s online unit to stop charging subscription fees to users who have high-speed Internet access or even dial-up service from a rival provider.
The person familiar with the talks said a major strategic review over the past several months sought to identify additional ways to keep users within the AOL family regardless of whether they want to keep paying monthly fees of as much as $25.90 a month.
Under the plan, first reported by The Wall Street Journal, the company would continue to charge the fees for those needing dial-up access through AOL.
Over the past year and a half, AOL has been making more of its articles, video and other services available for free on its ad-supported Web sites. But some features, including AOL.com e-mail, remained available only to paying subscribers.
AOL offers free e-mail services, but only through its Web site and with an AIM.com address. AOL offered to forward former subscribers' AOL.com e-mail to AIM accounts, but many didn't bother because they had to give friends new e-mail addresses anyway.
If the proposal is adopted, those subscribers would be able to keep their AOL.com address and use the AOL software with which they're familiar.
The AOL software also would allow subscribers to continue using instant messaging, Web journals and other services without having to download separate software or figure out Web-based options. That would ease the transition and encourage them to keep using AOL services, the person familiar with the matter said.
Details that still to be worked out include whether AOL would give away security and parental-control software now part of the paid package, the person said.
AOL had 18.6 million U.S. subscribers as of March 31, a drop of 835,000 from the previous quarter and down from a peak of 26.7 million in September 2002.
Rob Enderle, an industry analyst with the Enderle Group, said AOL needs to avoid becoming a company "caught in the middle" — trying to juggle both a paying subscriber base and a free, ad-based model without doing either well.
AOL must accelerate the shift to free, he said, to become closer to what its rivals like Yahoo Inc. (Nasdaq:YHOO - news) already do, even if it means painful cuts in revenues in the short run.
"By doing this they are certainly going to take a bigger hit, but they may be able to turn the company to growth," he said. "A smaller company that is growing is better than a larger company slowly in decline."
According to Time Warner's regulatory filings, AOL subscriptions generated $1.5 billion in the first quarter of 2006, contributing to the unit's profit of $269 million. But that's still a 13 percent drop in subscription revenue from the same period last year.
Advertising generated less revenue — $392 million in the quarter — but that was an increase of 26 percent.
According to the Journal, AOL expects that 8 million of its existing dial-up customers would jump on the offer, costing as much as $2 billion in annual subscription fees.
Shares of Time Warner fell 15 cents to close at $16.98 Thursday on the New York Stock Exchange.
In a research note, Michael Nathanson of Sanford C. Bernstein & Co. LLC said the plan carries "execution risk and the likelihood for downward revisions" in Time Warner's finances.
The AOL plan requires ad revenues to grow significantly, although some of the lost revenue could be offset by lower expenses, including layoffs in marketing and customer service.
Just two months ago, AOL announced about 1,300 layoffs, or roughly 7 percent of its global work force, in the latest cuts to affect mostly its service centers.
Enderle said the discussions could be seen as a sign some of AOL's previous strategies didn't meet expectations.
Earlier this year, AOL partnered with several cable and phone companies to provide AOL-branded high-speed service, in most cases for $25.90 a month, as a way to encourage dial-up users to migrate to broadband. AOL has not released figures on how many took the offer.
The proposal under consideration would let Internet users who already have broadband elsewhere get AOL without switching providers.
Copyright © 2006 The Associated Press.