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AOL ends charges to keep subscribers
Question of the Day
AOL LLC announced yesterday that it will no longer charge high-speed Internet users for e-mail or software as the Time Warner Inc. unit plans to rely more on advertising to boost revenue.
The Internet pioneer that gave millions of Americans their first taste of the Web announced a major restructuring plan as the company takes on Google Inc. and Yahoo Inc., the top search and advertising services.
“This will remove the biggest barrier to our members staying with AOL as they migrate to broadband,”Jeff Bewkes, Time Warner president and chief operating officer, told investors and analysts in a call yesterday. “It will also engage new consumers.”
The Sterling, Va., company has been hemorrhaging subscribers at a steady pace, losing more than 3 million U.S. members since June 2005 as users switched to broadband from slower dial-up Internet access. Nearly 1 million subscribers left in the second quarter alone.
Advertising revenue, however, surged 40 percent in the three months ended June 30 as AOL averaged 113 million unique visitors to its Web pages per month — second only to Yahoo, which scored 127 million, and ahead of Google’s 105 million. Subscribers accounted for 36 percent of AOL’s unique visitors during that period.
The company will continue to provide dial-up Internet access for $26 per month but will no longer aggressively market the service. Two-thirds of AOL subscribers in the United States use dial-up connections.
High-speed users will have free access to AOL e-mail, instant-messaging services and a local phone number with unlimited incoming calls. Anti-spamming and security software, including parental controls, also will be free.
Time Warner thinks the move will allow the company to hang on to users who upgrade to broadband but want to keep using AOL e-mail accounts and other services.
“Our members don’t want to leave; they want to keep using AOL,” Mr. Bewkes said. “They tell us that the No. 1 reason they leave AOL when they switch to broadband is price. So now we’re going to fix that problem. We’re going to stop sending our members to our competitors.”
The company said it has begun notifying subscribers by e-mail about the plan, which it hopes to implement early next month.
At that time, broadband subscribers who pay for AOL services no longer will be charged for them.
Ivan Feinseth, an analyst for Matrix USA LLC in New York, described the new business strategy as long overdue.
“They’ll be much better off,” said Mr. Feinseth, who owns no shares of Time Warner and whose company does not have a business relationship with the media company. “The real goal is advertising revenue and the more people you give something away for free to, the more people who can see the ads.”
To fund the transition, AOL aims to cut $1 billion in operating costs by the end of next year.
AOL’s plan will require between $150 million and $200 million in restructuring costs this year, the company said. Executives did not provide specific guidance but said the costs will not materially affect the company’s annual earnings. If anything, they said, the free services would give profits a lift.
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