AOL Warns Revenues Could Plunge 50 Percent

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By David A. Vise Washington Post Staff Writer Tuesday, December 3, 2002; 12:24 PM

NEW YORK, Dec. 3--America Online took away the punch bowl at its own party today warning hundreds of Wall Street analysts and major investors that its business likely would deteriorate further in 2003.

AOL executives said advertising and commerce revenue will plunge 40 to 50 percent next year. The company also disclosed that it anticipates one measure of profitability, earnings before interest depreciation, taxes and amortization, will fall 15 to 25 percent in 2003.

The bad news came as executives presented a comprehensive outline of the online service's new business strategy to turn around a unit that is suffering from declining subscriber growth and falling ad revenue.

Although AOL Time Warner Chief Executive Officer Richard D. Parsons predicted that America Online eventually would become "the growth product of AOL Time Warner," the near-term gloom pushed the company stock price down by as much as $2 to $14.50 in morning trading.

Calling 2003 a "transition year," America Online Chief Executive Jonathan Miller said, "We don't pretend to have all the answers." Miller said the projected growth in the number of AOL subscribers next year likely would be offset by a dramatic decline in advertising.

Miller predicted that America Online's business would "bottom out" in 2003 and improve thereafter.

During the multi-hour presentation, Miller, Vice Chairman Ted Leonsis and others described a new business and financial strategy for America Online that is built upon making AOL so compelling that the company will profit no matter how computer users access the Internet. The bulk of AOL's 25 million subscribers in the United States currently use ordinary telephone wires to access the service, paying a monthly fee of $23.95.

The company must find a way to compete in a new world of high-speed broadband connections that will require the company to persuade users to pay $14.95 a month for AOL even as they access the Internet through other cable and DSL providers.

"We are not just an ISP," or Internet service provider, Leonsis said. "At our best, we are a messaging and communications platform."

AOL's new strategy includes providing exclusive content from CNN and Time Warner's stable of popular magazines on its service for no additional charge to members.

"We want to sell AOL on a stand-alone basis no matter whose connectivity you use," said Lisa Hook, president of AOL broadband.

-- Anonymous, December 03, 2002

Answers

Gee, I wonder if this has anything to do with them using accepted accounting practices instead of ones they have made up i.e. calling all of those cd's they send out as future income (or some such thing).

-- Anonymous, December 03, 2002

If you believe what they say, i.e., "advertising and commerce revenue will plunge 40 to 50 percent next year," then perhaps advertisers are finally catching on that most surfers aren't influenced by their ads. Think how annoying pop-ups and pop-unders are. How often do you click on the magic "X" before an ad has even fully downloaded? I think we might see some more services going down the tubes because of lower ad revenues.

-- Anonymous, December 03, 2002

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