free html hit counter Will AOL Follow The Free? | John Battelle's Search Blog

Will AOL Follow The Free?

By - July 11, 2006

Aol Gl LogoIn a public article, the Journal today has details on AOL’s proposal to take portions of its service free.

Time Warner Inc. expects its AOL unit to sacrifice nearly $1 billion of operating profit through 2009 under a proposed plan to offer the online service free of charge to some customers, according to internal company forecasts. The company, however, is also forecasting that growth in Internet ad revenue will partially offset the expected decline in subscription revenue and ultimately leave the company more profitable.

The new proposal would cut roughly in half profit from AOL’s sale of Internet subscriptions in the U.S. in the next three years, the forecasts show, from $1.6 billion this year to about $800 million in 2009. According to the forecasts, AOL, which has 18.6 million U.S. subscribers now, would end up with just over six million by the end of 2009…

…If AOL fails to meet growth targets for ad sales, Time Warner could take a substantial hit to its bottom line. The online division accounts for about 20% of its operating profit.

AOL’s internal forecasts estimate revenue from sales of domestic Internet subscriptions to drop by a staggering $2.7 billion over the next three years, from about $4.2 billion this year to about $1.5 billion in 2009…

..The plan, to be put to Time Warner’s board at the end of the month, comes as Wall Street has been pushing Time Warner executives to take decisive action to fix AOL. The Internet division’s woes have weighed on the company’s stock price for several years. Time Warner stock has fallen 11% since February.

The real question here is whether TW will let AOL pursue this, or if its content/cable roots will get in the way. If in fact this battle is lost inside TW, I wonder if Jonathan Miller will stick around. A guy can take just so much internal politics. Just a thought. …

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9 thoughts on “Will AOL Follow The Free?

  1. According to the forecasts, AOL, which has 18.6 million U.S. subscribers now, would end up with just over six million by the end of 2009…

    How are they reaching this conclusion?

    They appear to be suggesting a lack of faith in AOL to remain competative.

    Giving hi-speed users free AOL accounts under the guise that they would have left – then pushing Ads on them during their visits to any AOL properties does not display any faith in AOL as a unique, content-rich place worth visiting for their future users.

    What Time Warner may be anticipating is the “Multi-media portalization” of all the major carriers – or the acquisition or merging of carriers to content providers – so as to have everyone virtually offering the same thing.

    Just imagine how different AOL would have been if they were acquired by Google – it would really fill a mutual void.

    One gets the feeling that Time Warner sees AOL as a menace.

  2. And how many of those subscribers are dead?

    AOL STILL refuses to cancel my Mother’s AOL account almost 2 years after her death in a car accident. All attempts to do so have been met with hang ups/’computer problems’ etc. I can’t even begin to describe how awful each attempt to cancel is for me (can’t even speak for how my father – who was initally unsuccessful in these attempts to cancel – feels).

    That the current revenue that comes from disgraceful business practices like this should pay for the above free service makes me want to throw up.

    The email address I add to this post(which I think John keeps private) is the AOL one in question, and the link (click my name) is to my mother’s inspirational obituary in The Guardian.

  3. roopa says:

    this is the best move – the most competitive and the one that comes from necessity – the long term picture is more important. no point sitting back and waiting for death with broadband and free content on the horizon.

  4. Billiger says:

    Other countries – same problems. I tried to cancel my AOL account for over 3 months – till i got an answer.

  5. Billiger says:

    Other countries – same problems. I tried to cancel my AOL account for over 3 months – till i got an answer.

  6. PPA Kro says:

    The fact that is has taken AOL this long to come up with a “free” strategy is indicative of long standing internal politics that have frozen this rusty machine for a decade. Internally, mid-level execs and sr. execs are still living under the illusion that AOL is still relevant (ie Ted Leonsis). No matter what they claim they are going to do, they WILL NOT be able to get out of their own way. By the time AOL does execute it will be too little and way too late.

  7. PPA Kro says:

    To further defend my previous comment, here’s another relevant article on the sad state of AOL: http://www.smartmoney.com/commonsense/index.cfm?story=20060711

  8. I think they’re in huge trouble either way. They’re happy to dump the dialup users though, and getting rid of some of the costs may help.

    They want pageviews. Pageviews = money these days.

  9. I have written to you for a year, of and on saying I don’t wont AOL. I have been with Yahoo for over a year., so please cancell my AOl.

    Thank You,

    Karen Herndon
    4957 Cheryy Hill
    Corpus Christi Tx 78413
    361-991-8077

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