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. …