Time Warner, the global media leader, on Wednesday will take the wraps off plans for ailing internet unit AOL, which may include shedding subscriber-access fees seen as blocking advertising revenue.
Since 2005 Time Warner has openly pursued a strategy of developing free-access programs on AOL — such as TV series, news and music — to compete with Yahoo! and Google.
But as to AOL’s fee-based access, Time Warner would only say last May that it was in talks with potential partners for AOL Europe.
And now, as speculation swirls in the press and the financial markets, Time Warner’s management is keeping completely mum since its terse announcement on Wednesday of a teleconference to present ”AOL’s business strategy update”.
The teleconference will be held on Wednesday after Time Warner publishes 2006 second-quarter earnings.
A possible scenario, sector sources say, is that AOL would decide to permit local telephone operators in Britain, France and Germany to reap access fees, in addition to their current revenue for network connections and post-sale services. AOL would maintain its role as sites programmer.
But observers have noted that partners would mean AOL would have to share advertising revenue.
Meanwhile, the very future of fee-paid, low-speed internet service is unclear. AOL has lopped off hundreds of call-centre jobs in recent months to try to offset its dwindling customer base.
According to the British newspaper the Financial Times, AOL is considering a novel idea for its 18-million United States subscribers — of a total 24 million: they could keep their e-mail account even if they stop paying for it.
In that way AOL could retain a powerful audience for its web pages, rather than close the accounts and drive its customers into rivals’ portals.
AOL, formerly known as America Online, grew to an internet giant within just a few years, and was the driving force in 2000-2001 of the mega-merger with Time Warner.
After that AOL was relegated to the simple rank of a division in the sprawling global media and entertainment parent, alongside film studio Warner Bros Entertainment, television network Turner Broadcasting System, parent of CNN, and publisher Time Inc.
And even though the 2002 AOL accounting scandal is now a thing of the past, after being settled with federal authorities 18 months ago, the internet division continues to worry its parent.
Its fee-based business model was overtaken when rival portals gushed free content to attract advertising. The result: AOL lost millions of subscribers quarter after quarter.
”Subscriber losses at AOL accelerated,” said Jessica Reif Cohen, of investment bank Merrill Lynch, the day after 2006 first-quarter earnings were published.
Management indicated that the second quarter ”could yield similar results” to the first quarter, she said, a 17% decline in earnings before interest, tax, depreciation and amortisation.
For William Drewry of Credit Suisse, ”over one billion dollars in costs can be taken out” to improve AOL’s margins.
”The issue is going to be retention of users and audience and how quickly advertising revenue can be rebuilt after the inevitable initial fall-off — assuming the strategy to push down the narrow-band subscriber base is successful,” he wrote in a July 24 note.
”We are waiting to hear the specifics but our preliminary take is this new downsizing strategy could be a tall tightrope to walk and it’s a long drop down if it doesn’t work.”
A meeting of the Time Warner board of directors last Thursday was dedicated to AOL restructuring, but no comments filtered out.
A spokesperson at AOL headquarters in Dulles, Virginia, said she would not comment on the matter before Wednesday’s teleconference. — Sapa-AFP