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Wednesday, July 23, 2003

The End of AOL Internet

Following the recent AOL decision to, in Eamonn's
words, cut off life support to Netscape, it now appears that the staff of the entire internet unit may be following down the same road as the subscriber base takes a nose dive.

America Online's subscriber base plunged in the second quarter, as nearly one million customers fled the service for cheaper or faster Internet connections. Despite efforts to stem the loss of subscribers, AOL shed 846,000 dial-up customers in the three months that ended June 30, according to figures released this morning by its parent company, AOL Time Warner Inc. That leaves the service down 1.2 million subscribers compared to the same period last year.

While AOL Time Warner reported strong quarterly financial results for the company as a whole, the Dulles-based AOL division remains its single biggest problem. In addition to losing subscribers at a faster-than-expected rate, AOL also is projecting that its online advertising revenue will drop 40 to 50 percent in 2003. Only six months ago, the company had projected that AOL's ad revenues would be stable.

AOL Time Warner also disclosed that federal investigations into questionable accounting practices are continuing and may lead to significant financial penalties. The company said that the Securities and Exchange Commission refused to back down from its position that AOL had improperly accounted for hundreds of millions of dollars of revenue from two deals with Bertelsmann AG.

AOL Time Warner said its efforts to convince the SEC to change its views had failed and that AOL Time Warner probably "would be forced to reconsider its views of the accounting of these transactions." As a result, the company said it may be forced to restate revenue and profits for prior periods. The company said the SEC would prohibit it from moving forward with plans to raise cash by spinning off a portion of its cable television business until aspects of the investigation of the Bertelsmann deals are resolved.

AOL Time Warner, which released its financial results for the second quarter prior to the opening of stock trading this morning, beat Wall Street estimates for earnings, as its cable television, motion picture and publishing businesses thrived. "Our solid results in this quarter and the first half of the year give us confidence that we can deliver on all of our 2003 financial objectives," said Richard Parsons, the company's chairman and chief executive officer. "Our goal for the remainder of this year is to keep laying the foundation that will enable us to exit 2003 with more momentum than we had when we entered it, with an eye toward achieving, strong sustainable growth next year and beyond."

Despite heavy investment in the new "AOL for Broadband," AOL was able to show only modest progress in retaining some high-speed subscribers. The company said that about 45 percent of the decline in dial-up subscribers during this quarter came from intentionally pruning unprofitable customers. Overall, America Online has between 25 and 26 million U.S. subscribers. AOL Time Warner reported profits of $1.1 billion for the second quarter on revenue of $10.8 billion. Revenue grew by six percent, and the company successfully continued to reduce its hefty debt load by both selling various non-core business units and utilizing its robust cash flow.
Source: Washington Post

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