AOL: new prices, strategy
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October 29, 1996: 9:32 p.m. ET
Leading online provider to make changes, take $460 million charge
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NEW YORK -- America Online Inc., responding to challenges posed by the Internet, announced plans Tuesday to restructure, revise pricing and take $460 million in one-time charges.
The world's largest online-service provider said it plans to offer a number of new pricing options, effective immediately.
A standard monthly plan will offer unlimited access to the Internet and AOL proprietary content for $19.95.
AOL will charge customers who pay for two years in advance only $14.95 a month for unlimited access, or $17.95 per month for those who pay one year in advance.
While this may seem like a bargain, Gene DeRose, president of Jupiter Communications, said that events on the Web could make the price costly in the long run. (194K WAV) or (194K AIFF)
The firm will also offer a "light-usage" option of three hours' access per month for $4.95, with additional time priced at $2.50 per hour.
AOL will also launch a "bring-your-own-access" plan of $9.95 per month for unlimited access to AOL's proprietary content, without Internet connections.
As for AOL's reorganization, the company announced plans to separate its business into three operating units:
- AOL Networks, to oversee its flagship Internet online service;
- AOL Studios, for creating online programming;
- ANS Communications, its network infrastructure arm.
AOL named Robert Pittman, former chief executive of MTV Networks, to oversee AOL Networks.
Pittman, most recently chief executive of Century 21 Real Estate Corp., helped turn MTV into the first profitable basic-cable network.
He likened the changing of the changing of prices for proprietary services, like AOL, MSN, and AT&T, on the Internet now to the cable industry ten years ago. "You really saw that big ground swell (of change in 1985 and 1986) and you're seeing that now."
AOL also named Ted Leonsis, who currently heads AOL Services Co., as chief of AOL Studios.
As for ANS Communications, AOL said Bruce Bond, hired this year to lead that operation, would stay on as chief of the unit.
Finally, AOL said it planned to take a $385 million charge in its fiscal quarter ended Sept. 30 to account for deferred subscriber-acquisition costs.
The company said it will immediately begin accounting for all marketing and subscriber-acquisition costs as AOL incurs the costs, abandoning a controversial practice of deferring and amortizing such expenses.
Dulles, Va.-based AOL also said it plans to take a one-time charge of up to $75 million in the current quarter for costs the firm expect to incur during the reorganization.
AOL announced Tuesday's plans at a time when some analysts have expressed pessimism about the future of proprietary services.
As the Internet takes off, some wonder whether proprietary services may have become obsolete.
AOL's stock recently suffered when the firm disclosed trouble retaining customers.
But Tuesday, AOL Chairman Steve Case said in a statement that the firm added nearly 250,000 net new subscribers in October.
From staff and wire reports.
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