AOL says new strategy is working
The CEO of the troubled Internet company defends AOL's new free broadband service and says the company is finally prepared to benefit from online ad growth.
By Paul R. La Monica, editor at large

NEW YORK ( -- The head of troubled AOL defended his firm's newest strategy as the former Internet leader attempts to stay relevant in a world now dominated by faster broadband access services and sites that offer e-mail for free.

The company, which like is a subsidiary of Time Warner (Charts), announced last month that broadband subscribers will be able to use AOL's services, such as e-mail, for free instead of having to pay for it. AOL will continue to charge for dial-up access though.

AOL CEO John Miller is banking that free e-mail for broadband users will be the savior for the troubled Internet company.
Time Warner's stock has underperformed compared to shares of other "old" media rivals and many blame the struggles at AOL.

Jonathan Miller, the chairman and CEO of AOL, said at Merrill Lynch's Media and Entertainment Conference in Pasadena Wednesday that sign-ups to AOL since the free broadband service was launched in August has been a little better than expected, considering that AOL has not aggressively marketed the new free product just yet.

But he would not say exactly how many new broadband users have signed up for the free AOL services.

AOL, which still depends mainly on subscriber fees for the bulk of its revenue, has lost millions of subscribers over the past few years as customers embraced free e-mail products from Yahoo! (Charts), Google (Charts) and Microsoft's (Charts) MSN and high-speed access from phone and cable companies. So the shift to a free broadband service was viewed as absolutely necessary, Miller said.

"We've moved AOL to be in sync with the market trends," Miller said. "Things that have been working against us and have been for some time such as the migration to broadband is now beneficial to AOL."

More to AOL than AOL

Miller said AOL is also making moves to take advantage of the strong demand for online advertising.

He stressed that the company's network of sites, which in addition to includes MapQuest, AOL Instant Messenger (AIM) and Hollywood gossip site, actually had more unique visitors in the second quarter than the network of sites owned by Google, Microsoft and IAC/InterActive (Charts), the parent company of search firm Yahoo had more visitors though.

"We are in a place today where we think we are in the game in every way in terms of monetization," said Miller. "If you look at the growth rates in our advertising business, they are trending up."

Miller also said that AOL hopes to expand its AIM product and turn it into a social networking site akin to MySpace, the popular social networking site owned by News Corp. (Charts)

Still, many on Wall Street continue to think that AOL's move to make much of its services free was long overdue.

In her introductory remarks before Miller's presentation, Merrill Lynch analyst Jessica Reif Cohen said that no company has faced greater challenges in the past few years than AOL.

To that end, many on Wall Street are taking a wait and see attitude towards AOL.

But investors do appear to be hopeful that the "new" AOL will lead to a turnaround in the unit's performance. Since Time Warner unveiled the new strategy for AOL in early August, shares have gained about 5 percent.

AOL accounted for 19 percent of Time Warner's sales and operating income before depreciation and amortization (OIBDA) in the second quarter. But revenue and operating profits both dipped in the quarter as increased ad sales were not enough to offset the company's eroding subscriber base.


The reporter of this story owns shares of Time Warner through his company's 401(k) plan. Top of page

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