Time Warner the parent company of America Online AOL reported AOL's second quarter 2005 numbers earlier this week and net revenues are on the decline.
AOL reported that second-quarter 2005 revenue declined to $2.09 billion from $2.17 billion last year, and was impacted by a 10% drop in total subscription revenues. But AOL had no comment about persistent rumors stemming from the banks that handle their subscription revenues that AOL is taking measures that prevent subcribers from canceling their monthly services.
According to rumors that have recently been floated by senior executives at some of the nation's leading banks, ruomors are that AOL has a system and measures in place that prevent cancellations from being enacted and allow AOL to continue billing subscribers that have taken actions to cancel their AOL account.
The company also reported that lower network and marketing costs that have helped to offset the decrease in revenue, so that AOL's adjusted operating income before depreciation and amortization once again to show an increase of 11 percent year-over-year to $53 million.
The fastest growing number appears to be lost subscribers and cancellations. AOL lost 917,000 members in the United States since the first quarter of 2005, AOl still claims total U.S. membership numbers of 20.8 million. In Europe, AOL lost another 100,000 subscribers and their European membership has declined to 6.2 million.
AOL reported advertising increases growth in online advertising revenues however AOL ad revenues are not keeping pace with gains being realized at competitors like Yahoo or Google.
AOL believes their new Free portal will pay off in long-term revenue growth.
Here's a recap of AOL's new free portal
AOL moving to free portal Online firm shifts gears in effort to capture bigger audience as dial-up market shrinks. America Online is hoping that "free" is the remedy to its beleaguered Internet business. Executives are planning to unveil an overhauled AOL.com Web portal that gives visitors free access to features that were previously available only to paid subscribers.
The strategy is a major shift for the once high-flying division of Time Warner, which had considered AOL's walled garden of online content a major selling point. But an erosion in the number of the Internet firm's dial-up subscribers has prompted executives to change course and directly challenge the kings of free Internet content, namely Yahoo, Microsoft's MSN and Google.
"This situation we find ourselves in -- people say -- is that the brand is declining and dial-up is falling," said Jim Riesenbach, a senior vice president at AOL. "But I think we're at a great point that we're really bullish about."
Starting Tuesday, a test version of the new portal will be accessible via a link at aol.com. A limited number of features will be available at first, with more added in the coming months.
AOL believes that creating a free portal will expand its audience beyond just subscribers. Online advertising will provide the revenue.
The free Web model has propelled Yahoo, based in Sunnyvale, and Google, based in Mountain View, to great financial success over the past few years. AOL, in contrast, has foundered.
AOL's membership has dropped from a peak of 26.7 million members in 2002 to 21.7 million at the end of the first quarter this year as subscribers switch to high-speed connections offered by other companies. AOL's dial-up service costs $23.90 monthly.
AOL doesn't have a broadband connection business. It offers only an interface for broadband on top of a connection provided by other companies.
In an effort to cater to broadband users, video and music will be emphasized on the new portal. The sources of content will be AOL's sister divisions at Time Warner and other media companies.
Visitors will be able to watch music videos, exclusive concerts and a Web-only reality show in which the participants compete for a recording contract. AOL's Singingfish multimedia search engine will be prominently featured.
Many of the bells and whistles will be based at AOL's Video Hub, which will focus on not only entertainment, but also news. Users will be able to choose the site as their AOL.com home page.
"We know that for broadband users, video is more important than ever," Riesenbach said.
Other home page options include a basic version, much like Yahoo's or MSN's. A My AOL page, where users can compile feeds from news sites and blogs, is expected to premiere in July.
Riesenbach explained that the goal is to make everything available on AOL's proprietary service also available on AOL.com. Some anomalies persist, however. For example, AOL plans to offer 20 channels of FM-quality XM Satellite Radio stations at the free portal. On the proprietary service, subscribers will have access to 70 channels with CD-quality sound.
AOL's new portal helps solves a problem of uniting its disparate Web properties in one place. Although the division is best known for its proprietary service, it also owns such popular free Web sites as Moviefone and MapQuest.
Over the past year, AOL has quietly expanded its reach to the masses. It created the inStore shopping site and the Pinpoint travel search engine in addition to opening up its proprietary music page.
Riesenbach argued that the free portal strategy won't cause an even steeper decline in dial-up subscriptions. Internal studies show that members join for anti-spyware, parental controls and customer support, not exclusive content, he said.
Previously, AOL gave nonsubscribers little reason to visit its AOL.com portal. Other than a search box, the Web site is largely an advertisement for AOL services. AOL members, on the other hand, could log in to the site to access many of AOL's proprietary features -- particularly e-mail -- while at work or traveling.
AOL was one of the Internet's early success stories. Under the leadership of Steve Case, the company merged with Time Warner at the height of the dot-com bubble. But the predicted convergence of the Internet and traditional media was slower than expected. Rather than a boon to business, AOL became a liability that has only recently -- under the management of Chairman and CEO Jonathan Miller -- shown signs of modest improvement.
Analysts and industry executives were cautiously optimistic about AOL's new plans.
"I actually think that there is so much advertising money that is going to be shifted from TV and radio and other forms of media that there are opportunities," said Ellen Siminoff, a former Yahoo executive who is chief executive of Efficient Frontier, a Mountain View company that helps other firms develop search engine marketing company and internet advertising campaigns.
Ben Sawyer, an analyst with K-Town Group, which does market research on the Internet and media industries, called the new portal inevitable for AOL. But he wondered why it's coming so late. "Why not five years ago?" Sawyer asked.
But he stressed that AOL has an advantage in some respects. He pointed to its entertainment content and instant messenger services, AIM and ICQ, which are considered by many to be high quality. Laura Martin, an investment analyst for Soleil/Media Metrics, called AOL the biggest threat to Yahoo, Google and MSN. AOL's existing base of subscribers -- though declining -- are still more formidable than any of its competitors, she pointed out.
No public admission has ever been made to date by AOL executives or Time Warner brass that AOL miscalculated the power, magnitude, and popularity of Keyword Search. It is no small coincidence that AOL's mis-calcualtion and disrespect of keyword search was the foundation of a flawed strategy. AOL's oversight and lack of vision and understanding as to the Internet's second most popular activity; keyword search, continues to plague America Online whose merger with Time Warner resulted in the largest loss in U.S. corporate history.
