AOL To Cut One Third Of Workforce

Wall Street Journal

AOL plans to cut its workforce by one-third in the coming months as the Internet company continues to restructure and refocus its strategy while preparing to be spun off from Time Warner Inc. (TWX).

The company, which employs about 6,900 people, said it will reduce its annual operating costs by $300 million. As a result of the layoffs and other measures, it expects to take charges of up to $200 million in the first half of next year.

AOL Chief Executive Tim Armstrong is in the midst of a campaign to sell the company to investors as an independent, publicly traded business after years of strategic shifts and disappointing financial performances under Time Warner's ownership. He launched an effort to reduce the company's cost structure called "Project Everest" four months ago.

At its height, AOL had more than 20,000 employees in 2004, a number that was roughly cut in half three years later. Many employees worked in call centers to serve the company's dial-up Internet access customers.

In January, Armstrong's predecessor, Randy Falco, said AOL would cut 10% of its workforce, or about 700 employees, and several rounds of layoffs occurred in connection with that plan. The company also hired a number of journalists over the course of 2009. Armstrong has said the company will focus on expanding in online media content and branded display advertising as its dial-up Internet access business declines.

"This shows that at least they are proactively trying to figure out the best business model going forward," said David Joyce, an analyst with Miller Tabak & Co.

Armstrong told employees Thursday that he will ask for 2,500 volunteers to be laid off, according to AOL spokeswoman Tricia Primrose. The voluntary layoff program will begin on Dec. 4 and run through Dec. 11.

"We will need to do an involuntary layoff if we do not reach the target numbers through the voluntary option," Primrose said in an email. "We believe the voluntary program gives people more choice and decision-making ability instead of waiting for the final cost recommendations and involuntary layoffs."

Meanwhile, Armstrong will surrender his 2009 bonus, which was expected in a range between $1.5 million and $4 million.

"That decision is a personal one and is not a sign for the future payout of the overall bonus plan for employees," Armstrong said in an email to employees.

Time Warner holders will get one share of AOL Inc. for each 11 shares of Time Warner they own in the spinoff, which is scheduled to take place Dec. 9.

AOL to Lay Off 10% of Its Work Force.

By Emily Steel
The Wall Street Journal

Time Warner Inc.'s AOL unit is laying off around 700 employees, or 10% of its work force, as a sharp decline in ad spending continues to pressure its transition from an Internet-service provider to an advertising business.

The layoffs will occur during the next several quarters, with most of the U.S. layoffs finished by March, AOL Chief Executive Randy Falco wrote in a memo to staff Wednesday. AOL also is scrapping merit pay increases this year, consolidating facilities and reviewing its services and international operations.

"The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars," Mr. Falco wrote. AOL declined comment.

Since it decided to switch its business to an advertising model in 2006, AOL has faced considerable challenges. The company has been hit hard by the tough economic climate and, slim advertising gains have failed to make up for subscriber declines. AOL posted a 6% decline in ad revenue for the third quarter, its worst performance of the year. Display advertising, long a sore spot, tumbled 15%.

Time Warner, which reports fourth-quarter earnings Wednesday, has also been cutting payroll elsewhere, including 800 jobs in its movie division and more than 500 jobs at Time Inc.

The company recently announced a $25 billion write-down for the tumbling value of AOL and other businesses. Time Warner also scaled back its advertising outlook, saying the economic climate had proved more challenging than anticipated at AOL and Time Inc. Google Inc., which owns a 5% stake in AOL, wrote down the value of its holding last week, indicating a current value for AOL of around $5.5 billion. That's down from $20 billion when Google acquired its stake in 2005.

In his memo, Mr. Falco wrote that AOL is "aligning resources and expenses against the real revenue opportunities in this difficult market." AOL has laid off a significant number of people in recent years.

News of the layoffs first was reported by AllThingsD.com, which is owned by Dow Jones & Co., publisher of The Wall Street Journal.