AOL decides to go free in the hunt for advertising dollars |
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Thu, 03 Aug 2006 12:55
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NEW YORK - In an unprecedented move, AOL has decided to waive the subscriber fee and go free. AOL's parent company, Time Warner Inc., announced yesterday that the access fee would be dropped for anyone having a high-speed connection. The changes take effect from September.
AOL still commands 20 percent of the market share as Internet service provider, but the change in strategy signals that that company has succumbed to the lure of the advertising dollars. However AOL stands to lose out at least $1 billion from its paying customers by going free. Company executives reckon that they can make up the losses by the end of next year.
Richard D. Parsons, Time Warner’s chief executive said the strategy was based on a careful analysis of the market, “People have wanted to bury AOL almost from the day after the merger,” he said, in obvious reference to Wall Street analysts. “Give us some credit for having some knowledge, probably greater than your own, of who our customer base is.” He added that even while its revenue fell, the operating profits had been increasing in the last couple of years. “We don’t see any material step down in AOL’s earnings for the year as a result of this change,” Parsons said. “If anything, there is a slight bias to the upside.”
Morris Mark of Mark Asset Management felt that AOL had delayed this approach by at least two years. “It’s something they should have done two or three years ago,” he said. “They’re going to lose these people anyway.” Jeff Bewkes, Time Warner's president said that was the main reason for going free, "We're going to stop sending our members to competitors,” he stressed. "Acquiring narrowband subscribers has been unprofitable. If we did nothing else and just this, this one move alone would increase earnings this year."
AOL would still offer the $26 a month dial-up package, but it would not push it aggressively.
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