AOL 7.0 Ascends, Q3 Revenue Descends

AOL 7.0 is here! But advertising revenues dropped by 5 percent but the media giant's net loss of close to $1 billion was eased by a 13 percent growth in overall subscriptions that led revenue growth by 6 percent.

by Roy Mark & Erin Joyce of internetnews.com [October 17, 2001]

With all the fanfare of the fall television show debuts, America Online, Inc., is rolling out its latest version, AOL 7.0, just one day after rival Microsoft Corp. (NASDAQ:MSFT) debuted its new broadband services and one day before AOL's parent company, New York-based AOL Time Warner (NYSE:AOL), announces its third quarter earnings.

The Virginia-based AOL's new software will be backed with an "unprecedented" drive to distribute software disks in more than 30,000 retail outlets in conjunction with Time Inc.'s Time Distribution Services and other AOL partnerships, and a multi-million dollar print and television campaign.

Disk denizen
Disks will be available in more than 85 national and retail chains such as supermarkets, department stores, and others, including Barnes & Noble, Blockbuster, CVS, Circuit City, CompUSA, Gateway, Kinko's, Kroger, Office Depot, Sears, Spencer Gifts, Target, Wal-Mart, and Winn-Dixie.

In addition, the company plans to distribute "millions" of AOL disks through direct marketing efforts including inserts into Time Inc. magazines including People, Sports Illustrated and Entertainment Weekly.

"The ability to draw on the audiences, subscription relationships, and distribution networks provided by the various AOL Time Warner brands gives a whole new dimension to our marketing efforts. Between those efforts and our phenomenal retail partnerships, we're able to reach consumers through a wider variety of platforms in the most efficient way possible, which should make this our most successful launch ever. Our goal is for consumers to know that they can find us easily wherever they are, whatever they're doing," said Joe Redling, president of marketing for AOL.

Much the same as Microsoft's newest version, AOL 7.0 integrates local programming into every part of the service, providing easy access to high-speed audio and video content, and introduces music and entertainment features.

The AOL service is available as an upgrade for existing members at no additional charge in the United States and Puerto Rico with localized versions for AOL's international markets in the near future. AOL charges $23.90 a month for unlimited service while Microsoft's service comes in at $21.95 a month.

New, improved
Major additions to AOL's new version include Radio@AOL, a streaming radio service designed to make it easy for mass-market consumers to access their favorite music online, and AOL Box Office, which offers one-stop access to tickets for events. The new services also include one-click access to high-speed audio and video content threaded through AOL's Entertainment, Music, News, and Sports channels.

An upgraded version of the "You've Got Pictures" service allows members to upload pictures directly from any digital camera or scanners for one-stop viewing, sharing, storing and printing, and offers free, unlimited photo storage space and a bundled pricing plan for both prints and online photos.

"AOL 7.0 is at the center of a range of AOL initiatives that will open the next chapter of the Internet. We're building on our strong, engaged relationships with more than 31 million members worldwide to lead the transformation of new categories like music, entertainment, local, and digital photography—with more on the way as broadband and AOL Anywhere create new opportunities like home networking," said Barry Schuler, chairman and chief executive officer of AOL. "We've designed this upgrade to both reflect the way consumers are using the medium today and give them new ways to get even more value from it."

The updated AOL Box Office, with operates in conjunction with Ticketmaster, (NASDAQ:TMCS) is a service offering consumers online access to Ticketmaster's inventory of local entertainment events."

Q3 net loss
AOL Time Warner also reported a net loss of $996 million, or 22 cents per share, on total revenues of $9.3 billion during the third quarter of this year as it weathered a brutal advertising market and the aftermath of the Sept. 11 attacks.

The results were slightly wider than the net loss of $902 million, or 21 cents per share of a year ago.

Advertising and commerce revenues were down 5 percent to $1.9 billion for the period, but overall, revenues were up by 6 percent compared to its $8.8 billion revenue estimate of the corresponding quarter of 2000 (before the merger of America Online and Time Warner was complete).

Amid a difficult market for advertising dollars, and extended, advertising-free broadcast coverage of the Sept. 11 attacks, subscription revenues rose by 13 percent to $4.2 billion, or close to half of the company's revenue during the period ending Sept. 30.

The company said its net loss included a $134 million charge from the merger of ISP America Online and Time Warner, Inc. as well as $196 million worth of investment write-downs. During the third quarter of last year, the company's estimated, or pro forma, net loss also included a $52 million charge for merger-related expenses.

However, not counting the one-time and merger costs, AOL Time Warner's earnings before interest, taxes, depreciation and amortization (EBITDA) were up by 20 percent to $2.5 billion, or cash earnings per share of 30 cents. Using the same measurement stick, the company said its estimated cash earnings of the same, year-ago period were $2.1 billion, or cash EPS of 21 cents.

Millions from millions
Subscription growth led the way across the many content and media properties to a total of more than $137 million, an increase of $18.2 million over the past year.

The flagship America Online service remained the top performer among the properties, taking in $2.2 billion, up 13 percent from the estimated $1.9 billion during the year-ago quarter. Subscription revenues from AOL were $1.4 billion, a 14 percent increase from the same time last year.

AOL raked in 6.7 million new members worldwide year-over-year and 1.3 million for the quarter, bringing overall subscriber numbers to 31.3 million, the company said.

The ISP has just released its latest ISP client 7.0 and is expected to discuss its prospects for revenue growth during an earnings conference call Wednesday morning.

While print and other media properties struggled to maintain advertising revenue in a sluggish economy, AOL's advertising and commerce sales were up 5 percent to $624 million, helping to offset a 10 percent decline in commerce revenues.

Digital cable scribers kept signing on too. The Time Warner Cable digital division added 350,000 new subscribers to number 2.9 million overall and its Road Runner cable modem group added 252,000 new subscribers, bringing that group's number to 1.7 million, a growth of over 100 percent for both groups. Under its merger agreement, AOL Time Warner also has to roll out multiple high-speed ISP offerings from other providers and as of the end of September had reached 10 cities across the country with the offerings.

The company is discussing its earnings in detail during a conference call at 9:00 Wednesday morning.

Shares of AOL closed unchanged at $33.50 at the end of Tuesday's session.

— End