Dec 4, 2002 4 min read

NEW YORK (AP) – America Online promoted a customer-centric strategy Tuesday designed to cure the company’s ills by making its services compelling even to Web surfers who get their Internet access elsewhere. The plan, which envisions a one-of-a-kind package of music, information, video, shopping and other services, was unveiled at the AOL Time Warner division’s first major meeting with analysts following months of problems ranging from accounting scandals to declining profitability.

It was accompanied by a new, disappointing financial outlook – including a 40 percent to 50 percent drop in advertising and commerce revenues next year – that sent the company’s stock down sharply.

Although some drop-off had been expected as lucrative, one-time business contracts expired, the decline was steeper than many had thought. The company’s shares closed down $2.36, or 14.2 percent, at $14.21 on the New York Stock Exchange, and its value is less than half what is was when AOL and Time Warner merged in 2001.

Still, America Online tried to reassure investors about its prospects.

The division’s chief executive, Jon Miller, in his first address to Wall Street since joining the company four months ago, acknowledged the company had made numerous mistakes. But he said he believed the worst would be over by the end of 2003.

He said America Online would make top-quality service and content a No. 1 priority again, and would look to build the kinds of relationships with advertisers and the business community that would pay off longer term.

“AOL has suffered from the perception of being long on ambition but short on accountability and sometimes follow-through,” he said. “That ends now.”

He said the company had fallen behind in attracting high-speed Internet access, or broadband, customers.

The bulk of America Online’s members access the Internet via dial-up connections, but the growth prospects for that market is slowing as Internet users switch to much speedier options.

America Online offers broadband, but its product is pricier than others, and Wall Street has been skeptical it can be competitive.

Miller said Tuesday that the company would do a better job of publicizing its $14.95 monthly program that allows broadband customers who aren’t using an AOL connection access to its other services.

That offering, he said, combined with deals announced Tuesday to provide exclusive content from AOL Time Warner’s other publishing, magazine and programming divisions, should help convince consumers that AOL is worth paying for. The deals were widely reported last week, even though they weren’t confirmed until Tuesday.

Although analysts were skeptical that America Online’s broadband efforts would succeed, they were pleased with the overall tone and direction of the meeting.

In particular, they liked the fact that most of America Online’s leadership team was either from Time Warner, or hired by Time Warner.

Miller was hired by AOL Time Warner chief executive Richard Parsons who was part of Time Warner before the merger.

The Time Warner divisions have generally performed well in recent quarters, and their management is well respected on Wall Street.

“They have a better chance because the folks in the driver’s seat are all from Time Warner,” said Denise Garcia, media research director at GartnerG2, a business strategy and technology research firm.

Parsons also reaffirmed his support for America Online at the beginning of the meeting.

“This is going to be a team effort,” he said. “We’re all committed to getting this thing done.”

The comment suggested he is taking an active role in the turnaround effort, and may dampen rumors that AOL Time Warner wants to unload the online division.

America Online executives also said Tuesday they plan to launch an online liquidation market that will allow retailers and manufacturers to sell products exclusively through America Online.

Miller said e-commerce, as well as premium services that charge a fee, will become more of a focus as the company explores other ways to make money outside of subscriber fees.

One such service announced Tuesday is an online anti-virus service provided in conjunction with Network Associates’ McAfee product. Although all members will get a basic level of protection from viruses brought in via e-mail, for example, the new premium service will extend the virus protection to the user’s personal computer system. No details were released on pricing or when the service would become available.

The company said it planned to post an open letter to America Online members on its Web site, soliciting comments about how the company has performed. Investors also got a preview of AOL 9.0, the latest version of the company’s software due out next fall.

“We’re not dwelling on past,” said AOL Time Warner chairman and America Online co-founder Steve Case. “Rather, we’re focused on future.”