| open ended (Reuters)
New York, Dec. 4: AOL Time Warner laid down a long-term recovery plan on Tuesday for its embattled internet unit, but Wall Street appeared more worried about the company's short-term financial slump.
Shares in AOL Time Warner fell more than 14 per cent Tuesday after the New York-based media giant announced advertising revenue at the America Online division would drop as much as 50 per cent next year to levels last seen in 1998.
“It looks like 2003 is going to be the bite-the-bullet year for AOL,” said Gordon Hodge, analyst at Thomas Wiesel Partners.
At an analysts conference in New York, AOL Time Warner chief executive Richard D. Parsons promised that the unit would stabilise next year and resume growth in 2004.
“This is not a wasting business,” Parsons said, predicting that America Online would once again become a growth engine for the parent company.
Wall Street’s reaction was disappointing to AOL officials, but hardly surprising. For years, AOL boasted its advertising revenue as a key reason for America Online’s success. Now that ad sales are slumping and government investigators are examining whether AOL illegally accounted for some deals, the company is trying to retrain investors to focus instead on other aspects, including new content deals and the potential to sell customers premium services.
Shares of AOL Time Warner closed Tuesday at $ 14.21, down $ 2.36 in New York Stock Exchange trading.
AOL also warned that 2003 overall revenue for the online unit, including subscriptions and advertising, would be flat and earnings before interest, taxes, depreciation and amortisation — a key measure of the company's performance — would fall next year by 15 per cent to 25 per cent.
The company said the drop in ad revenue, which could fall from an estimated $ 1.5 billion to $ 1.6 billion this year to as low as $ 750 million in 2003, was due chiefly to the expiration of about $ 500 million in long-term ad contracts signed during the dot-com heyday.
Tuesday's long-awaited meeting was the first opportunity for new America Online Chief Executive Jonathan Miller to lay out his three-pronged strategy for getting the internet unit back on track and restoring investor confidence in the unit's potential.
The plan focuses on beefing up the online service with features and exclusive content provided by AOL Time Warner’s entertainment properties. The company confirmed that it will pay several of its sister companies, including Time Inc magazines, CNN and Warner Bros. movie studio for the exclusive right to distribute some of their articles, photos and movie clips online.
AOL also said it is abandoning head-to-head competition against cable operators that offer high-speed access, an area where AOL has seriously lagged.