AOL Stops the Bleeding

AOL Time Warner reported first-quarter financial results on Wednesday, with its struggling AOL unit showing some signs of emerging from its tailspin.

The Internet unit saw revenues fall 4 percent to $2.2 billion from the same period a year earlier, but operating income was up 11 percent to $194 million. Earnings before interest, taxes, depreciation and amortization increased 18 percent to $404 million.

Overall, AOL Time Warner reported 6 percent revenue growth to about $10 billion, with a rare profit of $396 million. The company said the increase was due mostly to lower restructuring charges. In last year’s fourth quarter, the company lost $54.2 billion, thanks to a raft of write-downs arising from the merger with AOL.

The results were a big improvement from the previous quarter, when AOL Time Warner reported a $44.9 billion net loss, largely from a write-down of AOL’s value.

AOL Time Warner CEO Dick Parsons said the company had made a solid start to righting the business during 2003. He said he had no further information on the accounting investigations of the company.

The company was buoyed by strong growth in subscription revenues, which rose 10 percent to $4.9 billion in the quarter. AOL Time Warner said both its cable business and AOL led the rise. Advertising, on the other hand, fell 5 percent to $1.3 billion.

At AOL, subscription revenue grew 11 percent, as the ISP has turned its focus to converting its still-huge subscriber base to its higher-priced broadband service, rolled out just as AOL’s first quarter ended.

AOL’s subscriber base continued to shrink. It ended the quarter with 26.2 million U.S. subscribers, down 289,000 since the beginning of the year. AOL Europe’s subscriber base also fell, losing 63,000 subscribers to end the quarter with 6.3 million.

“While we fully expect the narrowband to decline over time, there’s enough levers to pull to maintain its cash flow,” said Don Logan, the head of AOL Time Warner’s media and communications group.

AOL has pegged maintaining its subscriber base as a key objective while it tries to convert its members to broadband offerings. Logan attributed the decline to a number of factors: the maturation of the dial-up market; continued subscriber defections to lower-priced alternatives; fewer sign-ups during the war; and the ongoing move to broadband by consumers.

As expected, AOL continued to see advertising decline, with revenues falling 42 percent. The company said its ban on pop-up ads contributed to the declines.

“Our first-quarter results show we are on track to sell more advertising than we did last year,” Logan said.

He added that AOL has plans to roll out new premium services for members, in an attempt to further wring revenues out of AOL’s subscriber base.

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