AOL to Rally Around Broadband, Ads

Higher marketing costs and dial-up subscriber losses hurt America Online’s fourth-quarter results, however, several trends suggest a gradual improvement this year, the ISP’s parent Time Warner said today.

Revenue for the three months was $2.16 billion, down 7 percent over 2002. Operating income was $301 million, compared to a $33.1 billion loss for the same period in 2002 (a figure skewed by a $33.5 billion charge). Excluding this, operating income slumped 14 percent.

This was partially due to an ad market that remained relatively soft. AOL’s balance sheet has also been hampered by the expiration of long-term advertising deals struck during the dot-com boom days. Another factor was higher spending on campaigns to support the launch of AOL 9.0 and other premium services. But Time Warner executives consider this money well spent.

“We know narrowband is going down and the challenge is to grow broadband and premium services,” Dick Parsons, Time Warner’s CEO, told analysts.

AOL lost 399,000 subscribers in the fourth quarter, ending 2003 with 24.3 million members. AOL competes with other ISPs, telecoms and cable providers to provide Internet service. Parsons cautioned industry-watchers not to “overreact to what you see on a quarter-to-quarter basis.”

Despite this advice, analysts at SG Cowen said in a note to investors that they “remain concerned,” especially since the losses could have been higher if it weren’t for retention programs offering members credits to stay on.

AOL added nearly 400,000 broadband customers in the fourth quarter. Other highlights included a $204 million backlog of ad commitments and better-than-expected results from AOL Europe. Overall ad revenue is expected to grow in 2004, largely because of a paid search renewal deal with Google.

To capitalize on the improving outlook, AOL recently created a new division to handle advertising, search and commerce revenues across all of its properties.

Parsons also discussed Time Warner Cable. In 2004, the provider will place big bets on Voice over Internet protocol service, citing encouraging results from its first market trial in Portland, Maine.

The service is now available in Kansas City, Mo., and Raleigh, N.C. By the end of the first quarter, VoIP will be in six of the company’s 31 markets, and nearly the entire footprint by year’s end, Parsons said. It’s a faster rollout than originally planned for.

Time Warner and other cable providers like VoIP because it allows them to bundle calling services with their video operations — generating more revenue per customer and reducing churn. The company also believes advanced video features such as personal video recording will help grow revenues.

Overall, Time Warner, whose media empire includes film studios, TV networks and magazine and book publishing units, posted revenues of $10.9 billion and earnings of $2.39 billion.

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