Layoffs Afoot at AOL

With America Online bracing for a 50 percent drop in advertising and commerce revenue next year, the online unit of AOL Time Warner is preparing for cost-cutting measures and layoffs.

During an analyst day briefing earlier this week, Jonathan Miller, the CEO of AOL, told reporters that cost cuts were forthcoming, after it announced that advertising and e-commerce revenues would drop by between 40 percent and 50 percent in 2003. The drop is largely due to the expiration of long-term deals forged during the flush dot-com era.

Miller would only say that the company needed to reduce its operating costs by nine figures, and that each division with AOL would be examined separately for layoff decisions, rather than making across-the-board cuts.

A report in Friday’s Washington Post, which cited anonymous sources, said the cost cuts could reach $100 million and that layoffs would number in the hundreds.

The news about layoffs comes on the heels of an analyst day AOL hosted on Tuesday, at which executives outlined AOL’s plans for broadband growth in the face of plunging ad revenues and slowing growth in its dial-up base.

According to the Post report, no department in the Internet division would escape a critical review of operating expenses, and decisions about where the axe will fall will be made over the next few months.

Miller, who was appointed last August amid a series of senior management shake-ups at the ISP, admitted this week that the unit had missed opportunities. “We didn’t innovate. Customer satisfaction was off its historic highs” and “we missed the first wave of broadband,” he said. “But just because AOL missed the first wave of broadband growth, “doesn’t mean we are out of the game.”

Despite its difficulties, AOL has forecast a flat year for full-year 2002 revenues, sticking to its outlook for revenues ranging between $8.8 billion and $9 billion. Advertising and commerce revenues are expected to be between $1.5 billion and $1.6 billion. The company expects cash earnings, or EBITDA, to total between $1.7 billion and $1.8 billion, trending toward the high end of that range.

As it outlined this week, AOL is pinning its hopes on wringing more revenues from its 35 million current subscribers, trying to sell them value-added services like virus protection, and attracting customers of other ISPs with exclusive content from its sister companies Warner Brothers, CNN, and Time Inc.

Despite its humility in front of analysts and candor in laying out its problems and how to fix them, many Wall Street analysts, once cheerleaders for the AOL Time Warner merger, remained skeptical that AOL’s turnaround plan could product solid short term results.

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