Time Warner execs Parsons, Falco, and Grant provided some interesting data points about AOL at the Merrill and Goldman conferences this week. In aggregate, the news is negative.
AOL access business still accounts for “majority” of AOL’s pageviews and profit (Parsons, Goldman). This is a strong negative. Why? Because AOL’s access business is declining at better than 50% per year. Some of the costs are variable, but not all. This is more confirmation that AOL’s profits will soon drop–and another data point suggesting that AOL has a reason to lay off thousands of employees (See: AOL Mass Firings: The Bottom Line)…
AOL now has 9 million subscribers (Grant, Merrill). If this round number is close to accurate, it means AOL has lost another 2 million subscribers this quarter (bad news). It also means that AOL’s access revenue will likely shrink to about $550 million this quarter from $690 million in Q2, taking AOL’s profit down with it (see this spreadsheet). We predicted as much two weeks ago, when first analysing AOL’s hypothetical mass layoffs. The “9 million” number suggests that our estimate is in the ballpark.
40% of AOL’s Pageviews come from email (Grant, Merrill). Email is the worst advertising inventory available. If AOL’s network strategy is successful, it will likely modestly increase the yield on such inventory, but the fact that it accounts for such a high percentage of pageviews is not good news. AOL’s newly retooled email system still lags far behind the competition in functionality.
AOL plans to sell the access business in 12-18 months (Parsons, Goldman). This is only important because 1) it confirms that AOL considers “access” and “advertising” two separate businesses and 2) analysts should now start viewing the value of the AOL division as “ADVERTISING” plus “CASH.” If the access business continues to decline at the above rate, moreover, the “CASH” piece won’t be worth much. Interestingly, only one day before Parsons said AOL planned to sell the access business, Grant reportedly said AOL had no plans to sell the access business. AOL and Time Warner executives are clearly still having trouble getting their AOL stories straight.