AOL ISP Strategy Still in Public Debate

Speculation increased over whether AOL might give up its ISP business and offer its content for free. Some are starting to wonder why parent company Time Warner would shut off such a still strong revenue stream.

Offering AOL content for free to users who subscribe to other ISPs would cost Time Warner $1 billion in operating profit through 2009, the Wall Street Journal reported, citing people familiar with the matter.

In a statement, Time Warner said recent media reports appear to be based on unauthorized disclosures, which include erroneous financial information.

The company added that it would not discuss future business strategy until a separate meeting with investors to be held after its second-quarter earnings report on August 2.

Reports first surfaced last week that AOL is considering dropping the subscription business model and re-focusing on advertising revenue.

In the plan, AOL would stop charging subscription fees for its services to broadband users or those who dial-up using another ISP.

In March, AOL reported 18.6 million subscribers, down from 26.7 million in 2002.

But the company still reported $1.5 billion in subscription revenue for the first quarter of this year.

That’s a lot to give up so quickly, JupiterResearch Analyst David Card told

Maybe too much.

“Why would you shut down the access business as long as it’s profitable?” Card said. “It’s pretty natural to assume they would slowly melt it down and milk it for all its worth.”

Card thinks AOL might be making the move to not seem left behind by Google and Yahoo as those companies ride the Internet advertising boom.

Internet advertising went up 30 percent last year.

Such reasoning would also explain the public nature of an internal strategy debate.

“This is a very public airing of a strategy,” Card said. “I would be amazed if this is the first time they’ve proposed getting out of the access business.

“There’s a lot of advertising talk in the air,” he added. “Maybe there’s a notion [at AOL] that ‘there’s a couple pulling away from the pack and we just want to make sure people don’t think we’re getting really left behind.'”

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