Company's current stock value at lower levels than before the merger; analysts start dumping.

Found on Newsbytes, Washington Post is reporting that the merger between America Online and Time Warner Turner Networks last year may not have been such a good idea after all, and that analysts are starting to question why they ever thought it would be.

The reason AOL isn't growing as fast is that 60 percent of American homes are already hooked up to the Internet. That means the number of potential new customers for AOL is shrinking every day. No-frills services like Erols are undercutting AOL's $23.90 a month price. Microsoft Network is becoming more competitive with AOL in attracting customers who want not only a connection to the Internet but also a user-friendly home on the Web.

AOL's also dumping more money into advertising and marketing than ever before. Some would say that they're working harder than ever to try and steal their competitors' customers, but I have to wonder if there's not a secondary motive, in trying to boost the advertising market by pumping it full of their own money. CNN can't be making too much in ad revenues these days, as it seems that nearly one in three ads are for America Online.

Even furthermore, AOL's merger was supposed to bring cable modems to the masses, as the then-over-25-million subscriber base would be transitioned to the fastest access available, proving that AOL was worth its salt. AOL has yet to make even a remote shred of good on this promise, however, and it's turning back to haunt them.

Fast connections cost $40 to $50 a month or more. AOL offers some high-speed connections and gives discounts to customers who hook up via cable or DSL instead of dialing in to its computers. But many people who go to high-speed Internet are deciding they no longer want to pay even more money for AOL.

And let's not forget the Instant Messaging debacle. As part of this partnership, AOL was (eventually) supposed to bring videoconferencing and other communications ability to AOL Instant Messenger, but when the Federal Trade Commission ruled that AIM would have to be opened up for that to happen, AOL obviously elected to sit on their haunches, rather than launch what would have been a doomed service anyway.

I really can't see how AIM can progress any further, other than fleshing out some of its newer features, bringing the chat logging from v4.4 back, and adding skinning to its interface (a la Trillian). In fact, when I see ads for AT&T's mLife, I have to wonder if it'll ever be anything more than a cellphone with already-widespread SMS features, and AIM built-in. Feh...A Handspring Treo can already do wireless AIM (And a heck of a lot better than this unwieldy thing), and there are already apps for PCs and pocket PCs that can execute SMS messages.

I've got two words for AOL in this case - Blood and turnips. You can't squeeze much harder than they are already. Crunch time is coming for AOL, and they're gonna have to figure out new ways to be profitable, or the world's biggest Internet Service Provider will soon be going the way of Kmart.

I've been wondering how they make money. All them free cd's add up as big costs. I bet there is a lot of people like me that have a stash of about 200 of them. Then they have to pay for the numerous comercials on broadcast, seams like they are more numerous than the 1-900 comercials. The time I went through aohell, I actually got 4 months free instead of the one and never paid anything, being a heavy user as well. Though I would rather pay the $10 I'm paying now rather than get free aol.

Well, wait a second. 25,000,000 x 23.90 = $597,5000,000 a month. Ok, I see how they make money. my 200 cd's probably cost them a penny. How much do commercials on Fox, CBS, NBC, WB, and ABC cost during primetime? Say 4 per hour.

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Road Runner!!!!

Ok looked up some more stats form The Corporate Site. 34,000,000 users X 23.90 = $812,600,000 per month.

Also found this old information:

America Online Reports Record-Breaking Results For FY2001 First Quarter In Net Income, Total Revenues, Ad/Commerce And Membership

First-Quarter Earnings Per Share, Fully Taxed and Excluding One-Time Items, Soars 100% to $0.14

Consolidated Revenues Rise 34% to $2.0 Billion

Advertising, Commerce and Other Revenues Jump 80% to $649 Million

AOL Membership Grows More Than 1.4 Million, Setting First-Quarter Record


and

The quarter's net income, fully taxed and excluding one-time items, totaled $350 million

So does that mean their operating costs and stuff is $1.65 billion per quarter in 2001?

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Road Runner!!!!

Not exactly. Since a pretty high percentage of the channels on cable television are all owned by AOL Time Warner, AOL doesn't have to pay anything for the ad space on channels like CNN, TNN, TBS, and the WB. On the other hand, it's far from free, since they're not getting anyone else's money for that same ad space. It's cheaper for them in the long run, though, since they don't have to go on the ultra-cheap to sell ads in unused space - They can just fill them with their own.

Quote:

The time I went through aohell, I actually got 4 months free instead of the one and never paid anything, being a heavy user as well. Though I would rather pay the $10 I'm paying now rather than get free aol.

And that's not the half of it. AOL actually must make more money off its marketing strategy than it does from the subscriber service. They're not just losing $23.90 a month when they keep you on their network. They also pay out employee bonuses to employees who do anything legal (and sometimes not) to keep you from withdrawing your service. There are many horror stories out there of people who called to cancel, thought they had, and then found out that the service was still on three months later. They wouldn't have found out if AOL hadn't started billing them again since their "giveaway" months had run out. The AOL operators will tell you what you want to hear, and then renew your subscription anyway, just to get the bonus.

Quote:

Well, wait a second. 25,000,000 x 23.90 = $597,5000,000 a month. Ok, I see how they make money. my 200 cd's probably cost them a penny. How much do commercials on Fox, CBS, NBC, WB, and ABC cost during primetime? Say 4 per hour.

Well, as you noted in the next post, your subscriber count is way off. Don't forget - That includes CompuServe as well, now, since AOL owns CompuServe. And as I mentioned above, they pay nothing for ads on the WB, since they own it now.

AOL's operating costs *are* high, but I wouldn't trust figures posted on their own site, seeing as how they're wide open for internal fudging and bias. Look up reports from the SEC for a (hopefully) more accurate view. Naturally, they'd paint only a pretty picture on their website...

I believe AOL is making more off e-commerce (AOL Shopping) starting about 2 quarters ago, then they are from their subscribtion fee....Not 100% about that, but I know I heard that somewhere...

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ActiveTuning - Partner & Director Of Sales & Marketing