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AOL unveils portal plan

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Dial-up,
Ad

Elinor Mills CNET News

Published: 02 Aug 2006 17:10 BST

... in online advertising as it disclosed its plans to offer the free services on AOL.

The company raised its full-year forecast for adjusted operating income before depreciation and amortisation growth in the low double-digit percentage range from the high single digits after factoring in the purchase of cable operator Adelphia Communications and other items.

Second-quarter net profit was $1bn (£535m), or 24 cents per share, compared with a net loss of $409m, or 9 cents per share, in the year-earlier period, when it settled shareholder lawsuits. Revenue rose 1 percent to $10.7bn.

Cable services revenue rose 15 percent to $2.7bn in the quarter. It added 18,000 net additional basic video subscribers, 171,000 digital video subscribers, 230,000 residential high-speed Internet subscribers, and 234,000 digital phone customers in the quarter.

AOL revenue fell 2 percent to $2bn due to an 11 percent drop in subscription revenue. It lost 976,000 US subscribers from the first quarter, ending the period with 17.7 million subscribers. But AOL ad sales rose 40 percent.

Alliances with rivals
AOL, meanwhile, also is partnering with those companies it can't beat. For instance, the company made a deal with Google late last year in which Google will pay $1bn for a 5 percent stake in AOL. The deal also involves partnering on ads, search, instant messaging and video.

AOL has been trying to keep up with the portal race to attract the widest swath of users by offering and beefing up Web services like email and instant messaging. The more eyeballs a site has, the more ad dollars it can expect to take in.

The growth of broadband connections has made video a must-have for portals and other sites as well. AOL has mined Time Warner's vaults to compete on video. On Monday, AOL said it would preview a new video portal with more than 45 on-demand channels, a programming guide, video search and the ability to upload and share video.

But AOL isn't likely to dump its dial-up business, Laszlo said. The company has more than 18 million dial-up subscribers in what is a shrinking, but still large, part of its business.

"As long as millions of people are satisfied paying AOL $25.90 a month for dial-up, it doesn't make sense to kick them out the door," he said.

AOL faces a conundrum, said Gartner analyst Allen Weiner. The company should focus on its media business to survive but still relies on its ISP revenue, he said.

"I'm among those who believe that AOL cannot maintain two separate business strategies — one based on being a proprietary ISP, which is essentially a slowing if not dying business, and at the same time being a broadband Internet portal with a growing number of services and partners. They operate on two separate business models," Weiner said. However, "if they get rid of (the ISP business), they are going to have to convince people, primarily Wall Street, that they can make up that money some other way."

Ultimately, the path is clear for AOL, Laszlo said. The question is how fast AOL takes it.

"In a world where consumers seem reluctant to pay for core (Web) services and where online advertising is growing fast, where you have 18 million-plus dial-up subscribers plus others who use AIM and other services, why not try to take advantage of that audience and build a more ad-centric business model?" he said.