America Online will undergo "relentless" cost cutting this year by eliminating a portion of its $1B in marketing expenses, slashing its 18,000-person payroll and trimming computer-network costs.
Wayne H. Pace, chief financial officer of AOL Time Warner Inc., said managers at the company's troubled online unit have been directed to engage in "zero-based budgeting," which he characterized as "defending" every dollar of ongoing expenditures. Pace described 2003 in rugged terms, saying it will be a "reset" year for Dulles-based America Online, which he said is the only major division of AOL Time Warner that is not performing well. "There is going to be a focus on costs from the bottom up," he said.
AOL Time Warner is taking a number of steps to respond to difficulties at America Online and other changes in its media empire. On Jan. 29, AOL Time Warner intends to record a non-cash charge of at least $10 billion to reflect the decline in value of the Internet division. Soon after, the company hopes to embark on a high-growth path in cable television.
America Online has about seven times the revenue of its closest rival, Microsoft's MSN, and more than three times the number of MSN subscribers in the United States. But Pace said America Online's saturation of the market means that it now must shift gears from raising its number of subscribers to increasing revenue per subscriber. The firm also must continue to market extensively since millions of subscribers drop the service each year and must be replaced by new users.
News source: The Washington Post