AOL cuts marketing

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America Online, facing class-action lawsuits from three states for slow--and in some cases blocked--access to its online service, announced on Thursday that it would sharply reduce marketing efforts and divert an additional $100 million towards improving its network capacity.

The service, which now has 8 million members, plans to up its network capacity investment to $350 million from $250 million.

It will also temporarily halt spots from TBWA Chiat/Day, New York, that broke in October as part of a $100 million ad campaign that uses music from "The Jetsons." At this point it is unclear whether or not the online service will air advertising during the Super Bowl; late last year TBWA had pitched the service on creative to air during the show. On Thursday, the agency declined to comment on the effects AOL's marketing cutback will have on the account.

California alleges in its $20 million suit against AOL that flat-fee pricing introduced during the fourth quarter of 1996 has caused an upsurge in service usage which AOL is unprepared to meet. An AOL statement reports usage has more than doubled from 45 million hours in September to 100 million hours in January.

In a letter to subscribers posted on AOL, Chairman-CEO Steve Case said that cutting direct mail efforts in half in December wasn't enough; the company wanted to make sure it could handle demand from existing subscribers, but "clearly, we didn't go far enough," Mr. Case wrote.

In what may be the most positive spin on the whole situation, Myer Berlow, AOL's VP-national accounts, said that for marketers this means their CPM ad buys are doubling in delivery and that network prime-time hours, especially around 7 p.m. EST, are the highest-traffic hours. He added that the service has nine advertisers spending $1 million or more to advertise on the service, and will add more big-spenders during the first quarter of 1997.

Copyright January 1997, Crain Communications Inc.

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