CRUNCHTIME: America Online

By Published on .

Myer Berlow, president of worldwide interactive marketing at America Online, has long believed the dual revenue model crucial to most media is also important online.

So even though AOL Time Warner's online unit is an advertising and commerce powerhouse, the less sexy subscription revenue is the straw that stirs the drink: The America Online service added more than 2 million subscribers in the first quarter, ending with 28.8 million subscribers worldwide. Add in Compuserve 2000's three million subscriber base, and overall subscription revenue accounted for about two-thirds of the unit's first-quarter revenue.

That said, analysts and media experts agree that, for now at least, the online services are also in the catbird seat for online advertising revenue because of cross-platform possibilities within AOL Time Warner. The combined company simply has too many bargaining chips for it to be any other way. Asked if the same would have been true if the companies hadn't merged, Paul Noglows, a managing director and senior analyst at JP Morgan Chase, said, "They would have been doing well, but I really do think that the merger makes sense strategically, economically."

Still, it's hard to determine how much of that $721 million is advertising revenue; AOL doesn't break the number out, nor do most analysts. Kavir Dhar, VP-media analyst with Jefferies & Co., said it "kind of muddles the issue," but adds that it has to do with the way the company structures deals, where advertising units can also double as a place to generate commerce revenue.

Whatever the advertising vs. commerce breakout, Mr. Berlow is confident the company will continue to meet aggressive financial goals. "We (AOL) haven't missed a quarter in 18 quarters," he noted. "I don't think we plan on starting now."

The executive, who has been responsible for America Online's surge in ad revenue over the last few years, attributed the company's success to its ability to problem-solve rather than to the advantage AOL Time Warner has as a media behemoth. "An agency or client does not want one-stop shopping," he said. "What they do want is marketing solutions."

As the company begins to sell cross-platform deals, not every segment of the online media community has felt a huge change. Adam Gerber, VP-director of media strategy at the Digital Edge unit of WPP Group's Media Edge, said the company still appears to be negotiating its big cross-platform deals with what he called "low-hanging fruit" such as technology companies with which it has deep relationships, and advertisers with budgets in the $50 million to $100 million range. Mr. Gerber, who worked at America Online under Mr. Berlow in 1996, said the cross-platform deals pitched to his agency so far have been focused on smaller subsections of the company.

"It's still operationally a little separate," he said. "We've been talking to CNN about a number of cross-platform deals, but it's been focused on the CNN properties."

Rishad Tobaccowala, exec VP at Bcom3 Group's Starcom MediaVest Group, also still sees some operational divisions. "It's a combination of wait-and-see with great expectations," he said, noting the merger only recently closed. But he's bullish on the merger. "What they're trying to do is invent a new medium," he said. "It's not online media; it's not offline media. It's fused."

Total Q1 Revenue $2.1 bil, up 17%

ad, commerce revenue $721 mil, up 37%

EBITDA* $684 mil, up 35%

Management Barry Schuler, chairman-CEO; Ray Oglethorpe, president; Jan Brandt, vice chair-chief marketing officer; Ted Leonsis, vice chair-new product officer; Myer Berlow, president-worldwide interactive marketing

Properties America Online, Compuserve, instant messaging products ICQ and AOL Instant Messenger, Digital City and MapQuest, AOLbyPHONE, portals AOL and, Netscape browsers, AOL Moviefone

WORLDWIDE SUBSCRIBERS AOL, 28.8 mil, up 29.7% from March 2000; Compuserve, 3 mil, up 11.1%

* earnings before interest, taxes, depreciation and amortization

Most Popular
In this article: