Networks, studios enjoy AOL boom

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Network and studio content providers won't be asking America Online for refunds, that's for sure.

Although many AOL users have complained that they can't log on to the overburdened service, media companies with a presence on AOL--including Warner Bros., ABC and MTV Networks--are cheering its recent boost in membership, which has brought more eyeballs to their sites and helped increase advertising revenue.

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AOL has been plagued with problems since it introduced a flat monthly fee of $19.95 for unlimited usage late last year.

The resulting influx of new members, along with a surge in usage by existing members, caught the online service off guard and led to system overloads.

In a settlement with more than 30 states last week, AOL promised refunds to frustrated members.

The service had passed the 8 million member mark, adding 1 million members in the few months since installing its new pricing structure.

"Since they've gone to this new model, the total number of user impressions coming to our areas has doubled," said Jim Moloshok, Warner Bros. Online senior vice president.

In the online world, the number of "impressions" a site achieves among users can be compared to the importance of Nielsen ratings in the television industry. The increase in impressions means Warner Bros. can now tell advertisers that its site attracts twice as many visitors.

"Our advertising has doubled in value," Mr. Moloshok said. "From our business standpoint, it's a smart move on AOL's part."

ABC and MTV spokespeople also expressed their approval of AOL's recent membership drive.

The business of providing content for AOL is much like the syndication world: a cash/barter split, with AOL paying the provider a cash license fee for content and allowing unlimited space to sell ads.

Most ad sales are done on a cost-per-thousand model, meaning an ad will run until it's been seen by a certain predetermined number of viewers.

As a result, the rise in AOL memberships has also been a windfall for services like MTV and Warner Bros., which can deliver the number of viewers an advertiser desires quicker and then sell that spot to someone else.

"Ads that should have been up for a month, we can now pull down in two weeks and replace with another one," Mr. Moloshok said.

AOL spokeswoman Wendy Goldberg said the online service had not heard of any complaints from content providers about its recent problems.

"We're delivering more eyeballs than ever before," Ms. Goldberg said. "They know [recent problems are] a blip on the screen, that we are moving as fast as we can to address that problem."

AOL is scrambling to add more modems, phone lines and processing power to meet consumer demand, Ms. Goldberg said.

"It's already getting better in certain parts of the country," she said. "We're building capacity every day, and we will see nationally the improvement across the country by June."

Mr. Moloshok said he believed that in the long run the problems dogging AOL will be deemed minor. He pointed to AOL's price on Wall Street, which has kept steady or even risen in recent weeks despite the company's spate of bad press.

"Any time you have a new company and mega-growth, there's going to be growing pains," Mr. Moloshok said. "Knowing the management at AOL, those of us at Warner Bros. have total faith that they're doing everything they can.

"The temporary problems we're seeing reflect on the fact that they had an idea on how to change their business model of their service," he said. "The mere fact it's become so popular is a sign that their thinking was correct."

Copyright February 1997, Crain Communications Inc.

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