America Online Inc. yesterday cut about 750 employees, mostly at the Internet firm's Northern Virginia headquarters, as part of renewed efforts to slash costs due to mounting subscriber losses.
The personnel cuts at the struggling online firm's headquarters followed smaller workforce reductions and other cost savings. The latest cuts include more senior-level AOL executives -- including a number at the vice president level -- than in the past.
Audio: The Washington Post's David Vise discussed the AOL job cuts on WTOP.
But with the loss of subscribers continuing, and pressure from parent Time Warner Inc. for the AOL division to keep generating about $1 billion annually in cash, America Online was forced to eliminate about 7 percent of its workforce in Northern Virginia. The cuts would save the company an estimated $75 million next year, officials said.
Most of those fired yesterday departed AOL headquarters near Dulles International Airport by mid-day, after being called into morning meetings where they were told the bad news. After employees were informed that they would be fired as part of a broad cost-cutting measure, they were asked to bring company property to a central location. There, they were given the details of their severance packages. The company had extra security on hand, but no incidents were reported.
All workers who lost their jobs received outplacement assistance and at least two months of pay, company officials said. Higher-ranking employees were awarded more severance pay.
In addition to full-time employees, AOL has eliminated hundreds of contract employees this fall.
"As difficult as a layoff is, there's no question that it was the right thing to have done," wrote Jonathan F. Miller, chief executive of AOL, in an e-mail to employees. "We have reorganized the company and put it squarely on a growth path. And we have put in place the right structure for the long-term health and success of AOL."
While employees in Northern Virginia accounted for most of the reductions, a smaller number of AOL workers in Ohio, California, New York and other states also lost jobs, officials said. No jobs were cut at AOL Europe. Before the cuts, AOL employed about 5,000 people in Northern Virginia and 13,000 in the United States.
Employees from most of the company's major operations were affected. Yesterday's cuts struck particularly hard in the marketing and broadband divisions, since those functions were absorbed elsewhere in the company under a recent reorganization. And because AOL employs more technology workers than it does in most other functions, they were hit hard as a group by the firings.
No cuts were made in AOL call centers, whose employees field inquiries from subscribers with questions and seek to retain users who call to cancel their accounts. America Online continues to lose hundreds of thousands of subscribers each quarter to faster and cheaper competitors. In its third quarter, AOL lost 646,000 subscribers, most of whom were dial-up customers. The losses brought AOL's U.S. subscriber base down to 22.7 million, about 2 million less than it had one year ago.
The steep job cuts at America Online come as officials at parent Time Warner are locked in intense negotiations with the Securities and Exchange Commission to resolve allegations of accounting irregularities at the Internet firm. Under the proposed terms of a settlement, neither Time Warner nor AOL would admit or deny SEC allegations that the Internet division improperly pumped up its revenue and profit before and after the companies merged in 2001.
Time Warner has set aside $500 million to cover the estimated cost of a settlement with the SEC and the Justice Department. Time Warner chief executive Richard D. Parsons has said the figure could change, depending on the outcome of negotiations.
In 2005, AOL also aims to counter its continuing loss of subscribers by beefing up its free AOL.com Web site with better content and games and free e-mail addresses, and then profiting by selling advertising to a wider audience.
AOL also has plans to begin turning its free instant messaging service, called AIM, into a moneymaker. This would be achieved through advertising and online commerce, rather than by charging users for the service, and would be patterned after AOL's profitable overseas-based messaging business known as ICQ.
The free e-mail service to be launched next year may have the suffix "@aim.com." Users of the free e-mail service would not have access to the full range of services offered to AOL subscribers.
Yesterday's job cuts were disclosed by Time Warner during the company's third-quarter conference call with Wall Street analysts last month. Time Warner said it would take a one-time restructuring charge of $50 million to cover the cost of dismissing the workers.
Parsons spoke optimistically at a media conference in New York this week, saying he expects AOL's ad revenue to grow as rapidly, or faster, than total online ad revenue growth in 2005. "The Internet is a huge, huge, huge, source of growth," Parsons said at UBS's Media Week Conference.