AOL Plans to Cut 5,000 Jobs, Some in Virginia

By Sara Kehaulani Goo
Washington Post Staff Writer
Friday, August 4, 2006

AOL said yesterday it planned to lay off more than a quarter of its workforce -- including hundreds of employees in Northern Virginia -- over the next six months as the company restructures its business to focus on online advertising instead of dial-up subscriptions.

In a meeting yesterday morning at the company's Dulles headquarters, chief executive Jonathan Miller told employees that 5,000 of the company's 19,000 worldwide positions would be eliminated. An executive with the firm said several hundred of the 4,700 jobs in Northern Virginia would be affected, and that some employees had already been granted paid leave to look for new employment. Several employees said the news was expected, and people who worked for certain divisions knew for weeks that they were likely to lose their jobs.

"At a company-wide Web cast this morning, AOL chief executive Jon Miller told AOL's worldwide workforce of 19,000 people that about 5,000 employees would within six months likely no longer be with the company," said AOL spokesman John Buckley.

The news came a day after parent company Time Warner Inc. announced a major overhaul in AOL's business strategy. AOL said Wednesday that the company would give away much of its content, including e-mail addresses, on its Web site to anyone with broadband access. Customers who pay for access to the Internet through AOL will still be charged a monthly fee.

Miller, AOL Vice Chairman Ted Leonsis and Chief Marketing Officer Joe Redling addressed about 400 people gathered at a Dulles headquarters conference room and fielded questions from employees for an hour, according to people who attended the meeting.

An employee who spoke on condition of anonymity because he was not authorized to discuss details of the layoffs said there had been "a fair amount of anxiety and uncertainty" at the company for months.

At least 45 people whose jobs involved ordering and distributing AOL's free promotional CDs were told last month to take paid leave and look for new jobs, according to one executive who spoke on condition of anonymity because he was not authorized to talk to the news media. This person said it was possible that the local layoff figures "could reach a fourth digit," but that the company was planning to eliminate jobs in phases.

A larger portion of the cuts are expected to come from AOL's business in Europe, where AOL has said it is negotiating to sell its dial-up-related business to European telecommunications firms. Earlier this week, AOL said it had entered into negotiations with French telecom company Neuf Cegetel to sell AOL's dial-up business in that country. Miller told analysts yesterday that similar plans to sell AOL's business in Britain and Germany will be completed by this fall. AOL employs 3,000 workers in the three countries.

AOL will offer severance packages to employees and assist them with job placement services, Buckley said.

Since the beginning of the year, AOL has shed 1,300 positions, mostly in its call centers in Florida and Arizona. The majority of jobs expected to be eliminated in this round are in the marketing and other divisions related to recruiting new subscribers. AOL and Time Warner executives said they found those efforts were no longer profitable and said they plan to end them.

The business that AOL had built around dial-up subscription service in the 1990s has dropped off as more people who upgraded to broadband found that many of AOL's competitors, such as Yahoo Inc. and Google Inc., offer similar content for free. AOL lost nearly a million subscribers in the most recent financial period, the company reported Wednesday. It hopes to make up for the shortfall by attracting more online advertising revenue, and grow a bigger audience at and other AOL-owned Web properties with free offerings, such as security software and parental control tools.

Yesterday's announcement about layoffs gave a sense of just how quickly AOL plans to move on with its new plan, said Allen Weiner, research director at Gartner Inc. The layoff number "is not surprising. The business they're getting out of is one that is so heavily support-based," Weiner said.

Still, he said, AOL is late to the game and will face stiff competition for online advertising revenue with Yahoo, Google and Microsoft Corp. "If they had made this move five years ago, when they began to see the shift in usage move to broadband, they wouldn't have had to go through such a painful move," Weiner said.

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