America Online Inc. plans to offer future Internet services in ways that more closely resemble cable television, with targeted programming scheduled for specific days of the week based on the varying interests of its subscribers, according to sources familiar with the proposal.
At a closed-door meeting yesterday of AOL Time Warner Inc.'s board of directors, the online unit's chief executive, Jonathan F. Miller, outlined his vision for restoring growth, momentum and luster to the Internet service. His proposal included adjusting the emphasis of content depending on the day, serving up more sports programming on Sundays; focusing on back-to-work-related issues on Mondays; delivering exclusive music on Tuesdays (radio gets new releases on Tuesdays); offering help with homework and family management on Wednesdays; and promoting movies, television and other forms of entertainment as the week progresses.
In addition, Miller wants to divide AOL's 25 million U.S. subscribers into six groups and serve them news, advertising and other features tailored to their interests.
The segmentation strategy is consistent with the renewed focus on subscribers that is the mantra of AOL Vice Chairman Ted Leonsis, who says the company has lost its way in recent years by letting big advertising deals drive its content, rather than catering to the interests of its members. AOL subscribers pay $23.90 a month for dial-up access to the Internet and to receive exclusive content.
Rather than segmenting its users along demographic lines by age and gender, as network television and magazines typically do when they sell advertising, AOL is approaching segmentation based on the differing interests of its vast community, sources said. These include subgroups focused on business news and sports; music, games and homework help; household planning and family; nightlife and entertainment; and learning how to use the Internet.
Unlike a cable television service, AOL is a national brand with a certain look and feel. As a result, sources said, the segmentation strategy will be put into effect incrementally and carefully to avoid making AOL users feel like they are suddenly in unfamiliar terrain.
The challenges faced by Miller, who joined AOL in August, are immense. Although AOL is the nation's biggest Internet service, it is under increasing pressure from Microsoft's MSN, which has about 8 million users. In addition, AOL has suffered from slowing subscriber growth, a sharp drop in ad revenue and a loss of credibility on Wall Street after promised ad revenue never materialized and the company disclosed that it improperly inflated revenue by $190 million before and after its January 2001 merger with Time Warner.
While most AOL subscribers use a dial-up service, which is extremely profitable for the company, analysts say that market will shrink over time as more people access the Internet via high-speed "broadband" connections. To capitalize on the growth in broadband, AOL is developing exclusive services, including streaming music and video not available to its dial-up customers, as well as cable-style pay-per-view and premium services designed to command a higher price.
The company also is exploring ways to garner additional revenue from subscribers through enhanced shopping. But sources said Miller told AOL Time Warner's board that given the uncertainty surrounding technology, and the move to broadband, his goal is to ensure that AOL is a compelling destination, regardless of what service people use to get online. AOL Time Warner officials declined to comment.
In making his private presentation yesterday, Miller had the wind at his back. He enjoys the support of senior corporate officials after making it clear that cutting costs is essential. Earlier this week, AOL fired 90 ad salesmen, and Miller canceled expensive AOL holiday parties.
"It sends a wrong message to go ahead as if nothing is really different today," Miller wrote in an e-mail to AOL employees this week. "At a time when the company is facing such difficult business challenges -- and as every part of the organization looks for ways to trim expenses -- it seems to me inappropriate to hold large and expensive parties. In fact, a lavish celebration at this point flies in the face of the true nature of the situation we face as a company."
Miller is scheduled to present his new strategy for AOL to Wall Street analysts and investors Dec. 3.
"When a CEO goes into a challenging turnaround situation, they have at best 100 days to articulate their vision and strategy about where the organization needs to go and how to handle challenges on the table," said Paul Rand, director of the global technology practice at the Ketchum public relations firm. "How he communicates his vision becomes essential when you have competitive pressure and harshly drawn lines in the sand. There is not much time to lose in establishing credibility and persuading subscribers that there is a reason to stay."