AOL Transformation On Track

The transformation of AOL from subscription-based access provider to ad-supported media company is progressing as planned, according to Time Warner execs.

In a conference call with investors Thursday, Dick Parsons, Time Warner chairman and CEO, said he was “encouraged by the early progress of AOL” in the last quarter. A “significant” number of users have converted from paid subscribers to free ones, while maintaining similar levels of usage, he said. The company has even signed up more new users for its free service than they had expected, both former AOL users returning to the company and brand new ones.

Most importantly, the company has been able to monetize the pageviews of those users. Revenue per thousand pageviews grew by 60 percent year-to-year. Ad sales at AOL rose to $479 million, a 46-percent gain over the $328 million of the year-ago quarter. As planned, the company lost revenue from subscriptions, dipping 13 percent year-to-year to $1.45 million. But the strong ad sales gains kept overall revenue at AOL just 3 percent down year-to-year, at $1.98 million.

At Time Warner, revenues for the quarter rose 7 percent to $10.9 billion, led by growth in its cable systems and TV networks. Adjusted earnings per share rose 12 percent to $0.19 in the quarter.

AOL has been working on several fronts to execute the plan, announced in early August, to stop charging users for software and to turn its attention to building its advertising program. This quarter, more than 1.5 million paid users migrated to the free service. AOL ended the quarter with 2.5 million fewer paid subscribers than the previous quarter, and 4.9 million fewer than the year before.

The company is focused on building up its free subscriber base, since those members account for the bulk of pageviews, and thus ad impressions, across its network, despite making up a smaller portion of visitors. During the quarter, AOL averaged 112 million unique visitors a month, with 145 million average monthly pageviews per unique visitor.

It closed the deal on a $365 million sale of its access business in France this week, and expects to close a $688 million deal for its U.K. Internet access business and $870 million in Germany in the next few months.

Recent rumblings in the press that Time Warner might sell AOL have likely resulted from misunderstandings, according to Parsons.

“AOL is a core asset of our company. In every division, we earn revenue from content, subscriptions, or advertising. AOL is big in one of the three revenue-driving streams we fish in,” Parsons said.