AOL Shares Fall on 2003 Outlook

NEW YORK — AOL Time Warner stock fell 14 percent to $14.21 on the New York Stock Exchange Tuesday following the company’s disappointing forecast for its America Online Internet unit.

The New York-based media giant said that declines in advertising and commerce revenues at America Online will offset the growth in subscription income next year, resulting in flat overall revenues for 2003. Total revenues for the AOL division are projected to be $8.8-$9 billion in 2002.

Advertising and commerce revenues are expected to drop 40-50 percent for AOL next year, largely due to lower revenue recognition from prior-period commitments. This year, revenues from ad and commerce sales are expected to be $1.5-1.6 billion.

“Even though it’s early to give a precise 2003 outlook for America Online, management has just concluded a comprehensive review of its operations and has developed an achievable business plan to build a strong foundation for the future,” said AOL Time Warner CFO Wayne Pace. “It is clear that 2003 will be a transition year.”

The outlook came on the same day AOL Time Warner unveiled a much anticipated strategic plan for the AOL division that is meant increase its member retention and satisfaction and lessen its reliance on advertising revenue. The plan calls for AOL to collaborate with AOL Time Warner’s media companies to deliver exclusive content to AOL members.

Time Inc. editors, for instance, will work with AOL to integrate content from People, Entertainment Weekly, InStyle and Parenting, among other publications, through AOL’s areas for entertainment, families, women, teens and kids at no additional cost to its members. In turn, AOL will promote the Time Inc. content across the service.

In addition, AOL members will receive free access via AOL Broadband to CNN’s video news services, currently available for a fee across the Internet. The Warner Music Group, Warner Bros. Pictures, New Line Cinema and HBO will also share exclusive content with AOL.

The company said that AOL will continue to seek and actively promote online content from outside partners on its service. “Today’s announcement is just the first step to putting even more AOL Time Warner content on the AOL service and to working with outside providers to showcase their content to AOL members,” said Don Logan, chairman of the media and communications group at AOL Time Warner.