Will Falco fix AOL?
Falco ran General Electric Company's (NYSE: GE) NBC for years but he did not make the cut as successor to Robert Wright -- losing out to Jeff Zucker -- who himself may or may not actually succeed Wright. In any case, according to the Wall Street Journal [subscription required], Falco is being touted for his "operational experience." To me this means, he will do a better job than Jon Miller of firing up the troops to sell advertising to companies trying to reach you and your fellow visitors to AOL's properties. And since Falco has experience managing a media company, like Time Warner Chief Operating Officer, Jeff Bewkes, my guess is that he'll be able to work more effectively with Bewkes and the rest of AOL.
A review of AOL's most recent financial performance suggests that Miller's strategy -- cutting back on AOL's subscription business while increasing its advertising revenues -- is getting results. According to Time Warner CEO Richard Parsons, third-quarter 2006 advertising revenue at AOL increased 46%, but subscription revenue fell 13%. AOL had 15 million paying subscribers total (10 million dial-up; 5 million broadband)--down from a high of 26 million in 2002.
Back in July I wondered whether AOL would be able to replace $2 billion in lost subscription revenues with new advertising. Since advertising represents a mere 24% of AOL's $1,983 million in third quarter revenue, Falco has a huge challenge ahead of him to achieve that goal. According to its quarterly report, AOL third quarter revenues fell 3% from 2005's third quarter, or $58 million, to $1,983 million, due to a 13% decrease -- $210 million -- in subscription revenues which totaled $1,405 million -- offset slightly by a 46% increase -- $151 million -- totaling $479 million in advertising revenues.
To close the subscription revenue gap, Falco would need to increase the number of people visiting AOL's sites and sell more advertising to companies seeking to reach those visitors. To put this into perspective, during the third quarter, AOL had 112 million average monthly domestic unique visitors and 49 billion domestic page views, according to comScore Media Metrix, which translates into 145 average monthly page views per unique visitor. This represents $4.28 worth of third quarter advertising revenue per average monthly unique visitor.
In September, Falco introduced a plan to start syndicating short video clips to Web sites via NBC's National Broadband Company (NBBC). With the right content coupled with an aggressive sales effort, Falco might be able to boost unique visitors and attract new advertisers -- adapting his NBBC concept to boost AOL advertising revenue.
Let's hope Falco fixes AOL. If he succeeds, TWX shareholders will be richer.