AOL reports its first drop in subscribers


Published: Saturday, February 1, 2003 at 6:01 a.m.
Last Modified: Saturday, February 1, 2003 at 1:11 a.m.

NEW YORK (AP) - After a relentless decade-long climb to more than 35 million global subscribers, the number of America Online users has slipped for the first time.

Tucked in among the more dramatic announcements in its earnings release on Wednesday, the online division of AOL Time Warner reported the departure of 170,000 U.S. users in the fourth quarter - despite the splashy release of its latest software, version 8.0.

"While AOL is still the No. 1 online service in terms of reach and time spent online, it is losing relevance steadily," said Dylan Brooks, an independent analyst of Internet service providers.

On Wednesday the company also reported a staggering $99 billion loss for 2002 and the resignation of CNN founder Ted Turner from his post as vice chairman.

But analysts believe the drop in subscribers, however minuscule, could foreshadow a gloomier future for an AOL that has been unable to make the transition to high-speed broadband from its domination of the slow-speed dial-up access market.

Figures from Jupiter Research show that AOL holds slightly fewer than one in three U.S. dial-up subscribers, but just one in 30 broadband accounts.

Brooks believes the drop in subscribers was softened by broadband customers who hung on to their AOL accounts to retain e-mail addresses. With consumers becoming more comfortable with broadband, many will flee AOL, he said.

"Their difficulty in capturing the shift to broadband can't be underestimated," Brooks said. "We could be looking back in two years and saying 'this was the beginning of the end.'"

For its part, AOL has said it has stopped simply signing up new customers for the sake of counting them.

In a conference call with analysts this week, as well as previous meetings with analysts, AOL's chief financial officer Wayne Pace has said AOL wants to concentrate on customers who actually pay their $23.90 monthly access fee, rather than those who commit only to its famous free trial offers.

AOL believes the drop in customers - all based in the United States - will be a minor blip, not the start of a major downward trend. Pace has said the company expects an overall growth in subscriber numbers in 2003.

Surprisingly, AOL's October release of its latest software seemed to have no effect on its subscriber numbers. When it released its previous version, 7.0, in October 2001, the company added two million users within months.

AOL Time Warner shares fell 34 cents, or 2.8 percent, to close Friday at $11.66 each on the New York Stock Exchange.

Reader comments posted to this article may be published in our print edition. All rights reserved. This copyrighted material may not be re-published without permission. Links are encouraged.

Comments are currently unavailable on this article

▲ Return to Top