As America Online sheds some skin this month with more than 5,000 layoffs and the elimination of its monthly subscriptions, Woodland Hills-based United Online is not so quietly digging in.
With parent Time Warner Inc. essentially offering its broadband service for free, AOL now will depend on Internet advertising to make up the several billion dollars in lost subscription revenue.
The day after AOL made its thunderbolt announcement, United Online Chief Executive Mark Goldston and marketing head Matt Wisk immediately designed and produced TV ads that targeted AOL users specifically.
“We sat down, wrote the copy, then used studio time and graphics so we didn’t have to hire any talent,” Goldston said. “We’re built for speed and we’re built for scale.”
The United Online chieftain said the “incredibly cool” ads ran on local cable TV, telling users “Attention, AOL users, you can get AOL access at less than half the price.”
Suddenly, United Online was getting unbridled attention for its NetZero and Juno user platforms, which cost $9.95 per month, a significant reduction from AOL’s price.
Goldston, however, is quite sure that the only reason that AOL was able to hold onto its 17.7 million subscribers all these years was the email addresses each user had. Now, with AOL offering its email, as well as subscriptions, to users free of charge, he sees an opportunity.
“The AOL email address for years has been, in our view, the mother lode,” Goldston said. “Why would anybody spend $25.95 a month for what ranks almost last in power presentation? The major reason that people keep this service is for the address. The average customer has been dying to leave AOL for years. Now, if they have the ability to leave and still use the service, they will.”
Goldston feels United Online will benefit from AOL’s marketing reduction and likens his firm to cut-rate, but profitable airlines.
“We’re the Southwest and Jet Blue of online access,” Goldston said. “NetZero is Southwest and Juno is Jet Blue and we happen to own both of them.”
AOL, which is also banking on internal savings in its customer service base, apparently believes that user numbers should go up, thus providing greater advertising numbers.
According to its announcement, AOL will no longer distribute trial discs that come unsolicited in mailboxes and magazines. Hundreds of employees who monitor and handle those offers the majority of whom are in Arizona and Virginia will likely get pink slips, thus resulting in greater savings for AOL. The company’s original content unit, which is based here, has not been affected.
Digital media analyst Josh Martin said that AOL must struggle to adjust to a world increasingly dominated by advertising-supported services such as Google Inc. and Yahoo! Inc.
Martin said that last quarter alone, AOL lost 1 million subscribers, which prompted its decision to cut subscriptions and rely on advertising.
Media deals
There were two other major Internet transactions last week.
L.A.-based Fox Interactive Media and Google announced multi-year deals that make Google the default and exclusive search and keyword sales provider on L.A.-based Fox Interactive properties, including MySpace.com.
Google guaranteed a minimum of $900 million to Fox Interactive beginning in the first quarter of 2007, which nearly offsets the $560 million that its parent, News Corp., paid for MySpace.com.
The Google deal excludes Fox Sports, which already has a deal with Microsoft Corp.
Separately, San Francisco-based Atom Entertainment, which offers both short videos and games, was acquired by Viacom’s MTV Networks for $200 million.
Atom, which was started in the late 1990s as a short-film Web site, survived the dot.com bust and merged with games distributor Shockwave in 2001 to become AtomShockwave.
It’s the latest example of a traditional media company, in this case Viacom Inc., latching onto a Web site that caters to young audiences. As a result, Viacom will continue to spar with competitor Rupert Murdoch’s News Corp., which late last year bought MySpace.com to tap into the same market.
“We feel like we’re building a great portfolio of brands,” MTV Networks Chief Executive Judy McGrath said.
