AOL to Cut Its Work Force by One-Third
Post a CommentOn Thursday, AOL announced it would cut its work force by one-third by eliminating close to 2,500 workers. The move comes as the company prepares to be spun off from its parent company, Time Warner, into an independent, publicly traded company.
AOL said in a regulatory filing that the job cuts were meant to save about $300 million a year. It will take a $200 million restructuring charge to account for the severance costs. The company said it would ask for volunteers first, and then resort to layoffs if it didn’t get roughly 2,500 people to accept a buyout package.
Tim Armstrong, who became AOL’s chairman and chief executive in March after a successful and lucrative stint at Google, told employees in an e-mail message that he would not accept a bonus this year. In the message, he wrote, “as a member of our team and the person who takes accountability for the results of the company, I am making the decision to forgo my 2009 bonus. That decision is a personal one and is not a sign for the future payout of the overall bonus plan for employees.”
Mr. Armstrong, 38, was guaranteed a bonus of at least $1.5 million this year, according to a regulatory filing. His minimum base salary, according to his employment contract, is $1 million.
At its biggest, AOL had more than 20,000 employees in 2004. It currently has about 6,900 and after the latest round of layoffs will be left with about 4,400 workers, making it roughly a fifth of the size it once was.
In terms of what was once its core business — selling dial-up Internet access — AOL had the most subscribers in the third quarter of 2002, when it counted 26.7 million of them. At the end of the most recent quarter, it had 5.4 million. Through the first nine months of 2009, AOL lost 1.9 million subscribers, or more than 200,000 a month.
This business is still profitable for AOL, although it is declining rapidly. Mr. Armstrong, in the face of continuing declines in the access business, has singled out several areas for growth, including premium content, online mapping and local services, communications like instant messaging, and online advertising.
In an interview with The New York Times in July, Mr. Armstrong said of the company’s challenges: “AOL has a choice to make. We either lose slowly or win quickly. We are choosing to win quickly.”
Time Warner, whose merger with AOL in 2000 was disastrous for both companies, decided earlier this year to spin off its struggling Internet unit. The spinoff is scheduled to be completed by Dec. 9.
In the most recent quarter, AOL’s revenue was down 23 percent, or $235 million, to $777 million. Of this decline, $138 million was ascribed to a decline in subscriptions, while $92 million resulted from a drop in advertising.
AOL became a force on the Internet in the 1990s by offering its ubiquitous dial-up service, but fell behind as high-speed service became widespread and the access business became commoditized.
It used its high-flying status and its stratospheric stock price to essentially buy Time Warner in a deal announced in January 2000. The balance of power shifted in the ensuing years, and Time Warner dropped “AOL” from its name.
Its formal spinoff in the coming weeks will be the closing chapter of the ill-fated deal.
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