AOL to slash 2,000 jobs worldwide to reduce costs
Struggling Internet service AOL said Monday it would pare costs by cutting 2,000 jobs, or one-fifth of its global workforce, as part of its painful transition from a subscriber-based business to an online advertising forum.
Job cuts will come in all parts of the company, a unit of Time Warner Inc., but one of the areas expected to be most affected is the Internet-access business that used to be AOL’s core.
About 1,200 of the jobs will be cut in the United States, 750 of those at AOL’s current headquarters in Dulles, Va., spokeswoman Tricia Primrose Wallace said Monday. The company is relocating to New York.
The job cuts “may be indicative of a weaker revenue line than we’d anticipated, causing AOL to try to hit its numbers through more aggressive cost cutting,” Soleil Securities analyst Laura Martin said. Time Warner is due to announce its third-quarter earnings results -- including AOL revenue -- Nov. 7.
AOL’s U.S. subscriber base has plunged in recent years, to 10.6 million as of June 30, from 26.7 million at its peak five years ago. The subscriber business is being phased out steadily in favor of the free, ad-supported business model that AOL rolled out in August 2006.
The service’s ad revenue increased 16% in the second quarter compared with the year before, but the gain was only $73 million. That gain was overwhelmed by a 38% decline in subscriber revenue, to $1.25 billion from $2.03 billion as of June 30, 2006.
AOL Chief Executive Randy Falco, who took over a year ago after three decades at NBC Universal, announced the cuts in a memo to employees Monday.
The domestic layoffs will begin taking effect today, and some of the overseas cuts will occur more slowly, Wallace said. In Europe, for example, AOL must comply with local regulations that impose a longer timetable.
The layoffs come on top of 5,000 jobs cut last year after AOL announced its big strategy change, to an approach similar to that of Internet portals such as Yahoo Inc.
AOL said last month that it planned to move its headquarters to New York, where most of its advertising sales force is based, next spring.
“This realignment will allow us to increase investment in high-growth areas of the company -- as an example, we added hundreds of people this year through acquisitions -- while scaling back in areas with less growth potential or those that aren’t core to our business,” Falco said in his memo.