INTERNET PROVIDER For a faltering AOL, the key word is 'turnaround'

AOL laid off workers and canceled its Christmas party because of the serious challenges it faces.
LOS ANGELES TIMES
Rock music still rumbles down the halls of America Online headquarters, but the mood inside the offices of the Internet giant seems closer to the blues.
AOL Chief Executive Jonathan Miller, who has been on the job three months, already has imposed a decidedly more somber, businesslike approach in the Internet division of AOL Time Warner Inc.
Last week he laid off 90 employees in AOL's ad sales divisions in Dulles, Va., and New York City. He canceled the company's annual holiday party, saying a celebration "flies in the face" of the serious challenges the company is facing. Among them: a government investigation into its accounting practices along with falling subscriber growth.
For a newcomer, Miller has spent surprisingly little time schmoozing with employees, devoting much of his day to developing a turnaround plan.
Not like the others
Miller stands in stark contrast to some of the company's recently departed leaders, including AOL Time Warner Chairman Bob Pittman, who was criticized for setting overly ambitious targets, and Internet programming head Jimmy de Castro, who piped in the rock music and led a high-energy exercise class in the morning to help boost morale.
"He's unlike previous AOL executives, and that's a good thing," said Kaufman Bros. analyst Paul Kim. "He's less flashy. Less arrogant. And less dictatorial."
Miller's long-awaited turnaround plan for AOL reflects some of his no-nonsense, practical style. "It's not a silver bullet," said a source briefed on the plan. "It's a modest plan, but a realistic one."
The plan proposes cutting costs, focusing less on ad sales and growing America Online's sagging high-speed service by developing exclusive programs, relying partly on AOL Time Warner's own stable of entertainment companies, according to sources familiar with the plan.
Premium services
It also proposes creating several premium services, which will cost subscribers more than AOL's standard Internet product but could offer more compelling features, such as sneak peeks at upcoming movies, exclusive interviews and the ability to download music, sources said.
Boosting America Online's e-commerce business through new partnerships with retailers is another key component. One strategy is to create a platform on the AOL service where small- and medium-size sellers can offer various products directly to consumers at fixed, discounted prices. Miller is also pushing AOL to sprinkle sales opportunities throughout the online service, rather than focusing on a separate online shopping mall, such as pitching CDs to subscribers who visit AOL's music site.
After an expected approval by the board, Miller's plan is to be publicly announced Dec. 3 during a presentation to Wall Street analysts.
AOL officials declined to comment on the plan.
The plan does not include any major surprises or drastic changes to the vision already laid out by Miller and Ted Leonsis, a longtime AOL executive who recently stepped back into a more active role as vice chairman of the Internet unit. Both men have been spending several hours a day since September developing a strategy to shift America Online away from its dependence upon aggressive advertising deals, which dried up with the dot-com bust and now are the target of a criminal investigation by the Justice Department.
Stock value drops
Due largely to a growth slowdown and accounting problems at the Internet division, AOL Time Warner stock has lost half its value since the beginning of the year. Shares have been trading at about $15.
Miller's proposal is the latest of several turnaround efforts launched over the past year, including one by Pittman that called for AOL to temporarily de-emphasize the high-speed product.
Miller is taking the opposite tack, attempting to address a common Wall Street refrain that America Online lacks a clear broadband strategy.
In recent weeks, the company has started rolling out new high-speed features, including a broadband radio with CD-quality sound and AOL Live, which features online programs about the entertainment industry.