• by Masha Geller , April 23, 2003

The story of the day, of course, is AOL Time Warner is reporting a profit. When I first came across the announcement, my immediate reaction was to check my calendar to make sure it's not April 1. Well, it's true. They've stopped bleeding money (or finally figured out what accounting is all about).

For the first quarter of this year, the company reported $396 million in net income, which, compared to a net loss of $54.24 billion (notice the order of magnitude here, folks) is pretty good. Officials are saying that subscription and content revenues are rising, ad revenues are falling, but the company still expects 2003 revenues to remain flat at $9.1 billion for the year.

On the online side, the AOL division expects ad revenues to decline 35% to 45% from $1.3 billion this year, and is blaming that trend on - what else - broadband and the war with Iraq. Reportedly, the number of AOL members declined about 290,000 last quarter and now stands at 26.2 million. Nevertheless, AOL TW CEO Richard Parsons says the online unit is "on track" to sell more ads this year compared to last year.

First off, predicting that this year will bring more online ad revenue than last year isn't saying much more than 2003 is on track to be warmer than the last year of the Ice Age. Secondly, forgive the skepticism, but if they're losing members, how are they going to sell more ads? There's only so much you can blame on broadband defection and the war.

The company's financials may finally make sense, but the people at the helm of the AOL behemoth have a fundamental problem to solve here: how are they going to keep their members? They can't afford to hemorrhage 300K members a quarter because even though the war is behind us, broadband penetration is only going to increase and ad revenues will follow members. And it doesn't look like anybody over there, or anywhere else for that matter, has a plan of action. I certainly don't (or I wouldn't be writing this column,) and I'm not holding my breath for better news to come with the next quarterly report.