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But his immediate priority is to attract more advertising. If it weren't for the $130 million that AOL's sister divisions plowed into promoting their brands on the service during the fourth quarter, ad revenue would have plunged 26% instead of just 7%. In fact, AOL Time Warner is one of its own biggest advertisers. Many of the New Economy companies that used to advertise on the AOL service are either bankrupt or close to it. And although consumers are spending more and more time and money on the Internet, Fortune 500 companies and their agencies remain doubtful of the impact of online ads.
AOL executives say that by using its online network to build buzz for such hugely successful Warner Bros. films as Harry Potter and Lord of the Rings, the AOL service has proved its worth. Likewise, AOL's revamped music channel--one of its hottest content areas, drawing 9 million visitors a month--is fast becoming a key promotional vehicle in the record business..
But to draw more advertising, the AOL division is going to have to change its notorious our-way-or-the-highway culture. The AOL service's business partners, suppliers and advertisers trade stories of sitting around tables listening to AOL executives yammer on about who is wealthier or has a nicer private jet. To his credit, Schuler had started an effort to inject a little humility. One might expect that a battered stock price had already done that. "They're still copping attitude and alienating people," says an ad executive. Managers at a telecom giant found AOL so uncompromising on a recent contract that they are shopping their business elsewhere.
For all its troubles, the AOL service, which accounts for nearly a quarter of the media giant's cash flow, is a global leader whose 34 million subscribers dwarf the 8 million of its nearest competition, Microsoft's MSN. None of AOL's competitors offers a service that so successfully combines simple e-mail, instant messaging and chat. And no one matches AOL's unique system of parental controls, which makes it the family service of choice. But to keep its user base growing, AOL has been giving away more subscriptions--one reason its revenue per user has stayed flat, despite last year's $2 price increase. Kelly maintains that the trial offers are worthwhile because nearly three-quarters stay on as full-paying members.
Though AOL says its members have never been happier with the service, independent surveys show that dissatisfaction is on the rise. In one by the Yankee Group, a Boston, Mass., research firm, AOL fared worse than the industry as a whole at "providing value for the money." Last fall, in a Consumer Reports look at Internet service providers, AOL came in last in connection reliability, far behind leaders EarthLink and AT&T WorldNet. To many, AOL seems more and more like a carnival barker, flashing pop-up ads in their faces. Pittman last week indicated to colleagues that he considers the pop-up ads out of control and will move quickly to fix the problem.