October 15, 2002 2:15 PM PDT

New AOL 8.0 smacks down pop-ups

NEW YORK--America Online on Tuesday said it will discontinue serving pop-up advertisements in conjunction with the release of AOL 8.0, the latest upgrade of its flagship Internet service.

Executives of both AOL and its corporate parent AOL Time Warner introduced version 8.0 Tuesday afternoon here at Lincoln Center. At the event, AOL CEO Jonathan Miller announced that the company will no longer sell third-party pop-up advertising on its service.

"AOL will not deliver any (third-party) pop-ups from AOL to our members," Miller said. "Pop-up ads aren't where we're going to go from here." The company said the new policy will improve "member experience."

In a press conference after the event, Miller said discontinuing pop-ups would cause a $30 million shortfall in 2003 earnings before interest, taxes, depreciation and amortization (EBITDA) for AOL. He added that it is his intent to "make up the $30 million" shortfall through different forms of online advertising more embedded in AOL's various features. Miller also said AOL's advertising revenue next year is expected to increase from this year.

AOL 8.0 represents the struggling Internet company's newest hope for reviving its sagging fortunes. As previously reported, the upgrade is not a makeover of its version 7.0, but it does include enhancements to many of its popular features. One theme in version 8.0 is heightened customization, by which people can change the appearance of their AOL welcome screen or choose among hundreds of instant messaging icons, smileys and instant messaging backgrounds.

AOL 8.0 has added to its chat-room features, allowing people to search for topics while alerting them when other members with similar interests sign on. Other enhancements include new sorting features in the mail system, the ability for parents to view printouts of their children's online usage and more high-bandwidth content for broadband users.

The release comes a little more than a week before Microsoft, a key online rival to AOL, is scheduled to launch the latest version of MSN, its Internet service. Microsoft on Monday unveiled a $300 million ad campaign to promote MSN 8.

AOL's Tuesday launch comes at a crucial point for the company. The division of media giant AOL Time Warner has witnessed its online advertising revenue plummet after many dot-com advertisers either pulled out of long-term deals or simply went out of business. Meanwhile, AOL has been under investigation by the Securities Exchange Commission and the Department of Justice for its accounting practices.

AOL's woes have taken a toll on its parent corporation. Investors have sent AOL Time Warner stock from $39 per share a year ago to about $11 per share today because of continuing problems at the online division. While other businesses in the AOL Time Warner family have shown strong results, Wall Street's pessimism for AOL has not wavered.

The online unit has also witnessed a significant management shake-up over the past year. In April, then-CEO Barry Schuler was replaced by former Chief Operating Officer Bob Pittman, who was assigned to turn around the division. But Pittman, who was also the COO of AOL Time Warner, later resigned under pressure from executives within the media giant.

In August, Miller, then a USA Interactive executive, was appointed chief executive of AOL. Miller has taken steps to refocus the division.

Boardroom politics at AOL Time Warner have also stirred up publicity, as a number of influential shareholders, including Vice Chairman Ted Turner, reportedly have been trying to oust Chairman Steve Case. Case, formerly the CEO of AOL before its merger with Time Warner, has come under fire from members of the board for his knowledge of AOL's questionable accounting practices, according to reports.

Turner takes the stage
Turner made a surprise appearance on stage during a speech by AOL Time Warner CEO Richard Parsons. Turner stepped out from behind the shiny curtain, grabbed a microphone and belted out, "Watch out Bill Gates and Microsoft--here we come!" Turner then slapped Parsons a high-five before disappearing behind the curtain.

Although they share a competitive spirit, Turner and Case did not share the stage. The AOL Time Warner chairman did appear onstage with comedian Dana Carvey to highlight AOL 8.0's many new features: An exuberant Case joked with Carvey during his presentation and at one point shook his backside to the audience during Carvey's well-known "Hans and Franz" routine.

"AOL rocks!" Case screamed.

Case focused much of his attention on AOL members and the various online communities that have sprung up on the service. Case and other AOL executives attending the event emphasized the service's community feel and member satisfaction.

Case described AOL 8.0 as "a return to spirit--that sense of passion that has driven AOL over the years."

Tuesday's event was hosted by Carvey and featured a musical performance by pop singer Alanis Morissette. It also showcased the 2,000 or so AOL members in attendance to highlight the power of AOL's online communities.

As part of the glitzy launch, AOL will begin a multimillion-dollar television and print advertising campaign to highlight version 8.0's new features. The company will also begin its massive direct-marketing campaign by distributing millions of CD-ROMs carrying software for the service to more than 65,000 retail outlets, 660 chains and other locations across the country, including Target, Office Depot, Circuit City and United States Post Office.

AOL is also getting creative with the soon-to-be ubiquitous CD-ROMs. The company will distribute specialty discs designed by celebrities such as Tom Cruise, Enrique Iglesias, Donna Karan and Magic Johnson.

 

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