NEW MEDIA: SPOTLIGHT ON AOL TIME WARNER - AOL UK needs to find a way to boost its advertising revenue

AOL UK's challenges aren't helped by its parent's huge losses. Jeremy Lee reports.

Just when it seemed that things couldn't get any worse for AOL Time Warner, a fortnight ago it found fame with the ignominious achievement of making the biggest ever corporate loss in American history.

Following the announcement that the company had lost $99 billion, AOL Time Warner's shares went into freefall, losing more than 13 per cent of their value.

The losses followed a further writing down of its stake in its troubled internet division, America Online. This was after a change in the conglomerate's management team in which all the AOL upstarts were shown the door, leaving the company virtually controlled by executives from the Time Warner old-media economy.

January also marked the departure of the veteran media man and AOL Time Warner vice-chairman, Ted Turner - the company's biggest individual shareholder - who claimed that the merger had dented his personal fortune to the tune of $8 billion.

Turner's parting shot was that the merger (of which he was initially a strong advocate) had been a "terrible idea". He did, however, pledge his support to Richard Parsons, AOL Time Warner's chief executive, who seems determined to avoid a demerger and, shareholders allowing, wants another stab at making the company work.

Parsons, who replaced Steve Case, is claiming that 2003 will be a further year of readjustment and it seems that AOL Time Warner still has a long way to go before it can claim to be fully out of the woods.

As sad as Turner's predicament is, from over here we can look at AOL Time Warner with some smugness because the woes of our own media groups seem trivial in comparison. However, there are obvious ramifications, given the decline of the company's new-media shareholding.

During its life and, with the help of the dubious charms of the bowl-headed Connie, AOL UK has built up a subscription list two million strong.

This has been a great asset, and advertisers and agencies admire the profile of this audience. One media buyer describes it as akin to "BBC Worldwide on-line". The churn rate is low and, according to a spokesman, the UK division reached break-even point last year. But just as Richard Parsons has tough decisions over in the US, so AOL UK's management may find challenges in the future over here.

"The fact that AOL has subscribers means that they know and understand their customers very well," Howard Nead, the managing director of PHDiQ, says. He also points out that these subscribers spend around 80 per cent of their time within AOL sites, making them an attractive target for advertisers.

That said, Nead thinks that AOL provides nothing that can't be found elsewhere.

In a surprise move, the distinctly old-media Andy Jonesco joined AOL UK as the vice-president of interactive marketing nine months ago. This was seen by agencies as an attempt to up the ante among the AOL sales force, but agencies have divided views as to what he has actually achieved.

"Andy hasn't exactly set the world on fire," Phil Nunn, the commercial director and head of direct at ZenithOptimedia, remarks.

But Nunn doesn't think that Jonesco is solely to blame. He says the UK office finds its hands are tied because of the strict controls imposed by its parent in the US.

"As a product and as an audience it's great," Nunn says. "But considering it's AOL and it's meant to be part of the pacey new-media environment, it's very process-driven and not very dynamic. The competition are streets ahead."

Jonathan Lamb, the head of corporate media relations at AOL UK, is optimistic that AOL will continue to grow its share of the advertising market. "Internet advertising does not get the share of advertising that it should compared to its reach. Andy Jonesco's appointment has gone some way to addressing that," he claims.

Robert Horler, the director of Carat Interactive, agrees. "It's no coincidence that Jonesco has gone in there. AOL needed someone who understands the agency culture and the company has every reason to be optimistic."

One of Jonesco's achievements is getting the AOL UK sales force out in front of agencies and reducing its reliance on selling only to clients.

As a former managing director of Express Newspapers, he comes with an excellent sales pedigree, something that had been lacking in the AOL sales team.

According to Nunn, one of the problems with AOL perversely has been its main strength: the loyalty of its two million subscribers. This puts AOL in a similar situation to Sky. While subscription rates guarantee an income, advertising sales have never traditionally been high on its agenda.

And, despite Jonesco's new sales impetus, agencies claim that there are more fundamental problems in dealing with the ISP. Nunn says that the way that AOL uses the advertising is cumbersome and that it refuses to take some advertising because it finds itself handcuffed to its parent company in the US.

According to Guy Wieynk, the client services director at AKQA, AOL's insistence on serving ads in-house rather than through a third party is restrictive. That said, Wieynk admires the company's record at retaining and growing business from existing clients.

Agencies agree that the biggest threat to AOL's business comes from broadband.

Both NTL and BT own broadband infrastructure and have a head start in the market but Lamb, who refuses to disclose the number of AOL broadband subscribers, thinks the company is firmly in the chasing pack. "It's going well, and we think that people's familiarity with AOL will give us an advantage," he claims.