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America Online offers exclusive features amid glum forecast

| Wednesday, Dec. 4, 2002

NEW YORK — America Online said Tuesday it will begin offering exclusive content from other divisions at parent AOL Time Warner Inc. to keep and attract customers as the world's largest online service provider attempts a turnaround.

But the division offered a financial forecast for 2003 that disappointed Wall Street and sent AOL shares down 11 percent.

America Online said it would meet its previously issued 2002 financial forecast, but expects a drop of 40 to 50 percent in advertising and commerce revenues next year. The division said it expected overall 2003 revenues to be flat despite those declines as "solid growth" in worldwide subscription revenues limit the damage.

Although some drop-off had been expected, Wall Street was not pleased with the extent of the projected decline in ad and commerce revenue. AOL Time Warner's stock price fell 14.2 percent, or $2.36 to close yesterday at $14.21 on the New York Stock Exchange.

The news came as company officials met with Wall Street analysts and investors, and provided the first major strategic update since word this summer the Justice Department and Securities and Exchange Commission were investigating the division's accounting practices.

The content deals announced yesterday — which involve magazines such as People, as well as Warner Bros. music, CNN and HBO programs — had been widely anticipated as America Online repositions itself amid questions about the viability of its business.

Jon Miller, the division's new chief executive, said America Online would spend the next year refocusing on member satisfaction and retention. He said that providing content that can't be found anywhere else on the Web is essential to profitability. The content deals with other AOL Time Warner divisions are seen as a key element of that.

"We have to become even more relevant to our members' experience," he said. "We'll keep leveraging the firsts and exclusives that are making it cool to be on AOL again."

Among the initiatives announced yesterday were plans to offer video from CNN for free to America Online members that currently is available for a fee on the Internet. Content from Time Inc. magazines such as People and Real Simple also will be exclusively offered, as will music and entertainment offerings. Also, HBO and America Online plan to collaborate on original programming. All the partnering companies are AOL Time Warner divisions.

"Our hope and anticipation is to work across entire array of all our businesses and create an online product offering that is so compelling that online consumer simply can't live without it," said AOL Time Warner chief executive Richard Parsons. "This is going to be a team effort. We're all committed to getting this thing done."

Miller also said that the company would offer more choices to customers who access the Internet via high-speed or broadband connections.

The bulk of America Online's members access the Internet via dial-up connections, but the growth prospects for that market is slowing as Internet users switch to broadband performance. America Online offers broadband, but its product is pricier than others, and many investors are concerned the company is losing ground.

America Online executives also said e-commerce will become another focus, as the company explores other ways to make money outside of subscriber fees. The company also hopes to do a better job of wooing advertisers. Many of the lucrative, pricey long-term ad contracts made during the Internet boom years are expiring, and will not be renewed under as favorable terms.

Premium services, for which an America Online customer pays extra, also are a key part of the turnaround.

One announced yesterday is an online anti-virus service provided in conjunction with Network Associates' McAfee product. Although all members will get a basic level of protection from viruses brought in via e-mail, for example, the new premium service will extend the virus protection beyond e-mail to the user's personal computer system. No details were released about pricing or when the service would become available.

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