Wall Street analysts, who will be on hand for the company's first investor day, said they expect AOL Time Warner executives to offer concrete strategies for boosting revenue--the other side of an ambitious merger blueprint that has so far focused on reshuffling executives and laying off staff.
"The company has clearly detailed plans to reduce its cost base, and tomorrow they will look forward to discuss the opportunity to increase revenue," said Jordan Rohan, an equity analyst at Wit SoundView.
AOL Time Warner has moved quickly to consolidate following approval of America Online's acquisition of Time Warner earlier this month, earning high marks from some analysts for its focus and execution.
Last week, AOL Time Warner cut about 2,400 jobs, many of which came from its America Online division in Dulles, Va. Other areas that were affected included CNN, Time Inc. and Warner Bros.
Although more layoffs have not been ruled out and other cost-saving measures have yet to be tapped, the company is expected to turn to a much harder task: earning money.
AOL Time Warner executives have said the new company will produce $1 billion in new earnings for 2001. In addition, executives have told analysts to expect 12 percent to 15 percent revenue growth; a 30 percent boost in earnings before interest, taxes, depreciation and amortization; and 50 percent growth in free cash flow, according to Youssef Squali, an equity analyst at ING Barings.
In broad strokes, the revenue opportunities of the deal are widely thought to depend on piggybacking Time Warner's traditional media properties with AOL's online business, cross-marketing and developing new products and services.
Analysts said they expect AOL Time Warner executives on Wednesday to announce new advertising products that will take advantage of the company's combined properties. For example, analysts want to see executives detail how an advertiser will buy ad placements across all of AOL Time Warner's magazines, online services and TV stations. Such an announcement might go a long way toward quelling fears of weakened revenue growth potential because of the tightening online advertising market.
Analysts also hope AOL Time Warner will raise the curtain on new products and services. For example, Bob Pittman, AOL Time Warner's co-chief operating officer, has hinted in the past of the company's intention to create an online music subscription service.
Earlier this month the company appointed former BMG Entertainment executive Kevin Conroy as head of a newly formed division called AOL Music. Conroy will oversee AOL's foray into digital music and its relations with other record labels that hold the coveted copyrights to popular songs.
"Tomorrow they will give palpable examples of the types of synergies that they will be able to realize," Squali said.
There has also been increasing speculation over whether the AOL Internet service will raise its $21.95 monthly subscription fee. Merrill Lynch analyst Henry Blodget released a note to investors Tuesday morning that speculated the possibility of executives hiking AOL's subscription fees.
"Expect possible announcements of major cross-marketing deals and, possibly, a price increase for the AOL service," Blodget wrote.
But not all Wall Street analysts think the timing is right for a subscription fee increase. Christopher Dixon, an equity analyst at UBS Warburg, said he is not anticipating any changes in AOL's fees. Although any incremental increase would become a revenue windfall, the company needs to offer people more bells and whistles to justify the new price.
If AOL Time Warner raises AOL's rates, "I think people will raise their eyebrows, and they're not stupid enough to do that," Dixon said. "However, if you tell me you will enable me to have Moviefone tickets at a discount, or that you'll be able to stream music, then I may say, 'Sure, I'll be happy to pay.'"
While many analysts are hoping the company will turn its attention to revenue growth, others noted that further cost-saving measures are also in the wings, particularly in using AOL's substantial online audience to streamline Time Warner's subscriber acquisition costs and lower the churn rate for its print publications and cable service, and vice versa. Churn gauges the number of people who end their subscriptions to a service or publication.
"The low-hanging fruit is going to be about how will you drive down subscription acquisition costs and reduce churn by bundling services with AOL, Time Warner Cable or Time Inc. subscribers," Dixon said.