SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): October 29, 1996
AMERICA ONLINE, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-19836 54-1322110
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation) Identification No.)
22000 AOL Way, Dulles, Virginia 20166
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (703) 448-8700
Item 5. Other Events
On October 29, 1996, the Registrant publicly disseminated a press release
regarding the Registrant's decision, effective immediately, to expense all of
its marketing costs as they are incurred rather than amortizing certain
marketing expenses. In connection with such action, the Registrant plans to
take a one-time charge as of September 30, 1996 of approximately $385 million,
representing the balance of deferred subscriber acquisition costs as of that
date. The Registrant also plans to take a one-time charge in the December 1996
quarter of up to $75 million, representing the costs the Registrant expects to
incur as it aligns the organization with emerging opportunities in the
interactive market. The press release also discusses corporate restructuring,
the adoption of a new pricing structure, and the addition of new features to its
online service.
Item 7. Financial Statements and Exhibits.
(c) Exhibit.
99.1. Press Release dated October 29, 1996.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Dated: November 6, 1996
AMERICA ONLINE, INC.
By: /S/LENNERT J. LEADER
Lennert J. Leader
Senior Vice President and Chief
Financial Officer
EXHIBIT INDEX
Exhibit
Number Description
99.1. Press Release dated October 29, 1996.
EXHIBIT 99.1
America Online Announces New Corporate Structure, Pricing and Features to
Leverage Global Assets and Extend Brand Leadership
Separate Operating Divisions Created for Three Global Businesses: Consumer
Networks, Content and Access
Robert W. Pittman Named to Oversee Flagship Consumer Network
New Competitive Pricing Plan, Original Programming and Technological Features
Advance Strategy to Build on Renewed Membership Momentum
Company Announces One-Time Charge to Earnings Reflecting New Business Model
DULLES, VA, October 29, 1996 - America Online, Inc. announced today a series of
initiatives to fully leverage its global assets in consumer networks, content
and access by more closely aligning its business structure with emerging
opportunities in the interactive market, and to further distinguish its flagship
online brand as the leader in value, content and service.
Steve Case, Chairman and Chief Executive Officer of America Online, Inc.,
stated, "America Online has grown rapidly in recent years, and is now the global
leader in interactive services. The steps we're announcing today build on that
leadership by fully leveraging our assets in consumer networks, content and
access as separate business opportunities. At the same time, through new
competitive 'unlimited' pricing and a superior consumer offering enhanced by new
programming and design advances, we are further strengthening the position of
our flagship America Online brand as the undisputed leader in value and service
and the clear choice for millions of consumers worldwide."
New Structure Fully Leverages Global Leadership in Three Global Interactive
Businesses
America Online is a worldwide leader in each of three core elements of the
interactive services business: consumer networks that provide consumers with a
complete package of interactive services; the conception and development of new
content brands for consumer networks and the Internet; and the deployment of
access infrastructure to handle rapid growth for consumers and to meet the
growing information-technology needs of businesses. The new corporate
structure announced today was designed to leverage each of these assets by
managing each as a separate area of business, driven by fully-focused, world-
class leadership.
The new corporate structure separates AOL into three operating divisions: AOL
Networks, which will oversee the company's flagship Internet online service; AOL
Studios, which will build new content brands for AOL and cross-distribution
platforms; and ANS Communications, which will deploy access infrastructure
globally for AOL and the industry at large.
The company named Robert W. Pittman, formerly CEO of MTV Networks and more
recently CEO of Century 21 Real Estate Corporation, to head AOL Networks. Ted
Leonsis, who presently heads AOL Services Co., will lead AOL Studios. Bruce
Bond, hired earlier in 1996 to lead ANS Communications, will continue in that
role.
"Our global businesses in consumer networks, content and access coincide with
areas of extraordinary growth opportunity in the interactive world," Case
continued. "Therefore, we have chosen to manage them as separate assets, and
entrusted each one of them to a leader who can be passionate about the
possibilities and nimble in inventing new approaches."
"Bob Pittman brings our flagship service valuable skills as a consummate brand-
builder and marketer, a programming innovator and a leader in developing new
services, technologies and pricing structures in national consumer businesses
ranging from media to theme parks to home ownership. As President of AOL
Services for the past two years, Ted Leonsis helped us grow from 1 million
members to nearly 7 million and from $100 million to more than $1 billion in
revenues, and has led our efforts to build original content programming. He
will now focus his energies developing the most successful and valuable studio
system in the interactive industry. Bruce Bond, who took charge of ANS
Communications this summer and is a widely-respected leader in the
communications industry, is poised to accelerate the division's growth in wide-
area networking and large-scale TCP/IP dial-up services," Case concluded.
AOL Networks will oversee the branded America Online service, the undisputed
world leader in Internet online services with nearly 7 million members
worldwide. With the industry's leading brand name, its highest quality and most
user-friendly interface, and most prolific subscriber-acquisition capabilities,
AOL is the best positioned service to further develop and pursue its evolving
business strategy of meeting the needs of the widest possible audience as the
Internet becomes a mass-market phenomenon.
At its inception, AOL Studios will be the largest producer of original content
and programming in the new-media industry, managing a portfolio of more than 50
titles, properties and channels created by more than 1000 professionals. The
division intends to continue to build its leadership franchises in chat, local
programming, sports, news, games and key vertical segments, such as
entertainment, serving both AOL Networks and other interactive distribution
channels and Internet Service providers. Initially, AOL Studios will oversee
Digital Cities, a leading provider of locally oriented services; ImagiNation
Network, a leading provider of multi-player game services; Virtual Places, a
breakthrough approach to providing chat and community on the Web; and AOL's
existing content investments, including its Greenhouse investments and joint
ventures with Time Warner Turner, ABC and New Line.
Recognized as a pioneer in Internet connectivity, ANS Communications, acquired
by AOL in 1995, maintains and develops technologies for high speed network
access and deployment. Its dial-up network, the world's largest, offers
customized, high-volume services to business customers, including a growing
business in corporate intranets. ANS is also the primary supplier of AOLnet for
AOL Networks.
America Online Announces New Pricing, Original Programming and Design Advances
AOL also announced today a new competitive pricing structure, immediate
availability of its widely-acclaimed AOL 3.0 software for Macintosh and Windows
95 which include Microsoft's Internet Explorer web browser, a new fall
programming lineup and additional "best-of-breed" technological features and
design advances aimed at providing an unmatched consumer experience.
Case added, "By reclaiming the leadership in pricing and further distinguishing
our product and performance, AOL not only offers consumers the best of all
worlds - low prices and superior offering - but also builds a multiple income-
stream business with growing revenues from advertising, transactions, licensing
and new distribution channels based on more habitual use. Combined with the
additional programming and 'best-of-breed' features we are announcing today,
this pricing will give our members more reasons to use AOL - and to keep using
AOL - from the ease of initial sign on through the breadth and diversity of
programming content, to the quality of continuing customer support. We are
confident based on our initial market testing - and our recent momentum in
adding nearly 250,000 net new members in October alone - that our model of low
price and superior offering aimed at the broadest possible market will
strengthen our position as the most popular Internet online network."
The combination of a competitive price and superior product positions AOL to win
existing online customers who prefer unlimited pricing for Internet access but
also desire the full range of AOL content, programming and features, while
capturing the next generation of "mass-market" consumers just entering the
market with a compelling proposition. Two unlimited pricing tiers provide a
"comfort factor" for heavy and medium users, while a $4.95 plan offers a starter
price for light users.
The pricing alternatives include:
* a standard monthly plan of unlimited use of AOL including the Internet for
$19.95
* advance payment rates of $14.95 per month for customers who pay for 2
years, and $17.95 per month for those who pay in advance for 1 year
* a "bring-your-own-access" rate of $9.95, offering unlimited access to the
thousands of unique AOL features to the people who already have an Internet
connection, particularly at school or work
* a light-usage program offering 3 hours of AOL per month for just $4.95,
with additional time priced at $2.50 per hour.
Company to Take One-Time Charges
The Company also announced that effective immediately it will expense all
marketing costs as they are incurred. Previously, the Company has deferred the
cost of certain of its marketing activities, such as the costs of mailing
diskettes to prospective customers, and then amortized those costs over a period
of time. To reflect the changes to its evolving business model as it reduces
reliance on subscriber fees by growing new revenue streams, and as a result of
changing market dynamics, the Company will expense all of its marketing costs
going forward. In addition, the company will take a charge, as of September 30,
1996 of approximately $385 million, representing the balance of deferred
subscriber acquisition costs, as of that date. The company also plans to take a
one-time charge in the December 1996 quarter of up to $75 million, representing
costs the Company expects to incur as it aligns the organization with emerging
opportunities in the interactive market.
"The creation of these three new operating divisions, the rollout of new pricing
and features, and this shift toward a simpler approach to financial reporting
positions AOL for a business model reflecting sustained, controllable growth
based on clearly establishing AOL as the best service for the widest range of
consumers," Case said. "AOL is making the necessary moves to establish itself
as the global leader in interactive services well into the next century."
Pittman Brings Record as Brand-Builder and Innovator
Best known as the programmer who created MTV, Pittman most recently led the
CENTURY 21 organization in establishing record growth in earnings and franchise
sales and in setting in motion a far-ranging transformation of the real-estate
industry, including two major technology collaborations with America Online.
During his tenure as chairman and CEO of Time Warner's Six Flags Entertainment,
the company executed a national brand strategy which resulted in four straight
years of record growth in attendance, revenues and earnings, and a near doubling
of the market value of the company. As president and chief executive officer of
Time Warner Enterprises, Pittman helped develop the company's interactive
strategies and oversaw and developed a number of programming and entertainment
investments.
Under Pittman's direction, MTV became the first profitable basic cable network
company in the world. As COO and later CEO of MTV Networks, Pittman also
oversaw the creation of VH-1 and Nick at Nite, the relaunch of Nickelodeon, the
expansion into global markets and the company's 1984 Initial Public Offering.
Pittman is a member of the Board of Directors of America Online, HFS
Incorporated, 3DO, Excite Inc. and AMRE, Inc. and was formerly on the boards of
Electronic Arts and MTV Networks.
Stated Pittman, "America Online is the most exciting company in the world
today, best positioned to lead the interactive industry as it moves mainstream.
I'm delighted to be joining the AOL team, and I am confident that the Company
has an unusual opportunity to widen the gap with other online brands by leading
the revolution as interactive services bring electronic commerce, media,
communications and recreation to the mass market. For me, the 1980s were about
'I Want My MTV,' and I'm proud of the success we had there in building one of
the largest brands in cable. But that success pales to what I believe is
possible as we leverage the powerful AOL brand, unmatched ease of use, unique
features, and competitive price to get tens of tens of millions of people around
the globe to say 'I Need My AOL'."
America Online, Inc. (NYSE: AOL), based in Dulles, Virginia, is the world's most
popular Internet online service, with nearly 7 million members worldwide. AOL
offers its subscribers a wide variety of services including electronic mail,
conferencing, software, computing support, interactive magazines and newspapers,
and online classes, as well as easy and affordable access to services of the
Internet. Founded in 1985, AOL today has a global workforce of more than 5,000
people. Personal computer owners can obtain America Online software at major
retailers and bookstores or by calling 800/827-6364.
