America Online Inc yesterday gave its business its biggest-ever shake-up in the hope that it will make more sense when the pieces have fallen. The headline move was to give users the option of a flat $19.95 a month pricing option, but more importantly, it is moving to much more conservative accounting in a switch that will cost it $385m against its third quarter figures. It is dividing into three operating units: AOL Networks, to oversee the core on-line service; AOL Studios, for creating on-line programming, and ANS, its network infrastructure arm. As well as taking customer acquisition costs when they are incurred, rather than spreading them over several months, during which many of those customers may have fled, the company has also directly addressed its high churn rate, and says that by more prudent recruiting, it has added nearly 250,000 net new subscribers in October alone. The new pricing structure calls for two unlimited pricing tiers to provide a comfort factor for heavy and medium users, and a $4.95 a month for three hours plan for light users. Extra hours on this cost $2.50 each. The $19.95 option offers unlimited network usage, including Internet access. It also hopes to keep more customers by offering advance payment rates of $14.95 per month for customers that pay for two years, and $17.95 per month for those that pay in advance for one year. And a new $9.95 per month rate offers unlimited access to the proprietary content only for people that already have a separate Internet access connection. As well as the $385m charge, it will take a one-time charge of $75m in its December quarter to cover the costs of reorganizing the company. The company admits the restructuring steps and service pricing changes will hurt earnings during the next several quarters, but insists they will increase its competitivenes and prepare it for the next stage of growth.It aims to be back into profits in its fourth quarter to June.
