We are a leading global web services company with an extensive suite of brands and offerings and a substantial worldwide audience. Our business spans online content, products and services that we offer to consumers, publishers and advertisers. We are focused on attracting and engaging consumers and providing valuable online advertising services on both our owned and operated properties and third-party websites. We have the largest advertising network in terms of online consumer reach in the United States as of January 2010.
In the fourth quarter of 2009, the Board of Directors of Time Warner Inc. (“Time Warner”) approved the complete legal and structural separation of AOL Inc. from Time Warner (the “spin-off”), following which we became an independent, publicly-traded company. In the spin-off, which occurred on December 9, 2009, Time Warner distributed to its shareholders of record all of the shares of our common stock that it owned at a ratio of one share of AOL common stock for each 11 shares of Time Warner common stock held by each such holder as of November 27, 2009, the record date for the spin-off.
Prior to the spin-off, Time Warner caused a reorganization of our corporate structure. On July 8, 2009, Time Warner completed the purchase of Google Inc.’s (“Google”) 5% interest in us. Following this purchase, AOL Holdings LLC, which was formed in Delaware in 2006, became a wholly-owned subsidiary of Time Warner. On November 2, 2009, Time Warner caused the conversion of AOL Holdings LLC into a Delaware corporation named AOL Inc. Prior to the spin-off, Time Warner caused substantially all of the assets and liabilities (other than guarantees of indebtedness of Time Warner and other non-AOL affiliates of Time Warner) of AOL LLC, then our wholly-owned subsidiary that held, directly or indirectly, all of the AOL business, to be transferred to and assumed by us.
Following this transfer and assumption of substantially all of AOL LLC’s assets and liabilities, ownership of AOL LLC was retained by Time Warner.
In connection with the spin-off, the following key transactions or events occurred: On November 16, 2009, we entered into a Separation and Distribution Agreement (the “Separation Agreement”) with Time Warner which set forth the terms and conditions of our legal and structural separation from Time Warner.
Our Registration Statement on Form 10 was declared effective by the U.S. Securities and Exchange Commission on November 17, 2009. On December 9, 2009, we entered into a 364-day $250 million senior secured revolving credit facility (the “Revolving Credit Facility”) which is guaranteed by Time Warner.
On December 10, 2009, after completion of the spin-off, our common stock began trading “regular way” on the New York Stock Exchange under the symbol “AOL”.
Our Relationship with Time Warner
Following the spin-off, our company and Time Warner operate independently, and neither has any ownership interest in the other. In order to govern certain of the ongoing relationships between us and Time Warner after the spin-off and to provide mechanisms for orderly transition, we and Time Warner have entered into agreements pursuant to which certain services and rights are provided for following the spin-off, and we and Time Warner have agreed to indemnify each other against certain liabilities arising from our respective businesses. See “Note 13: Related Party Transactions” in our accompanying consolidated financial statements for further information on the ongoing relationship with Time Warner.
We undertook various restructuring activities in 2009 in an effort to better align our organizational structure and costs with our strategy. We are in the midst of a significant restructuring initiative which began late in 2009 and we expect to complete in the first half of 2010. We expect to reduce our total workforce by nearly one-third
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in connection with this restructuring initiative, prior to hiring of new employees in areas of strategic focus. In addition, we plan to reduce our cost base in the United Kingdom and cease or reduce operations in a number of other countries. Specifically, we plan to reduce our presence in Europe by significantly reducing our operations in France and Germany and ceasing operations in a number of other countries. In certain of these countries, we are currently consulting with employees or employee representatives in accordance with applicable legal requirements.
Historically, our primary strategic focus was our dial-up Internet access services business which operated one of the largest Internet subscription access services in the United States. As broadband penetration in the United States increased, we experienced a decline, which we continue to experience, in subscribers to our access service. At the same time, online advertising experienced significant growth. In August 2006, we fundamentally shifted the primary strategic focus of our business from generating subscription access revenues to attracting and engaging Internet consumers and generating advertising revenues. In connection with this shift, we began offering the vast majority of our content, products and services to consumers for free in an effort to attract and engage a broader group of consumers. Although our primary strategic focus has shifted, our subscription access service remains an important source of our total revenues and cash flows.
Prior to the spin-off, Time Warner had been evaluating potential transactions involving, and structural alternatives for, AOL, including the possibility of separating the global web services and subscription access services businesses, which share infrastructure such as data centers and network operations centers. Historically, the global web services business had three units: the first focused on content published on a variety of websites with related applications and services; the second focused on social networking, community and instant communications products and services; and the third focused on providing advertising services on both our owned and operated properties and third-party websites. The subscription access services business included the AOL-branded Internet access service as well as CompuServe and Netscape Internet access services.
In April 2009, Tim Armstrong was appointed our Chairman and Chief Executive Officer, and he commenced a review of AOL’s strategy and operations while Time Warner continued its evaluation of structural alternatives. Time Warner’s evaluation resulted in the announcement on May 28, 2009 that it would move forward with plans for the complete legal and structural separation of AOL from Time Warner.
In connection with this strategic review, which factored in Time Warner’s decision to spin off AOL, we updated our organizational structure and developed the next phase in the strategic shift begun in 2006. Our strategy remains focused primarily on attracting and engaging Internet consumers and generating advertising revenues, with our subscription access service managed as a valuable distribution channel for our content, product and service offerings. As a result, we currently operate as a single integrated business rather than as two separate businesses.
Our Strategic Initiatives
Consistent with our strategic shift to a business focused primarily on generating advertising revenues, we have begun executing a multi-year strategic plan to reinvigorate growth in our revenues and profits by taking advantage of the migration of commerce, information and advertising to the Internet. Our strategy is to focus our resources on AOL’s core competitive strengths in web content production, local, consumer applications, advertising and paid services while expanding the presence of our content, product and service offerings on multiple platforms and digital devices. We also aim to reorient AOL’s culture and reinvigorate the AOL brand by prioritizing the consumer experience, making greater use of data-driven insights and encouraging innovation, including through AOL Ventures.
Our business operations are focused on the following:
AOL Properties. We seek to be a global publisher of relevant and engaging online content by utilizing open and highly scalable publishing platforms and content management systems, as well as a leading online provider of consumer products and services. AOL Properties include our owned and operated content, products and services in the Content, Local, Paid Services and Consumer Applications strategy areas in addition to our AOL Ventures offerings.
We generate advertising revenues from our owned and operated content, products and services through the sale of display advertising and search and contextual advertising. We seek to provide effective and efficient advertising solutions utilizing data-driven insights that help advertisers decide how best to engage consumers.
We also generate revenues through our subscription access service. We view our subscription access service as a valuable distribution channel for AOL Properties. Our access service subscribers are important users of AOL Properties and engaging both present and former access service subscribers is an important component of our strategy. In addition, our subscription access service will remain an important source of revenue and cash flow for us in the near term. We also generate revenues from subscriptions to other products and services.
Global consumers are increasingly accessing and using the Internet through devices other than personal computers, such as digital devices (e.g., smartphones). As a result, we seek to ensure that our content, products and services are compatible with such devices so that our consumers are able to access and use our content, products and services via these devices.
Third Party Network. We also generate advertising revenues through the sale of advertising on third-party websites and on digital devices, which we collectively refer to as the “Third Party Network.” Our mission is to provide an open and transparent advertising system that is easy-to-use and offers our publishers and advertisers unique and valuable insights. We seek to significantly increase the number of publishers and advertisers utilizing the Third Party Network.
We market our offerings to advertisers on both AOL Properties and the Third Party Network under the brand “AOL Advertising.” We market our offerings to publishers on the Third Party Network under the brand “Advertising.com.”
AOL Media Offerings
AOL Media offerings include original content produced through our large network of content creators, which includes established journalists and other writers, content we license from third parties and aggregations of user-generated content. Our content offerings are made available to broad audiences through sites such as the AOL.com homepage, as well as to niche audiences on highly-targeted, branded properties, such as Asylum, Engadget and WalletPop. Over time, to increase the flexibility and revenue generation potential of our content, we intend to create more exclusive original content and rely less on non-exclusive third-party content. To facilitate the intake, management and publication of original content, we are moving toward utilizing publishing platforms and content management systems that are designed to scale in a cost-effective manner in order to produce a large variety of relevant content for consumers. We recently launched our Seed.com platform which allows writers and photographers to submit original content for our professional editors to review and possibly publish on AOL Properties or on third party sites. Additionally, our acquisition of StudioNow, Inc. in the first quarter of 2010 provides us with a video content management system and network of professional videographers that will allow us to increase the amount of original video we create.
We seek to be a leading provider of local content, platforms and services covering geographic levels ranging from neighborhoods to major metropolitan areas. We have developed and acquired a number of platforms that are designed to facilitate the aggregation, distribution and consumption of local content. This local content includes professional editorial content, user-generated content and business listings. We anticipate providing one of the most compelling, accessible and comprehensive local experiences on the Internet.
Historically, local “city guide” and “directory-style” sites have focused on providing information and services to larger-scale metropolitan areas, while smaller communities and towns have been largely ignored. We believe that these smaller communities represent a significant opportunity. For small communities, local newspapers associated with nearby metropolitan regions have been a central resource for news and events. We believe these local print publications are currently facing significant economic challenges. In order to take advantage of these dynamics we intend to significantly invest in this area and establish online destinations that provide comprehensive news, events and directories at the community level.