By Emily Steel
The Wall Street Journal
Time Warner Inc.'s AOL unit is laying off around 700 employees, or 10% of its work force, as a sharp decline in ad spending continues to pressure its transition from an Internet-service provider to an advertising business.
The layoffs will occur during the next several quarters, with most of the U.S. layoffs finished by March, AOL Chief Executive Randy Falco wrote in a memo to staff Wednesday. AOL also is scrapping merit pay increases this year, consolidating facilities and reviewing its services and international operations.
"The deepening economic recession has affected every corner of the economy, including our own. Online marketers have tightened their ad buying across the board, reducing their spend by hundreds of millions of dollars," Mr. Falco wrote. AOL declined comment.
Since it decided to switch its business to an advertising model in 2006, AOL has faced considerable challenges. The company has been hit hard by the tough economic climate and, slim advertising gains have failed to make up for subscriber declines. AOL posted a 6% decline in ad revenue for the third quarter, its worst performance of the year. Display advertising, long a sore spot, tumbled 15%.
Time Warner, which reports fourth-quarter earnings Wednesday, has also been cutting payroll elsewhere, including 800 jobs in its movie division and more than 500 jobs at Time Inc.
The company recently announced a $25 billion write-down for the tumbling value of AOL and other businesses. Time Warner also scaled back its advertising outlook, saying the economic climate had proved more challenging than anticipated at AOL and Time Inc. Google Inc., which owns a 5% stake in AOL, wrote down the value of its holding last week, indicating a current value for AOL of around $5.5 billion. That's down from $20 billion when Google acquired its stake in 2005.
In his memo, Mr. Falco wrote that AOL is "aligning resources and expenses against the real revenue opportunities in this difficult market." AOL has laid off a significant number of people in recent years.
News of the layoffs first was reported by AllThingsD.com, which is owned by Dow Jones & Co., publisher of The Wall Street Journal.
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