January 18, 2007 / 11:03 PM / 13 years ago

AOL CEO says sales may shrink for two years -paper

FRANKFURT (Reuters) - Internet service provider AOL’s sales may shrink for the next two years as it gives away services to win more users and attract advertising, its chief executive said in an interview published on Saturday.

“Maybe another two years, you are right there,” Jonathan Miller said when asked by German newspaper Die Welt whether sales would continue to fall. “But it’s about profitability for us in this phase.”

“In the past, we invested a lot of money in the infrastructure for the access business and in winning customers. That’s over now. Later, sales should rise again,” Miller said.

Miller said AOL, a unit of U.S. media group Time Warner TWX.N, made profits of 20 to 25 percent of sales in its Internet access business but more than 50 percent in its advertising business.

In recent weeks, AOL has sold its Internet access units in Germany, France and Britain for a total of almost $2 billion as it reshapes itself into a free Web portal where popular e-mail and entertainment services are supported by advertising.

Time Warner’s online advertising revenues jumped 40 percent to $449 million in the second quarter, bolstering its strategy. But AOL’s sales dropped 2 percent to $2 billion due to a decline in subscription revenue as it lost paying customers.

Miller said AOL wanted to expand its European presence and aimed to be represented in most of the continent’s countries with its own Internet portal and advertising network in five years’ time.

Asked whether a sale by Time Warner of AOL was now off the agenda, Miller said: “For companies, nothing is ever completely off the table. But it also doesn’t make much sense. Most media companies are looking for a way into the digital business.”

He said an initial public offering for AOL, after Time Warner’s announcement this week that it would float its cable TV unit, was “an option.”

Miller said he expected further industry consolidation in the wake of Google’s (GOOG.O) deal to buy video site YouTube for $1.65 billion earlier this month and News Corp.’s NWS.N $580 million acquisition of online music and dating firm MySpace.com.

He said AOL would “definitely” be a buyer, and that the company was looking at various companies, including in Europe.

Miller said he had had talks with U.S. social networking site Facebook, the only hot U.S. Internet property left of any size, but had decided not to bid for it.

Facebook has been reported to be in discussions to be sold to Yahoo YHOO.O for close to $1 billion.

“In the end, it’s a question of price,” Miller said. “One consequence of Google’s acquisition of YouTube is that no one wants to sell under the price they think they can get. The game is becoming ever more expensive.”

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