Pittman: No Ad Recovery on the Immediate Horizon

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AOL Time Warner Inc. co-chief operating officer Bob Pittman reiterated his company's 2002 growth projections, but cautioned a group of analysts that there seems to be no quick end in sight to the advertising downturn.

"It is difficult for anyone to predict," Pittman said of the advertising market. "It's not getting any worse, but I don't see it getting better or any clear signs of it."

In September, AOL Time Warner said it expected cash-flow growth to be in the double digits during 2002, but at the same time it lowered its growth expectations for this year to 20 percent.

Pittman, who spoke at the Credit Suisse First Boston Technology Conference in Scottsdale, Ariz., said he was "comfortable" with 2002 projections, despite the down economy.

He also defended subscriber growth at the America Online unit. Online-services provider AOL reported last week that it had reached the 32 million-subscriber mark, gaining about 700,000 customers since Sept. 30, below most analysts' expectations.

Goldman Sachs & Co. cable analyst Richard Greenfield wrote in a research report that although AOL achieved the 32-million-subscriber milestone more slowly than he originally expected, he still believes the company is on track to reach its fourth-quarter target of 900,000 subscriber additions.

"Therefore, we remain comfortable with our fourth-quarter AOL subscription-revenue estimate of $1.44 billion, up 17 percent (benefiting from increased subs and the price increase)," Greenfield wrote. "In addition, we increasingly believe our fourth-quarter AOL ad/commerce revenue estimate of $624 million (flat sequentially and down 9 percent year-over-year) will prove conservative, with fourth-quarter revenues closer to flat or even up modestly from last year's $686 million."

Pittman said slower growth at AOL resulted from the Sept. 11 terrorist attacks, which delayed the release of the latest version of its software — AOL 7.0 — by about four weeks. Pittman added that the company has also held back on its direct-mail marketing initiatives in the wake of the recent anthrax scares.

"There was some concern about what people were doing with their mail and how interested they were in opening it for a short period of time," Pittman said. "Our big pump in subscribers always comes in the fall, with the release of the new client."

However, he added that AOL should gain ground around the coming holidays, traditionally a strong sales period.

"The week between Christmas and New Year's is a huge week," Pittman said. "Everybody is at home."

Although the advertising climate is bleak, Pittman said he believes AOL is well-positioned for when the market does bounce back.

Pittman said that historically ad markets rebound when companies realize that the downturn presents an opportunity to gain market share by buying ads when its competitors aren't.

"In good times you cannot outspend your competitor. You can't get a bigger share of voice, and if you can't get a bigger share of voice, you can't really move your market share," Pittman said. "But in an ad slowdown, if everybody else will pull back their advertising, you have a moment in time when you can race ahead and get a much greater share of voice than everybody else and move market share.

"Historically, companies launch big new brands or move market share dramatically during ad recessions."

Pittman added that the ad slowdown — and the inevitable consolidation that it will bring — could be an advantage to large companies like AOL Time Warner.

"During an economic slowdown, during an ad recession, you always find consolidation," Pittman said. "People don't cut all their ad budgets 10 percent, they cut some people's 100 percent and they tend to consolidate to the big players who they know will be in business.

"That works to our benefit, and I think there are three or four other media companies that have enough properties that they can consolidate," Pittman added. "You're going to have four or five other players that will actually come out strengthened as a result of this ad slowdown."

Pittman deflected questions about AOL Time Warner's interest in AT&T Broadband. The company has been named as a potential suitor of AT&T Broadband, along with Comcast Corp. and Cox Communications Inc. Pittman declined comment, but said that AOL Time Warner has been in talks with AT&T regarding AT&T's 26 percent stake in Time Warner Entertainment, the partnership that includes several Time Warner Cable systems, Home Box Office Inc. and the Warner Bros. studios.

"We're always open to anything that makes sense for furthering the mission of our company, and delivering on our promise of being a high-growth company," Pittman said.

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