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Here is how AOL makes money

It’s bad news for content providers because AOL makes no money from them at all.  Instead they make all of their money from old AOL dial-up subscribers who haven’t looked at their credit card statement in a very long time.

AOL beat Wall Street’s Q2 revenue and profit numbers. And, like the last few quarters, the company says that its content business — sites like Huffington Post and TechCrunch — was profitable, if you’re willing to accept a fuzzy definition of profit.

But as always, the most amazing thing about AOL’s business is the thing that drives AOL’s business: Millions of people, who started paying the company a monthly fee for Internet access more than a decade ago, who continue to pay the company a monthly fee for Internet access, even though they likely aren’t getting Internet access from AOL anymore.

AOL doesn’t break out precise earnings numbers for this business, but it gives you enough hints to understand that it’s enormously profitable. As it should be!

Tim Armstrong’s company says its subscription business generated $143 million in “Adjusted OIBDA” – its proxy for operating income — last quarter. That’s more than the $121 million in Adjusted OIBDA that the entire company generated.

Here’s how it makes that money: Getting a shrinking number of subscribers — 2.34 million this quarter, down from 3.62 million at the beginning of 2011 — to pay an increasing amount — the average AOL subscriber now pays $20.86 per month, up from around $18 a few years ago. 

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