• PC World
• » Web

Just one day before AOL Time Warner was set to release its first quarter 2003 results, reports surfaced Tuesday that a government probe into the company's accounting practices has widened even further.

The Washington Post reported in its online edition Tuesday that the U.S. Securities and Exchange Commission is now scrutinizing a $100 million transaction between Monster.com and the company's AOL Internet unit, as well as smaller deals with Drkoop.com and Catalina Marketing.

The report comes on the heels of news last month that federal investigators, who initiated an inquiry into the company's accounting last year, had shifted their focus to two advertising deals the company forged with German media giant Bertelsmann.

An AOLTW spokesperson declined to comment on the reports Tuesday.

Tough Luck

The news, and its unfortunate timing, seems to characterize AOLTW's streak of tough luck, which has only intensified in recent months. Since wrapping up 2002--a year marked by an executive shakeup, dwindling AOL subscribers, the continuing decline of the company's share price, and a nearly $99 billion annual loss--AOLTW has been hit with a fire at its new headquarters, an expanded financial probe, lawsuits alleging insider trading, and the departures of vice chairman Ted Turner and chairman and AOL founder Steve Case.

And there's still the matter of the company's $29 billion debt. Although the media conglomerate announced this week that Viacom has agreed to acquire AOLTW's stake in Comedy Central for $1.2 billion in cash, getting the company completely out of the red will take some time.

In addition, The Wall Street Journal reported Tuesday that AOLTW had reached a settlement with WorldCom, paying the bankrupt telecommunications company almost $15.9 million to settle a dispute over money the companies owed each other relating to network services and advertising agreements. The settlement was approved by Judge Arthur J. Gonzalez of the U.S. Bankruptcy Court in Manhattan.

According to settlement papers filed with the court, AOL owed WorldCom $28.9 million for network services, while the telecommunications provider owed AOL about $13 million for advertising, the Journal reported.

With so many woes, many have been left to wonder which straw will break the camel's back.

Betting on Broadband

Company watchers are hoping that AOLTW's first-quarter financial results, due out on Wednesday, may provide some clues. In addition to reporting how its accounting investigations and debt reduction efforts are progressing, AOLTW is expected to comment on its new broadband push, which the company has painted as its big shot to turn it all around.

Jupiter Research Analyst David Card said that AOL's broadband effort is the right thing to do, but added that the company still faces a "huge, huge challenge."

AOL rolled out its new broadband service last month with a splashy new marketing campaign advertising its expanded news content, bolstered security features, and pumped up communications tools.

But to really stimulate high-speed subscriber growth, providers need to cut costs and create original programming and services to justify the upgrade to broadband, Card said. While most providers are scrambling to offer an enticing programming package, none so far have moved to drastically cut pricing.

Furthermore, AOL's current strategy of pushing "bring your own access" broadband--with AOL providing the high speed content and services on top of another provider's access--is not helping the price problem since subscribers to this service have two fees to worry about.

"AOL's bring your own access strategy only exacerbates the problem," Card said.

Still, the company has put on a determined face, saying that it is laser-focused on its broadband plan. And according to Card, its not too late, provided the company makes the experience worth the price.

"They are taking the right strategy but now they have to execute it," Card said.

Agam Shah of the IDG News Service contributed to this report.

• See more like this:
• America Online,
• AOL Time Warner,
• bring your own access,
• broadband,
• content,
• Internet,
• access,
• high-speed,
• Monster.com,
• Drkoop.com