NEW YORK – AOL will shed as much as a quarter of its global work force within six months as the company seeks more than $1 billion in savings to offset its decision to give more services away for free.
Some employees in Europe will still have jobs but with a different company as AOL looks to sell its Internet access businesses there. But in general, massive layoffs are expected as AOL stops actively marketing its dial-up services in the United States and reduces its need for customer-support centers.
AOL will no longer produce and distribute trial discs that often come unsolicited in mailboxes and magazines. Employees who do those jobs will likely get pink slips.
Nor will AOL get as many customer-service calls, because live support is available only to paying subscribers, many of whom will cancel and accept AOL's offer for free e-mail and software. AOL will likely shed jobs there, too.
All told, the Time Warner Inc. unit formerly known as America Online expects to drop as many as 5,000 employees from its payroll, out of a global work force of 19,000.
"It sounds like the first shoe's falling," said David Hallerman, a senior analyst with research company eMarketer Inc. "It's clear that's part of a large savings that AOL is going to have to go through. The biggest cost in any business is employees."
AOL currently employs about 5,000 in northern Virginia where the company has its headquarters. About 3,500 are in Europe, including 3,000 in the access businesses up for sale. Another 4,000 work elsewhere in the United States, mainly in call centers in Oklahoma City, Ogden, Utah, and Tucson, Ariz., as well as offices in New York and Silicon Valley.
The company did not say where the job cuts will take place, adding that most of the individual employees likely will be notified in late September or early October.
The changes are coming not only because AOL plans to stop aggressively marketing its dial-up service, but also because it will end its practice of charging high-speed Internet users for access to its content and services, such as e-mail and parental control software.
Layoffs had been anticipated. In announcing AOL's strategy shift, Time Warner said it expected to spend $250 million to $350 million through 2007 to implement the changes, about half of that for employee severance.
Time Warner and AOL executives also said they expected to save more than $1 billion by the end of 2007 by cutting marketing, network and overhead costs. The cuts were necessary to avoid major hits in AOL's profitability as millions of AOL subscribers stop paying the company.
Allen Weiner, a Gartner research analyst, said the job announcement suggests AOL's drop in subscriptions will be rapid.
"They are anticipating more of a flood than a trickle if they are going to lay off that many people that quickly," Weiner said.
The strategy shift announced Wednesday marked AOL's latest efforts to stop a long, steady decline in Internet subscribers as more Americans get high-speed service through a cable or phone company. The changes have led to other job cuts in recent years, including about 1,300 customer-service positions announced in May.
If AOL's payroll were to drop by the full 5,000, that would amount to 6 percent of Time Warner's overall head count of roughly 87,000. Shares in Time Warner dropped 2 cents to close at $16.65 on Thursday on the New York Stock Exchange.