Confirming a pre-quarterly prediction, Compuserve Corp. has announced a $17.7 million loss for its first quarter. In addition, the oldest of online companies says it is eliminating 150 positions as it consolidates operations.
Along with continued investments into its family-oriented online service, Wow!, a new version of its online software, and the cost of infrastructure improvements, Compuserve says a "modest" loss in subscribers also accounted for the disappointing quarter. In spite of 900,000 new subscribers in its first 1997 fiscal quarter, Compuserve recorded an overall attrition in memberships.
Currently, the company offers its traditional online service, Compuserve Information Service for Windows and Macintosh users, Wow!, and a standard Internet provider service through Sprynet. Sprynet membership grew by more than 30,000 over the first quarter. Wow! continues to grow, but CIS sustains the attrition. Including membership to its Japanese license, Niftyserve, Compuserve reports a total membership of 5,177,000 subscribers. Compuserve also offers exclusive network services to more than 1,000 corporations.
The company also reported a one-time pre-tax charge of $17.7 million for initiatives to improve profitability. Revenues for the quarter were up 12%
over the same quarter a year ago to $208.6 million, but its $17.7 million loss before one-time charges compared poorly to net income of $26.8 million in the year-ago quarter.
With both Compuserve and America Online posting losses, some observers wonder if earlier predictions are not coming true. Many industry observers said the success and growth of a free Internet would be an end to fee-based online services.
Compuserve spokesperson Gail Whitcomb, said, "Their predictions are not correct. Our first quarter results are largely about our adopting the Internet and its open standards in a greater scale than before. It cannot happen overnight, but we are in a very costly process of building our service around Internet standards."
Bob Massey, Compuserve's chief executive officer, said membership across all of the company's services should reach seven million by the end of fiscal 1997, next April. In the meantime, he said the company would take action to reduce costs by $20 million for fiscal 1997 and more than $30 million on an annualized basis.
Those actions include: the sale of Sprysoft, a division which develops corporate World Wide Web applications; consolidation of functions and operations; and a write-off of software costs for billing and customer- service systems no longer in use.
On the upside, Whitcomb said, "We expect a surge in subscribers as users experience our new Compuserve software version 3.0. It is faster and easier to use than any previous version. It will also include features resulting from our adoption to Internet standards." Version 3.0 is expected to ship in September.
Massey also said Compuserve is investigating sources of income from advertising. "We expect to position Compuserve as one of the premier advertising platforms in the world within the next 12 months," added Massey. "We are expanding the fees we charge for third-party providers to point our users to their content platforms or Web sites. Also, the further expansion of our online financial offerings will bring increases in the transaction and electronic commerce fees we collect."
A number of analysts suggests online services are also suffering from a fee war which reduced online fees from more than $20 per month with hourly fees in excess of $5 per hour, to $10 per month and $3 per hour, respectively. Whitcomb commented, "There is no doubt the reduction in monthly and hourly fees have made the online market very competitive and costly to operate. However, we have found that users really like and want a fixed monthly cost and we continue to look at different pricing models. We already offer unlimited time on Wow! for $17.95 per month and find that type of pricing very successful."
She also said most of the 150 jobs related to reducing costs have already been eliminated.
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