Ted Leonsis: AOL loyalist remakes the company

by Garry Kranz
Virginia Business
June 2005

During all of America Online’s trials and tribulations, Ted Leonsis has been one of its constants. One of the last founders still working for the Dulles-based company, Leonsis has occupied a variety of top posts over the years. After AOL’s much-maligned merger with Time Warner Inc., he re-emerged to shore up a company facing increasing competition and an eroding subscriber base.

Today, 49-year-old Leonsis remains tireless in his efforts to keep AOL at the top of the heap among Internet service providers. AOL is still the largest ISP with nearly 23 million subscribers. But during the third quarter of 2004 alone, nearly 650,000 subscribers jumped ship to cheaper or faster ISPs. To counter dropping market share, the company restructured last year with this goal in mind: augmenting its dial-up business with new Web brands. The shakeup led to the departure of three senior executives and spawned the creation of four divisions, each one responsible for its financial performance.

Leonsis, AOL’s vice chairman and president, now heads up AOL’s Audience division, including AIM — AOL’s instant messaging service — along with MapQuest, MovieFone, Netscape.com and a revamped AOL.com Web site. The division makes money by selling advertising that reaches users of these AOL products. Other divisions include Access (which includes various services AOL sells to get computers users online, such as dial-up and high-speed communications), AOL Europe and Digital Services, aimed at selling premium subscriptions for music, Internet telephony and other services.

The new divisions are designed to broaden AOL’s user base beyond dial-up customers, giving the company more of a Web brand. The strategy has had some success, with monthly unique visitors to AOL Web properties reaching 112 million in 2004, up from 104 million the year before. The divisions also follow a three-pronged strategy Leonsis laid out when he took the reins three years ago. “Year one, I said we would stabilize the company. Year two, we would revitalize the company. Year three, we would reconceptualize the company — and we’re now entering that third year.”

The online provider may need a dramatic shift to have any hope of recapturing its old magic. Undoing the Time Warner merger could give AOL the freedom to tackle tough technology issues rather than avoid them, such as taking the lead on developing interoperability standards aimed at making different kinds of instant-messaging technologies work together. “Until they do that, they may slow the pace of their decline, but they will never again be relevant to the Internet market that they, strangely enough, helped found,” says Rob Enderlie, a technology analyst in San Jose, Calif.

Leonsis’s woes extend beyond remaking AOL. He is majority owner of the Washington Capitals of the National Hockey League, which canceled its 2004-05 season because of a player lockout. With gallows humor, Leonsis acknowledges one advantage of the lost season: not having to pay exorbitant player salaries. “Financially, this was my best year,” he points out.

Leonsis also owns a 45 percent interest in the National Basketball Association’s Washington Wizards and a 45 percent stake in the MCI Center, where the Wizards and Capitals play.

As he waits for a resolution of the hockey impasse, AOL’s reshuffling ought to keep Leonsis busy. Meanwhile, a net worth of more than $400 million should bring a little comfort.