AOL Launches Gathr Subscription Service To Boost Revenues

AOL’s (NASDAQ: AOL) internet subscription business has been in a secular downtrend since the advent of broadband internet. The company’s subscription base has shrunk from over 25 million in 2002 to below 2.6 million in Q2 2013. ^[1] However, the subscription business still accounts for a substantial share of AOL’s profits. In a move to boost revenues for this business, AOL has launched a new subscription service called Gathr. While the launch of this service is still in the beta stage, we think it is worth examining AOL’s motive behind the initiative.

See our complete analysis of AOL here

Gathr Subscription Service

Gathr bundles together digital-entertainment and online-security offerings such as Redbox DVD rentals, Amazon gift card, Restaurant.com dining packages and Norton PC-anti-virus service for a flat fee. AOL claims that bundling these services saves Gathr users 50% or more of what they would otherwise pay for each service individually. Currently, the service offers six pre-bundled packages that cost anywhere between $15 and $30 a month. However, a user can customize a bundle from nearly a dozen offerings currently listed on the site.

Through Gathr, AOL is tapping into a market segment that has largely gone unnoticed. Many bargain hunters surf deal sites such as LivingSocial and Groupon for deeply discounted one-time deals. However, with Gathr, AOL is targeting bargain hunters who crave for deep discounts on utility products over a longer period of time. Gathr is currently in a “marketing beta” phase in Atlanta and Seattle. Furthermore, AOL is testing the response to promotional campaigns such as TV ads before launching the service nationwide next year. The service is web-only for now, but the company plans to launch the mobile-friendly version after it launches this nationally.

Gathr Can Bolster Subscriber Base And Revenues

We believe AOL is trying to bring in new subscribers with the launch of this service. Its revenues from Internet subscription services declined from over $2.7 billion in 2007 to $700 million in 2012.  The primary reason for this decline is the fall in the number of dial-up Internet subscribers. Currently, the U.S has close to 115 million households. ^[2] If AOL can sell its subscription service to 1% of the households each month, it can add close to 1.2 million subscribers. This new subscriber base can rake in $20 million revenues for AOL each month.

The subscription deal space is an uncharted territory for AOL, and so it remains to be seen whether this service will be profitable. We will continue to follow the nationwide launch of this service in the coming months.

We currently have a $27 price estimate for AOL, which is approximately 20% below the current market price.

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1. 10-Q [↩]
2. Total Number of U.S. Households, www.statisticbrain.com [↩]