AOLA Files for Bankruptcy

[orion]

With operations in Mexico, Argentina, Brazil and Puerto Rico, America Online Latin America, originally a venture between AOL (owned by Time Warner), Cisnero Group and Banco Itau has filed for bankruptcy as expected. According to reports this is a prelude to shutdown. (R.I.P)

In a separate filing with the SEC, AOLA said it will fire all 180 employees in its call centers in Argentina.

AOLA arrived in Latin America just before the Internet bubble burst. In six years of trying to compete with the region's leading ISPs, the company lost $1 billion while taking in $290 million in revenues. At its peak, it employed 1,500 people in its Fort Lauderdale headquarters and Latin American offices.

In SEC filings, AOLA has said its Puerto Rico operation, the company's only profitable unit, will be taken over by Time Warner as partial repayment for a $160 million debt AOLA has with its parent. The bankruptcy filing listed AOLA's assets at $28.5 million and debts of $181.7 million, including the debt to Time Warner.


Read the following versions of the news

in English (http://www.sun-sentinel.com/business/local/sfl-zaola25jun25,0,5972002.story?coll=sfla-business-headlines)

in Spanish (http://www.endi.com/2005/06/25/negocios/240836.asp?category=Negocios&title=Se+declara+en+quiebra+AOL+Latin+America&artdate=2005/06/25)


Two years ago while in PR I saw that coming for many reasons that now don't matter.


Orion

[Nacho]

This news (http://www.washingtonpost.com/wp-dyn/articles/A58597-2005Mar22.html) goes back to March 25, 2005 when it lit up like a Christmas three in all my news alerts. I believe this failure has nothing to do with the business climate in Latin America but rather their own internal turmoil. Much less anything that would affect the Latin America search markets or usability trends.

Here are my observations:
1) If you read the 8-K report (http://www.sec.gov/Archives/edgar/data/1100395/000129993305001374/htm_3774.htm), you will notice all sorts of things like, “Time Warner, the holder of $160 million of our senior convertible notes, has the right to require us to use the proceeds from any sale transaction to repay the senior convertible notes. In addition, our preferred stock has a current aggregate liquidation preference of approximately $599 million, excluding accrued but unpaid dividends.” and “Even if we are successful in selling all of our businesses, the proceeds will not be sufficient to repay the senior convertible notes, and none of those proceeds will be available to our common stockholders. As a result, we do not believe that our common stock has, or will have, any value."

2) Go back to this other 8-K report (http://www.sec.gov/Archives/edgar/data/1100395/000129993305001137/htm_3546.htm) filed on March 3rd, 2005 where “the Compensation Committee of the Board of Directors of America Online Latin America, Inc. approved the granting of bonuses with respect to the 2004 fiscal year” these amounts are about $1 million. You may ask, **A BONUS** when they reported losses????

3) Now, let’s go to this 8-K report (http://www.sec.gov/Archives/edgar/data/1100395/000129993305001052/htm_3462.htm) filed on March 1st, 2005 where it reads “If Messrs. Camargo and Escalante remain employed by the Company through July 1, 2005, the Company will pay such executive on July 1, 2005, a lump sum payment ("Retention Bonus") of $120,000 (in the case of Mr. Camargo) and $200,000 (in the case of Mr. Escalante).”
From these 3, I take AOL Latino America folks are way to overpaid, but it doesn’t surprise me as this has long been the history of resulting losses from any Time Warner operation. Primarily with AOL.

Then if you take a look at the 10-Q filled (http://www.sec.gov/Archives/edgar/data/1100395/000095014404011158/g91865e10vq.htm) on Sept 30th, 2004. You will notice that 70.1% of losses come from Brazil operations and 28% from Corporate. I have not done enough research to draw well thought out conclusions, but so far I see questionable execution from management for this division and a lot of burned cash from unnecessary elements.

[orion]

I have been tracking AOLA moves and ticker since 2001 and actually the reasons for AOL Latin America failures are dated way back 2002-3.


Management, greed and lack of understanding of the Latin America market was just one reason for their failure. Back in 2002 and 2003 I posted on this in the old Business Scene page I removed from Mi Islita. Perhaps is time to upload back the section so others will understand what I mean.

Thanks


Orion

[Nacho]

I'd love to see your articles on AOLA in 2002 and 2003. :)

[orion]

Wait and love no more.

I may revive the old archives from 2003 and 2004 during the day. As expected most links are no longer active since these point to news services from those years. 2002 was fried in my old system.

Still if someone is interested in researching/checking AOLA failures, just do a page find search for "AOLA" in the revived pages. Many posts have references to their SEC 10Q and quarterly reports of those years. With the section name and the date of the news, visit Edgar or a similar service to verify. Try also going to previous years. Read how and why they failed from SEC reports from those days, not because I said so. Yes, the problems are not from 2005.

One of the reasons I organized the 2002 and 2003 search events in Puerto Rico was to address, not only search technology but marketing models in general and what work/don't work in the local PR market before university faculty, ad agencies, and pr firms

Aside bad management, they had a bad revenue model, among other things slaved to the success of local ISP's revenue models. In addition they never understood regional user's search behaviors. Here are some examples:


From The Business Scene 2004 ARCHIVES

"05-11-AOLA - AOL Latinamerica SEC Filings: Losing Around 10,000 Members per Month. According to AOLA's Filings with the SEC and under "First-Quarter Membership" they disclosed that "The Company had 433,000 members as of March 31, 2004, down from 462,000 members on December 31, 2003. " This means a loss of around 30,000 from Jan to March, which equates to a losing rate of 10,000 members per month. The reasons: "The decline in membership was driven by lower levels of new member registrations, which were insufficient to offset membership turnover. New member registrations continue to be negatively impacted by strong price competition from providers of free Internet services in Brazil and paid services in Mexico. The Company expects a further decline in membership of a similar number of members in the second quarter of 2004 and expects membership to continue to decline during the second half of 2004. New member registrations have also been negatively impacted by the slower-than-expected implementation of the McDonald's McInternet marketing initiative in Brazil." For the record, let us add that as of today AOLA shares are below the deadly 1 Dollar NASDAQ Mark."

"03-30-AOLA - AOL Latin America Still Losing Revenues AOLA SEC's numbers are out. Nothing new. They are still losing suscribers and revenues. "How come they are surviving?", you ask. A close look at AOLA's 10-K Report shows that is because of Puerto Rico. Yes, you heard right. The report says in part, "During 2003, we experienced a decrease in our subscription revenues as compared with the prior year. This reduction was driven by declines in Brazil, Mexico and Argentina, which were partially offset by increases in Puerto Rico. The losses in Brazil, Mexico and Argentina were driven by both currency devaluation and a reduction in paid membership." Puerto Rico is inmune to those changes (buy and read the back of a money order and learn that is valid in U.S.A. and its Possessions of which PR is one). On the other hand, AOLA's revenue model makes no sense. It is slaved to ISP's across Latinamerica. They are disclosing that "Because local telephone service in Latin America is often metered, the utilization of our AOLA country services and of our web-based interactive services by our members results in incremental revenues to local telecommunications companies."


From The Business Scene 2003 ARCHIVES

"11-15-AOLA - AOL LatinAmerica 10Q Report Reveals an Ugly Picture AOLA's 10Q report is out. It says in part "Subscription revenues continue to be negatively impacted by sequential quarterly declines in paying membership, driven by attrition of members who had been paying their fees to us. Subscription revenues have been negatively impacted by an increase in our member turnover resulting from lower-priced competitors, including providers of free Internet access in Brazil. The overall rate of new member registrations has been negatively impacted by our strategy of targeting higher-value members..."


At least while in Puerto Rico, the perception of many was that they tried with content from other latin countries to appeal to us, not understanding our cultural diversity. Thanks God, they changed and improved many things, to the point that the PR branch was the only unit profitable.


Orion

[Nacho]

I think the biggest failure to accomplish for AOLA was to focus on a push-marketing strategy with building a brand and content equity rather than the other way around, using the content equity to build the brand using a pull-marketing strategy using SEO.

[orion]

At least, in Puerto Rico, in the referenced events co-shared with local university staff and entrepreneurs it was discussed why many ventures failed to please customers because of the lack of understanding of the local user's behaviors and needs. True that we also covered SEO.

An assesment of the internet weather by the Internet Society, Puerto Rico few years ago was published describing the users needs in the Island. Soon after that report, many companies understood better the problem. In the Island any ISP company need to understand how to play the game with those that control the access to the Internet (Read here Telefonica PR, now Verizon).

Asides with their revenue model being slaved to local ISPs practices, they have a terrible management greed. Research to SEC reports will show the many acrobacies with their stock during the dreaded 1 dollar mark (now worth pennies). No, I don't buy the pull or push analogy.


Orion

[Nacho]

AOL strategy crashes in Latin America (http://juantornoe.blogs.com/hispanictrending/2005/08/aol_strategy_cr.html) takes a good look at why... This is a great example of how the Hispanic market is completely different from the Latin American markets, and how a successful strategy in one of them could be the wrong strategy to implement in the other.
It's also important to note for some readers that AOLA (http://www.aola.com/) (AOL for Latin America) and AOL Latino (http://site.aol.com/product/latino_eng.adp) (AOL for U.S. Hispanic users) are two different divisions in terms of market focus and business model.

[orion]

Of course. That is nothing new.

AOLA was originally created as a venture between Cisnero Group, Banco Itau of Brasil and AOL and operated and traded in NASDAQ independent from AOL.

Also we cannot report/combine user's metrics from the three web properties as barometers for their user's behaviors due to the cultural diversity involved.

This also affects, for instance, web page design, optimization and translation of press releases, in which a neutral Spanish is recommended rather than poorly translating documents into Spanish and filling these with, for instance, mexican regionalisms.

Orion