Is AOL's problem sick babies? Or is it Tim Armstrong?

Tim Armstrong has a no good, very bad weekend

Financial trends and news by Faith Merino
February 10, 2014
Short URL: http://vator.tv/n/34ef

Tim Armstrong had a rough weekend. But that’s what happens when you blame your unpopular executive decision on, you know…babies. Sick babies, nonetheless. He might as well have proposed that the company start saving money by having employees eat those sick babies.

What he said, in defending his decision to gut employer matching to employees’ 401K plans, was this:

“We had a $7.1 million bill from the Obamacare act in general and we had multiple other things that happened at the company healthcare-wise. Two things that happened in 2012 we had two AOLers that had distressed babies that were born that we paid a million dollars each to make sure those babies were okay in general. And those are the things that add up into our benefits cost.”

Okay. We can probably be nice and give Armstrong the benefit of the doubt here, even though he unintentionally singled out two employees in front of their colleagues as the reason why everyone else is getting screwed on their 401K plans.

To summarize, AOL previously had a policy whereby it matched 50 cents to every dollar that an employee put into her 401K, up to 6% of her total income. AOL did this throughout the year. The newly proposed policy—which has since been quashed due to all the major bad publicity—would have matched employee contributions in one lump sum at the end of the year—a lump sum that would have been forfeited if that employee quit, retired, or was laid off some time during the year. Who would keep that lump sum that would have gone into the employee’s 401K? Why, AOL of course.

On Saturday, Tim Armstrong issued a statement in which he reversed the new policy and reinstated the old one, making AOL the first major tech company to gut its employees’ 401K plans and then reverse the policy. IBM has an unpopular 401K policy, but it has stuck with it, damn the consequences.

Armstrong’s statement didn’t come with an apology. That didn’t come until Sunday, around the same time the wife of one of the singled out employees came forward to describe the horrifying tale or her “distressed baby” that cost the company $1 million. The baby was born only five months into the pregnancy and wasn’t expected to live. Miraculously, she did, and of course, those life-saving interventions cost a pretty penny.

We won’t even get into the fact that AOL brought this on itself by being self-insured, which might save on costs in the short-term, but has a tendency to get tricky when someone has a “distressed baby.” (Babies: what have they done for us lately?) Or how self-insurance poses more of a risk to employees because it can’t be regulated the same way an insurance company’s plan is.

We also won’t get into Tim Armstrong’s even lamer explanation of WHY he singled out the two premature babies—in which he said he detailed how “high-risk pregnancy” as one of the examples of how AOL supports its employees’ families—thereby pinning the blame once again squarely on the shoulders of those damn mothers with their pregnancies that they just can’t seem to do right. Never mind the fact that the mother of one of those babies pointed out that she didn’t have a high-risk pregnancy at all and her baby’s premature birth was a freak accident--which is what insurance is for.

AND, we won’t get into how Tim Armstrong said all of this—the sick babies, the gutted 401K plan—immediately after he announced AOL took home $36 million in net income in the fourth quarter. (We also won’t get into the fact that Tim Armstrong is apparently worried about company costs when he just took home a salary of $12 million in 2013—which is up 4x from the $3 million he earned in 2012. Looks like distressed babies don’t put a dent in his wallet.)

But the fact remains that the last five years for AOL haven’t been so great. Is that because of sick babies and employees’ 401K plans? Or is that because of Tim Armstrong?

Tim Armstrong was appointed AOL’s new CEO in March 2009. In 2009, AOL was dependent on its dialup subscriber base to stay afloat. Five years later…it’s still dependent on dialup users to stay afloat. In 2009, AOL’s revenue and income was slipping. By 2012, revenue was down 32% to $2.19 billion from $3.25 billion in 2009. Meanwhile, gross income was cut in half to $611 million in 2012 from $1.28 billion in 2009.

Is AOL losing money because of sick babies, or because Tim Armstrong is failing to lead the company out of the dialup era? And couldn’t we ALL see this coming from Armstrong’s bizarrely determined insistence on revamping AOL by investing in hyper-local news--for no other reason than his equally bizarre belief that people actually read hyper-local news?

One of Armstrong’s first moves as CEO was to acquire Patch…the startup that he co-founded. Surprise, surprise: while all the major news outlets are struggling, hyper-local news is faring even worse. After throwing away $300 million on Patch, whining about Patch looking like “loserville” in the media, and then off-handedly firing Patch’s Creative Director Abel Lenz during a conference call in front of 1,000 employees, Tim Armstrong finally gave up and decided to sell a majority stake in Patch to Hale Global last month.

That’s a start and it will indeed save some money, but it’s not going to change AOL’s doomed “we’re a media company now!” trajectory. Yahoo tried going that route too. It didn’t work. 

"Going forward, things like The Huffington Post and the overall Brand Group will have to show they are real businesses and profitable," said Macquerie analyst Ben Schachter in December. "I've been a broken record about it: Can they make content profitably? Up until recently the answer has been 'no.'"

While The Huffington Post remains the "cornerstone" for the future of AOL's media business, HuffPo still has yet to turn a profit. Citigroup analyst Mark May estimated that HuffPo likely posted a loss of $6 million on $100 million in revenue in 2013. 

Armstrong maintains that The Huffington Post's loss is narrowing and it will be profitable by next year. 

That should put some more money in AOL's coffers. You know, assuming those distressed babies stay out of the way of AOL's bottom line. 


Image source: businessinsider

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