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Technology Stocks : America On-Line: will it survive ...?
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To: Brian K Crawford who wrote (949)1/7/1997 3:32:00 PM
From: jack rand   of 13594
 
<<Conversely, AOL's auditors, Ernst & Young, had no trouble with
<<signing off on the prior accounting treatment used for prepaid
<<subscriber acquisition costs, as it represented a not unreasonable
<<approach to matching costs and revenues, and one that is widely
<<used in other subscription based industries, such as magazine
<<publishing.

Magazines can do it because they charge and get paid at least
a year in advance. AOL was doing it while being paid only monthly,
an creating an artificial comparison with magazines by creation of
an "average subscriber life" -- a figure whose calculation they
never fully defined. It is tough to do on a period-to-period
comparative basis as the number of subs grows. Ergo, adequate
correspondence of costs and revenues is difficult.

By the same logic as AOL's, cable and cellular companies, and even
auto manufacturers could amortize their marketing. In fact, almost
any business could. Even Proctor & Gamble could amortize marketing
expenses for soap sold via coupons.

Further, it seemed that AOL was amortizing marketing expenses beyond those for "directly identifiable prospects" as specified in its own financial reports (as required by Ernst & Young when it agreed to AOL's unique accounting method). Put another way, it seems AOL was
stretching definition of "directly identifiable prospects".
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