[NPMUG] Time Warner finally dumps AOL ... now to be traded publicly

[Dave Sevick]

http://www.macworld.com/article/140826/2009/05/aol_spinoff.html?lsrc=rss_news


Time Warner ditches troubled AOL unit
by Juan Carlos Perez, IDG News Service

Time Warner will finally rid itself of AOL, its struggling Internet  
subsidiary, by spinning it off as a publicly traded company.

The move comes as no surprise. Time Warner executives have been  
considering for years whether and how to dump AOL, whose  
transformation into an ad-supported business has been a disappointment.

The separation will allow Time Warner to continue “reshaping” itself  
with a focus on its content business, while AOL will gain more  
flexibility to seek Internet market success, Time Warner said on  
Thursday.

To proceed with the separation, Time Warner will first buy the 5  
percent of AOL that Google owns, having paid $1 billion for it in  
December 2005. That transaction will happen in this year’s third  
quarter. Earlier this year, Google wrote down that investment,  
acknowledging it has dropped in value.

AOL’s spin-off will be contingent on Time Warner obtaining the  
necessary approvals from its regulatory agencies and its board of  
directors.

In this year's first quarter, AOL’s ad revenue fell 20 percent year-on- 
year. By comparison, Google, which generates most of its money from  
online ads, grew its revenue 6 percent in the first quarter.

During the quarter, AOL suffered revenue declines in ad sales on  
external sites, as well as in display and paid-search ad sales in AOL  
sites.

Last month, in a filing with the U.S. Securities and Exchange  
Commission, Time Warner said it was reviewing its “strategic  
alternatives” regarding AOL, and that it anticipated soon starting a  
process to spin it off entirely or partially.

Overall, AOL’s revenue, which also includes subscription fees, fell 23  
percent to $867 million, while operating income tumbled 47 percent to  
$150 million in the first quarter. Time Warner blamed its first- 
quarter 7 percent revenue fall partly on AOL’s financial performance.

Time Warner booted Randy Falco from his post as AOL CEO in March,  
replacing him with former Google executive Tim Armstrong.

Under Falco, who took over in November 2006, AOL routinely failed to  
grow its ad revenue on par with the industry average. Falco’s tenure  
included two major rounds of layoffs: 2,000 employees, or 20 percent  
of AOL’s staff, in October 2007, and 700 employees, about 10 percent  
of the staff, in January of this year.

AOL has been on a years-long process to transition from a business  
model based on dial-up Internet access fees to an online advertising  
supported model. However, since early 2007 AOL has consistently  
underperformed in online advertising.

For example, in 2008, U.S. online ad spending grew 11 percent,  
according to the Interactive Advertising Bureau, but AOL's online ad  
revenue dropped 6 percent.

AOL and Time Warner announced their intention to merge in 2000, saying  
the deal would create “the world’s first fully integrated media and  
communications company for the Internet Century.” The all-stock deal  
was valued at $183 billion when it was first announced. By the time  
the merger closed in early 2001, the decline of the companies’ shares  
brought the value of the deal down to about $100 billion.

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Dave Sevick Consulting
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Apple Recycling in Pittsburgh
Helping people use technology in Pittsburgh
Western PA, WV, OH, MD ... Since 1988

724.779.0099 mobile/office
dave at davesevick.com
http://www.davesevick.com
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