Time Warner dumps AOL

Media giant Time Warner Inc. announced plans yesterday to divorce Internet provider AOL LLC, ending one of the biggest, and most disastrous, mergers in history.
Time Warner, which owns 95% of AOL, will purchase Google Inc.' s 5% stake in the company in the third quarter of 2009 before spinning off AOL, the company said in a statement.
"This merger was monumentally unsuccessful," said Joseph Bonner, media analyst with Argus Research in New York. "AOL's been a drag since the merger, nine years ago. It never fit. It's time to get rid of it."

Michael Morris, UBS media analyst, values AOL at about US$4.2-billion, but expects that could increase to US$5.5-billion after Google sells its stake, valued at US$274-million.

New York-based Time Warner has spent the past several years trying to distance itself from AOL.

The global media conglomerate, which owns Time magazine, CNN, HBO and Warner Bros., dropped the "AOL" from its banner in 2003, only two years after consummating the US$106-billion marriage.

Time Warner now has a market cap of about US$28-billion, a fraction of Google's US$130-billion value. Even Facebook is worth twice as much as AOL, at US$10-billion.
Much like the dot-com boom and bust, AOL's rapid rise and fall is a cautionary tale of growing too much too fast.

Exploding onto the scene at the dawn of the Internet age as America Online, the company became legendary for its "You've Got Mail!" chime, poor customer service and distributing millions of floppy disks and CD-ROMs offering free trials.

However, AOL was slow to move away from its "walled-garden" approach, which kept subscribers from accessing content on the larger Internet outside of AOL's personal network. Even worse, the company missed the boat on broadband.

Even now, AOL still offers dial-up service, but makes no effort to actually market the product.
"They don't push it, but they let it decline at a natural rate," Mr. Bonner said. "They don't know what to do with it."

AOL and Time Warner came together just as the dot-com bubble burst, and things turned sour almost immediately.

The New York suits from Time Warner never meshed with the "Internet guys," Mr. Bonner said. On top of that, expected synergies from the mega-deal never developed.
"The lesson is bigger isn't necessarily better," he said.

In 2002, the company reported a US$99-billion loss as investors realized that AOL's stock was wildly overvalued. Company chair and AOL founder Steve Case and Time Warner patriarch Ted Turner both resigned by 2003, as AOL fell off its perch at the top of the Internet heap.
And in 2005, new Time Warner chief Dick Parsons had to pay US$300-million to the Securities and Exchange Commission to settle charges of an accounting issue that had plagued the company since the merger. Since then, Time Warner has concentrated on shrinking its size, spinning off its cable business in March.

Chief executives for the estranged companies tried to put a positive spin on things.
"We believe that a separation will be the best outcome for both Time Warner and AOL," Time Warner chief executive Jeff Bewkes said in a statement.

Tim Armstrong, chief executive of AOL, said the split was a "great opportunity" for the company and its employees.
AOL has changed its focus to online content, but has never come close to returning to its glory days.
As for Time Warner, the move is a big positive. "They no longer have to deal with AOL," Mr. Bonner said.