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AOL – A Time-less Saga?

Posted by hs on December 14, 2005

Steve Case (AOL Founder) has joined Carl Icahn in calling for breakup of the Time Warner Company (which owns, among other things, AOL, Road Runner, CNN, Time Warner Cable & Time Magazine). In his article in Washington Post on Sunday (It’s Time to Take It Apart), Steve says:

“Although I played a key role in bringing AOL and Time Warner together six years ago, it’s now my view that it would be best to “undo” the merger by splitting Time Warner into several independent companies and allowing AOL to set off on its own path”

He goes onto say

“Given that Time Warner failed to capitalize on AOL’s potential during a period when it owned 100 percent of AOL, it seems doubtful that a scenario in which it has a lesser, but still controlling, stake will work better”

The logic for de-merger may look good, especially in this era of focus on ‘core competencies’, and Time Warner may indeed get a good value for its AOL unit from one of major suitors – Microsoft, Yahoo or Google, the question remains about the basic veracity of the arguments put forth by Steve Case.

Notice the argument where Time Warner is blamed for not being able to capitalize on AOL’s value. In 2000, although the union was termed as ‘merger’, it was pretty clear that AOL was taking over Time Warner, and indeed, AOL guys ran the show in the merged entity for the first few months after the merger. And having admitted to playing a key role in the merger, Case should take part of the blame for not having failed to achieve the merger objectives and not having done anything earlier.

To cite Steve’s argument for an independent AOL

Could a stand-alone AOL stage a comeback? Five years ago, most people thought Apple was a tarnished brand destined for declining market share and irrelevance. But some (including its co-founder Steve Jobs) saw the potential there, and a spirit of innovation has returned to the company to produce breakthrough products. Apple is now more valuable — and more relevant — than ever. Liberated to pursue its own future, AOL could have an Apple-like renaissance

Leave aside comparison to Apple, AOL is increasingly losing its relevance in the market. In dial-up market, it is facing stiff competition from companies like NetZero, whereas the DSL business itself is struggling hard against the Cable companies. Thus the ISP part of AOL might really not gain much from a demerger, save for some minor changes that might result from not having to accomodate sibling Cable services from the Time Warner stable.

The most valuable assets for AOL today would be the AIM (AOL Instant Messenger) and the AOL.com portal. It was mainly the AOL.com portal that MSN, Yahoo, Google were after. AIM has a large locked-in audience, but they have been rather late to the Internet Phone service game. Yahoo & MSN have provided similar service for a long time now, and newcomers Google & Skype are also making their presence felt.

Rather than taking the company apart, Time Warner should increasingly cross-leverage its media strength. With strengths in various media channels (TV, Internet), it has the wherewithal to compete against the new media companies.

Keywords: Time Warner, AOL, Breakup, Steve Case, Carl Icahn, CNN, Time, Time Warner Cable, Merger, Split, MSN, Yahoo, Google, Bid, NetZero, Cable, DSL, AIM, AOL.com, Skype

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One Response to “AOL – A Time-less Saga?”

  1. […] Coming as it does shortly after Steve Case made the case for splitting Time Warner (AOL – A Time-less Saga?), BBC is carrying a news item on purported sale of 5% stake in AOL to Google at approximately $1 billion. This is especially valuable for Google since its the current search provider for AOL.com, and gets 2-4% of its annual net revenues. Google might also be interested in leveraging AIM (AOL Instant Messenger). AOL is valuable also because its one of the few independent big portals left. Google can’t afford to lose it to MSN or Yahoo (which already have their own portals – MSN.com and Yahoo.com). […]

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