AOL And Time Warner – Why Couldn’t These Two Make It Work?

AOL and Time Warner are finally admitting it just ain’t working out, and are splitting apart after nine years of haemorrhaging balance sheets. When they first got together, it was like Kirk kissing Uhura – unlikely but beautiful, and heralding a new anything-goes attitude to relationships. But it turns out that while opposites attracted during the dotcom years, if you don’t have any shared interests it’s going to be hard to maintain that healthy marriage. 

Just as with eBay and its failed Skype and StumbleUpon purchases, there was a sense that AOL should be seen to be keeping with the times, but rather than innovating and creating something that would truly take its business to the next level, it just glued itself to another big company and hoped that the synergies would present themselves. They didn’t. Getting sexy young things Bebo and SocialThing! (bleugh) into the relationship to spice things up didn’t work either – they paid way too much for both of them, considering all they had was users rather than a unique way to make any money.

AOL’s core business is as an internet service provider – one has to wonder why they didn’t absorb Roadrunner, Time Warner’s existing broadband service, and head into the new broadband market with it and their then-monolithically powerful brand. It instead watched 20m subscribers flee to broadband provided by their phone or cable company, while the advertising on their site continues to tank. Its revenues were down 23% last quarter – the value of the whole company, based on the value of Google’s 5% stake from when they bought it compared with now, has gone from $20bn to $6bn, if they’re lucky. In 2003 they announced what was then the largest corporate loss in history, writing down the company by nearly $100bn.

AOL’s brand is still powerful in the US though; its free site the fourth most popular, and those 6 million subscribers providing a steady flow of income. Those profitable parts of the business could get sequestered away from the other, newer, loss-making assets like Bebo and Truveo, which could get put in their own division that would have to source its own financing. Meanwhile Time Warner could go any number of ways – shedding Time Inc., their print business, in order to concentrate on their TV, film and music businesses; trying to buy out Viacom; snapping up lots of little acquisitions in non-US territories. Matthew Karnitschnig of the Wall Street Journal suggests they could even get bought up by another media company like Comcast or News Corp.

Steve Case, the architect of the original deal, yesterday quoted Edison’s line about vision without execution being a hallucination, but really there was no reason why this vision couldn’t have been executed. On the one hand you’ve got America’s number-one-by-a-considerable-distance internet provider. On the other you’ve got on of its biggest providers of music, film, television and print media. The synergies were plain – online TV with paid subscriptions, a rival to iTunes, the potential to control multiple platforms. But the only synergy pursued was advertising-funded online media (which to be fair was once profitable), with hip new social networks expensively tacked on. While the opportunities were many, the new company was just too massive to move into them – having the old-school likes of Ted Turner at the helm didn’t make them nimble and innovative. I know its easy to say all this now with nine years of hindsight, but citing a lack of synergy just isn’t a good enough excuse.

Posted by Ben Beaumont-Thomas in Creative Economy | May 29, 2009 11:53AM |