There's been chatter on the Web (and Wall Street) for years now about whether Time Warner should spin off its AOL subsidiary. Now, according to a report in The Wall Street Journal, it looks as though Time Warner's management is looking to tweak the requirements that prevent it from unloading AOL. So it finally might happen.
On the other hand, AOL's slow drift away from its parent company has been at about the speed of plate tectonics; these "fresh start for AOL" moves are nothing new. It was way back in 2003 that Time Warner reverted to its old name from AOL Time Warner, changing its stock symbol back to TWX from AOL. The company relocated its corporate headquarters to New York in 2007, conspicuously not moving into Time Warner's own headquarters.
AOL has also been aligning itself into three quasi-standalone businesses: advertising (Platform-A, amassed out of a number of digital-ad acquisitions), social networking (the "People Networks" division anchored by AOL's $850 million acquisition of Bebo), and content (the "MediaGlow" network of blogs and editorial sites).
But it wasn't until the second half of last year, particularly amid the Microsoft-Yahoo acquisition fiasco (in which AOL was highlighted as an acquisition target for both companies) that AOL's post-Time Warner fate started to look more evident. CEO Jeffrey Bewkes confirmed in August that the AOL dial-up access division would be spun off in a further attempt to focus on advertising. It's been almost a year, for that matter, since Time Warner announced that it would be spinning off its Time Warner Cable division. So it's not like the company doesn't have a recent track record of slimming down.
Now, with former Google advertising executive Tim Armstrong about to assume the CEO role, AOL could indeed be shaping up to spin off for good.
The latest move, detailed in the Journal, would relieve AOL of $12.3 billion worth of debt, effectively lifting a weight from the business and enabling it to move off on its own. Bondholders have until the end of the day on April 15 to provide consent. An analyst told the WSJ that an initial public offering is unlikely--ad revenues are still falling, and the overall market climate is obviously not ideal.
But as we've seen, these things just don't happen overnight.
Google is calling in its chips in its $1 billion investment in Time Warner's AOL.
The search giant, which struck the back in 2005, gave it a 5 percent stake in AOL.
The 2005 arrangement, not only included collaboration on advertising, instant messaging and video, but also gave Google "certain customary minority shareholder rights," such as those related to any future sale or public offering of AOL.
With the markets in the doldrums and AOL's business continuing to take a beating, as evidenced in Time Warner's fourth-quarter earnings report Wednesday, Google is looking for payback time.
Last summer, Google announced it was considering writing down some of the value it had previously placed on its AOL investment. And when Google reported its fourth-quarter results late last month, the write-down figure came in at $726 million.
And last week, things apparently between the two companies seemed to get worse when Time Warner Chief Financial Officer John Martin said 28 minutes and 13 seconds into the company's fourth-quarter Webcast conference call:
At the end of last week, Google sent us a request to exercise their demand registration rights that it has for its 5 percent ownership stake in AOL.We're reviewing what we received and we're evaluating our options. Those options include: preceding with the request, delaying the decision for sometime, or we can move ahead to potentially buy back Google's stake at an appraised value, which would obviously be well below the value that was placed on at the time of the original investment.
In other words, stay tuned for more to come...
Time Warner will indeed split its AOL access and media units starting next year, CEO Jeff Bewkes confirmed in a release announcing the company's second-quarter earnings.
It's the first time the executive has confirmed that the split will take place soon, though it's been widely talked about for months since the chief mentioned it speculatively earlier this year. What he hasn't said yet--and what some are expecting may come soon--is that Time Warner will get rid of AOL altogether, perhaps selling it to a bigger player in the online-advertising market.
It was another tepid quarter for the online-service-turned-media-company, which saw revenues drop 16 percent, to $1.1 billion. Its ad revenues are up 2 percent ($8 million)--though display ad revenues on AOL-owned sites are down--but that business still isn't big enough to offset the losses from AOL's sputtering Internet access service.
Once a national mainstay, the provider lost 604,000 subscribers in the second quarter alone and is down 2.8 million from the previous year, leaving it at 8.1 million subscribers. That's a $200 million loss (29 percent drop) for the company, which had raised fees on the dial-up service in late June.
Operating income at AOL dropped 36 percent, to $230 million.
Reports have suggested that Internet provider EarthLink may be interested in acquiring the access business from AOL.
Meanwhile, at Time Warner Cable, which Time Warner spun off in May, revenues are up 7 percent, seeing a decline only in television pay-per-view revenue. An additional 214,000 people have subscribed to its "triple play" offering of cable TV, broadband Internet, and telephone service, CEO Glenn Britt said in a release.
This post was last updated at 11:36 a.m. PT.
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