Time Warner to Spin-off AOL

Time Warner decided to finally spin-off AOL as a separate publically traded company. I’ve been following this transaction for a while now and it feels like both parties missed the opportunity. Some of you may remember couple of years back, a python tried to swallow an alligator in Florida. Both died in the process!

AOL bought Time Warner in 2001 in a $147B deal. Within 2 years, Time Warner took a charge of $100B to account for the diminishing value of AOL. AOL started with approximately 26M dial-up subscribers in US and as of 2008 they had 6.3M subscribers. Probably the business school professors will analyze and teach the rise and fall of an empire in more details. I always felt that AOL management never understood, planned or executed a solid broadband and content strategy. All of us knew that sooner or later people are going to go for the DSL and high-speed internet access. Dial-up access was not going to support the internet driven society which even AOL was marketing heavily. They never had a strategy to supplement their constant subscriber  losses in the dial-up business with broadband or content business.

I also felt that AOL was using the Dial-up subscriber base as a stepping stone to build their content business. The subscriber losses were just a matter of time with the hope that they will be able to build a strong content business to support the growth. Unfortunately, they were not able to execute on it.

AOL has three major parts: the MediaGlow content studio; People Networks, which includes Bebo, as well as AOL’s communications assets like AIM instant-messengering service; and its Platform-A advertising unit. AOL has bought recently Userplane social-media apps unit and its Truveo video search service as well. Some of us may not know that TMZ is a joint venture of Telepictures Productions and AOL. Going forward, if AOL has any hopes for revival or survival then it has to find a niche for all these services. All these services individually compete with some of the well know brands. It also has to figure out the monetization and compete with other providers in this space including Google, Yahoo, and Microsoft among others.   They now have a good leader in Tim Armstrong and hopefully he can figure all this out and build a path forward for the company.

So what is in it for Time Warner apart from getting rid of a big drag on its stock prices. Some of their businesses including Film and TV will continue to do fine but I’m not sure about the magazine publishing business. They may consider to spin off Time Inc as well at some point of time to consolidate on their Film and TV business.