David Kirkpatrick

May 29, 2009

AOL and Time Warner part ways

Filed under: Business, Media, Technology — Tags: , , , , , — David Kirkpatrick @ 4:06 pm

Time Warner finally pares a lot of dead weight from it’s already bloated structure and in the process concludes one of the ghastliest (on so many levels) deals of the tech boom of the late-90s/early 00s. AOL was an immediate drag on Time Warner and never lived up to any aspect of its end of the deal.

From the link:

Time Warner will finally rid itself of AOL, its struggling Internet subsidiary, by spinning it off as a publicly traded company.The move comes as no surprise. Time Warner executives have been considering for years whether and how to dump AOL, whose transformation into an ad-supported business has been a disappointment.

The separation will allow Time Warner to continue “reshaping” itself with a focus on its content business, while AOL will gain more flexibility to seek Internet market success, Time Warner said on Thursday.

To proceed with the separation, Time Warner will first buy the 5 percent of AOL that Google owns, having paid US$1 billion for it in December 2005. That transaction will happen in this year’s third quarter. Earlier this year, Google wrote down that investment, acknowledging it has dropped in value.

Here’s something I wrote about the deal back in December 2003:

Wired magazine ran a great piece in the November 2003 issue on the death march of AOL outlining the company’s ongoing problems. AOL’s subscriber figure most likely peaked in the third quarter of 2002 at around 35 million. It has consistently fallen since that time. In January 2001 the merger of AOL and Time Warner was approved, the stock began trading as “AOL” and the AOL side of the merger ran the show, so to speak, because its stock valuation (based on nothing more than hot air bandied around a boardroom) was higher than Time Warner’s business filled with publications and other physical media.

The tech bust hit AOL pretty hard and in September of this year AOL/Time Warner dropped “AOL” from the name to separate the brands and switched back to the “TWX” ticker symbol. Yesterday TWX closed at $16.48 with a 52-week high of $16.98 and a low of only $9.90.

Like many companies during the boom, AOL got ahead of itself and made the common business mistake of hubris. It viewed its hold over Internet service as a given. Not unlike Microsoft underestimating the Internet, AOL completely misjudged the broadband threat and is now late in the game and scrambling. All those Net newbies who wanted the handholding provided by AOL were forced to wean themselves in order to make the early switch to DSL or cable Internet access and found the transition pretty painless.

Of course unlike Microsoft, AOL doesn’t have a stranglehold product (Windows) that allows it to quickly get up to speed in the broadband game. Microsoft may have been late on the World Wide Web boat, but it got there via a jet-engined craft with a fiberglass hull. AOL has been caught staring at the broadband access train pulling out of the station wondering if its cool, tech boom scooter will be enough to keep it up to speed.

Which leads back to AOL’s ill-fated Netscape acquisition. Netscape lost the browser war to Microsoft long ago (its browser tech has effectively been abandoned by AOL) and the parent company is looking for any way to parlay the brand name into a commodity. Hence the Radio@Netscape Plus player. Replacing a perfectly adequate app in Spinner, and actually making it a little worse with the 31 song re-up rather than Spinner’s old 201song string.

February 16, 2009

Internet advertising is drowning …

… in a sea of endless content. This is a case of supply (web pages to advertise on) wildly outstripping demand (eyeballs to view those pages and ads).

From the WSJ:

What does the Internet display-ad market have in common with Zimbabwe?

Both are printing nearly-limitless amounts of their main currency, vastly diminishing its value and undermining their future. The currency, for Web sites, is their ad inventory. And while Zimbabwe, under different management, can change course, the same isn’t true of the display-ad market. Web sites keep generating new content and extra pages on which ads can run.

That is why the sudden sharp weakness in online display advertising, which hit fourth-quarter revenue at companies ranging from Yahoo to Time Warner‘s AOL and New York Times Co., isn’t just about a cyclical downturn caused by the recession.

For sure, part of it is due to depressed demand among advertisers, including those who buy “brand image” ads that suit the display format. AOL, for instance, whose display revenues fell 25% in the quarter, cited “softness” in categories such as “personal finance, technology, autos and retail,” which clearly relate to the economy.

But weak demand is simply highlighting the more fundamental oversupply problem — and pressuring prices. The cost per thousand views of display ads on big Web sites sold through ad networks — rather than sales forces of individual sites, which usually handle premium inventory — fell 54% in the fourth quarter compared with the year earlier, estimates PubMatic, which offers online services to publishers.

December 9, 2008

Tribune Co. files Chapter 11

I’ve blogged on the new troubles facing the newspaper industry (and post itself is on the ailing NYT) here, and left this bit of news out of the post — Tribune Co., publisher of the Chicago Tribune and the Los Angeles Times has filed for bankruptcy protection.

Blame this problem on Sam Zell being a real estate guy (read: asshole until proven otherwise) and not a media guy. He was buying assets and not intellect. That might be the key to old media’s malaise right there.

That problem can even be traced back to the failed AOL/Time Warner merger. Everyone wanted to get into assets and not intellect. Time Warner lost its way and AOL brought hot air to the table.

Zell bought what he thought was an asset to leverage, but the reality was he bought brands and smarts. Real estate investors getting into new fields almost always blow the deal and lose money. Just look at Virgin Entertainment right now and REIT Richard Branson sold out to. That whole process is a slow-moving train wreck.

Big names in trouble here: Tribune in Chapter 11 and the New York Times has mortgaged its building for cash. I’m a huge fan of business and no fan of regulation, but something is quite rotten in Denmark, so to speak.

You’ll get no argument from me that this financial crisis is the result of something being majorly broken in our system. My money’s on high finance being a delicately balanced house of cards that became too tall and too greedy. Something of a modern-day tower of Babel in numbers.

From the second link:

Tribune Co, which owns eight major daily newspapers and several television stations, filed for Chapter 11 bankruptcy protection after collapsing under a heavy debt load just a year after real estate mogul Sam Zell took it private.

Like other big U.S. newspapers, Tribune is under pressure from declining advertising revenue and circulation as more people get news online and as companies cut their marketing budgets because of the economy.

The Tribune Co‘s financial condition is symptomatic of the ills that plague the newspaper industry,” said Jerome Reisman, a bankruptcy attorney with Reisman, Pierez & Reisman.

Tribune’s bankruptcy filing is the latest chapter in the unraveling of the leveraged buyout boom which saw many companies bought by private equity firms and other investors ending up with massive debt loads.

Zell loaded up the privately held publisher with about $8 billion in additional debt when he took the company private in a transaction largely financed by company contributions to an employee stock option plan.