Time Warner will split AOL’s dwindling paid Internet-access business from the rest of its AOL operations…
“Amid solid earnings that hit analysts’ marks, Time Warner announced on Wednesday that it would radically restructure — and possibly sell part of — its AOL Internet service provider division, ending a tumultuous experiment between the old and new media stalwarts…”San Francisco — Time Warner Inc. on Wednesday announced plans to split up the Internet access and audience businesses of its AOL segment to run them each independently, the first steps toward restructuring what until recently was the world’s biggest media company.
Time Warner CEO Jeffrey Bewkes announced the move in a conference call Wednesday shortly after a quarterly earnings report showed AOL’s fourth-quarter revenue slid 32 percent as it continued to lose paid subscribers.
The changes Bewkes plans would be a complete overhaul of AOL, once the premier Internet Service Provider and the driving force behind the $164 billion merger between the two companies in 2000. The split will help hasten the segment’s business-model transition from “a declining ISP subscription business to a growing Internet ad business,” he said.
“In recent years, AOL’s fortunes have declined as broadband cable and DSL services driven by increased demand for audio and video online lured subscribers away.”
“This should significantly increase AOL’s strategic options for each of these main business sectors,” Bewkes said on a call to reveal Time Warner’s fourth-quarter 2007 earnings. He made a distinction between AOL’s for-fee Internet-access service and its ad-supported audience business, which includes AOL’s online services and content.
Bewkes did not give a specific timeline or other details for when and how the split will occur. AOL’s Internet-access business, which still provides for-fee service, continues to decline in subscribers even as Bewkes noted that Time Warner has reduced operating expenses at AOL by “well over a billion dollars.”
Bewkes, holding his first financial briefing with analysts since taking over as chief executive in the beginning of the year, said he also planned to cut costs at the media giant, starting with a 15% reduction in spending. In addition, Bewkes said he was considering reducing Time Warner’s 84% stake in Time Warner Cable.
The move would separate AOL’s paid subscription Internet access service, which lost another 740,000 customers last quarter, from its advertising-driven Web sites and content. Baltimore-based Advertising.com, acquired in 2004 for $435 million, has emerged as a cornerstone of AOL’s advertising-driven business model.
While operating income at the AOL division fell 70 percent from year-ago results and overall revenue slid, revenue from advertising sales at AOL gained 10 percent.
“The move comes as little surprise, as former CEO Dick Parsons acknowledged in September that Time Warner would at some point divest itself from the AOL access business, though he made no commitment to do so at the time.”
AOL now provides most of its services, including access to AOL e-mail accounts, for free to those with Internet connections. Its dial-up service lost 3.8 million paid subscribers last year, and now counts just 9.3 million customers, down from well over 20 million at AOL’s peak several years ago.
“These moves involve cost cuts across the company, starting with eliminating 100 jobs from its corporate offices to save about $50 million a year.”
The company will also seek to cut costs at its New Line Cinema studio, known for the “Lord of the Rings” franchise and “Hairspray,” and review its current structure as an independent studio.
It was not clear what any split at the AOL division would mean for its operations in Northern Virginia, where AOL has 4,000 employees. Nor was it clear exactly what Time Warner plans to do with the paid Web access division.
The media conglomerate is under pressure at the news that if Yahoo Inc. accepts a $45 billion offer from Microsoft Corp. makes it unlikely that either Microsoft or Yahoo would be interested AOL buyers. Time Warner said the separation of the AOL divisions will “take several months.”
AOL was restructured last year to become a one-stop shop for Web advertising. First-quarter online ad sales are expected to fall, but growth is expected to return by the second quarter, Chief Financial Officer John Martin told analysts.
Still, even as AOL’s goal is to become a viable online advertising competitor against Google, Yahoo and Microsoft — the latter two of which may soon become a single and more formidable rival — advertising revenue for AOL has been growing less than the industry average for several quarters.
Google is the market leader with its AdSense advertising service, while Microsoft is actively trying to purchase Yahoo so it can better compete. That potentially creates two huge competitors for Time Warner before it even begins restructuring.
In taking over the post, Bewkes is under pressure by stockholders to boost the company’s stock price, which closed at $15.40 on Tuesday. Analysts have said that Time Warner needs to focus more on its core business of entertainment.