How AOL’s Moat Was Breached and Why Time Warner Should Have Seen It Coming

Original Article from Seeking Alpha Editor’s Pick

Nadav Manham submits:

More on the AOL (AOL)/Time Warner (TWX) merger, which this book described as "the con of the century." Ouch. Hindsight is 20/20, and it’s easy to forget that much conventional wisdom celebrated the merger when it was announced. But if you examine the facts on the ground at the time in the context of certain unbreakable laws of business economics, as they were known to the participants at the time, it’s difficult to escape the conclusion that the AOL Time Warner merger was . . . the con of the century. Specifically, Time Warner’s decision to give half of itself away in exchange for half of AOL was unjustifiable even in those heady days.

Only two things could have possibly justified Time Warner’s decision. The first is that there were enough merger-related synergies, either marginal revenues that only a merger could bring about and/or marginal cost cuts that only a merger could enable. The AOL Time Warner crew trumpeted total potential EBITDA synergies of $1 billion, which no one should have believed. AOL’s total EBITDA at the time was $1.8 billion; it was more than a stretch to believe that number could nearly double just by joining the Time Warner family. If you want to read more, check out "The Curse of the Mogul."

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Time Warner Will Look Even Better Without AOL

Original Article from Seeking Alpha Long Investment

Steve Alexander submits:

Time Warner (TWX) is one of the largest media conglomerates in the world, with four distinct operating units. Cable Networks is the largest portion of the company, driving about half of operating earnings. This unit runs some of the most widely distributed and largest audience channels in cable, including TBS, TNT, CNN, and HBO. AOL, representing just under a quarter of profits, is the infamous Internet company that derives most of its income from dial-up service, but also has a sizable advertising business and operates numerous highly-trafficked sites like MapQuest and AIM (AOL Instant Messaging). Filmed Entertainment is the movie arm, consisting of the Warner Brothers and New Line Cinema studios, providing about 17% of profits, although this is a cyclical business. Finally, Publishing, representing the remaining 10% or so of profits, produces such well known and widely circulated magazines as Time, People, Sports Illustrated, and Fortune.

The Time Warner of today is significantly different than the Time Warner of just 10 months ago, as Time Warner Cable (TWC) was spun off in March. Before the spin, TWC contributed close to 25% of sales. The Time Warner of 3 months from now will be significantly different from today, as AOL will be spun off in December. That is quite a transformation in a single year, with the company jettisoning over a third of total revenues! New CEO Jeffrey Bewkes, a veteran of Time Warner’s cable channel arm, has wasted no time in the long overdue breakup. The goal is to transition Time Warner into more of a pure play on content, similar to MagicDiligence Top Buy Viacom (VIA.B).

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Will Wall Street Buy Tim Armstrong’s Plans for AOL?

Original Article from Seeking Alpha Editor’s Pick

Ashkan Karbasfrooshan submits:

On March 12 2009, AOL replaced Randy Falco with Tim Armstrong, who previously ran Google’s (GOOG) North American sales operations. I attended the Media & Money conference on Friday at the Roosevelt Hotel in Midtown Manhattan and heard Tim talk about AOL’s future and past.

First 100 Days: Strategy vs. Cost Structure

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AOL Thinks It Owns All Advertising Domains

TechCrunch submits:

By Robin Wauters

AOL, rather than fixating on building business and staying relevant post Time-Warner (TWX), is suing search and display platform provider Advertise.com for trademark infringement and unfair competition. Furthermore, the company is also partly responsible for the near-done sale of the domain name Ad.com for a reported $1.4 million falling through, leading to the seller of the domain name subsequently suing the buying party, says DomainNameWire.

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AOL and Yahoo See Value in Original Online News

Sam Diaz submits:

As News Corp.’s (NWS) Rupert Murdoch tries to figure out how to charge for newspaper content and the Associated Press continues to whine about online news aggregators offering up its content, AOL and Yahoo (YHOO) seem to be beefing up their own news operations to provide original content.

And, as both companies note, there’s a lot of journalistic talent available now that newspapers large and small are shedding their newsroom staffs.

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With Microsoft Deal, Will Yahoo Turn into AOL?

Larry Dignan (ZDNet) submits:

Yahoo (YHOO) and Microsoft (MSFT) are expected to announce their long overdue search pact to seal an 18 month courtship. While outsourcing search technology to Microsoft makes a lot of short-term financial sense, the strategic impact remains to be seen. The biggest question: Has Yahoo just turned into AOL?

The details of the deal reportedly go like this (Techmeme):

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Google Sells Back Its Stake in AOL

Erick Schonfeld submits:

Google (GOOG) finally sold back its 5 percent stake in AOL to Time Warner (TWX). Originally valued at $1 billion in 2005, Google ended up getting back only $283 million, including some cash distributions. There goes roughly $700 million, but Google already took a writedown on the investment back in the fourth quarter when the whole world was going to pot and nobody really noticed.

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How the Time Warner / AOL Spinoff Will Work for Shareholders

Ron Haruni submits:

Time Warner (TWX), the world’s largest media conglomerate, informed the Securities and Exchange Commission [SEC] on Monday of its plan to spin off its struggling Internet unit AOL Holdings LLC. The media giant said in a regulatory filing it intends to list AOL common stock on the New York Stock Exchange under the symbol “AOL.”

While the filing doesn’t provide any details in terms of timing or share distribution for the spin-off, it says that once the proposed separation is complete, Time Warner shareholders will own all of the outstanding interests in the online unit.

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SEC informed of AOL spin off

WASHINGTON – US MEDIA and entertainment giant Time Warner Inc informed the Securities and Exchange Commission (SEC) on Monday of its plan to spin off its troubled Internet unit AOL.

The formal notification is a first step ahead of the public listing of AOL, which fused with Time Warner in 2001 in what has been described as one of the most disastrous mergers in corporate history.

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AOL May Spin Off Bebo

Michael Arrington submits:

Interesting off hand comment by AOL CEO Tim Armstrong at the Fortune event this morning. Bebo, the social network AOL paid $850 million for in 2008, wasn’t mentioned on the list of AOL’s core product goals going forward. Late in the interview, though, Armstrong was asked where Bebo fits into that strategy. His answer, roughly quoted “Bebo may be better off under AOL Ventures, with it’s own P&L.”

Translation – AOL is looking to spin Bebo off into an independent company, and they’ll retain an equity interest via AOL Ventures.

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