AOL-Time Warner's Money Pit 326
ElitusPrime writes: "There's an interesting analysis of the recently released balance sheet net worth of AOL Time Warner. The net worth of the largest media conglomerate on earth has now been slashed by more than one-third. The conclusion, not surprisingly, is that the merger never should have happened. But there's some interesting financial analysis to show exactly how bad the merger has been for Time Warner."
The reason is simple (Score:5, Funny)
Re:The reason is simple (Score:2)
AOL just didn't do enough advertising.
Yeah, they really should make their presence known! I mean, they could do stuff like send out CDs and come up with a catchy slogan to advertise on TV. Maybe something like "so easy to use it's #1." And who knows, maybe they could get a computer store (perhaps CompUSA) to bundle AOL discs with everything... These people just need to think a bit.
The Zik Zak Effect (Score:3, Interesting)
Re:The reason is simple (Score:2)
I'm sure the marketing departments at AOL/TW would LOVE that. "The Bestest and Fastest ever AOL 12.0! And even if you think the service is trash, the reusable media isn't!"
Re:The reason is simple (Score:2)
First thing I did with AOHell floppies was peel the label off...there goes that theory. Thanks for playing, though...:-)
Re:The reason is simple (Score:3, Funny)
you beast, how dare you treat a trophy of programming prowess with such utter disrespect.
you young man, should be ashamed of yourself.
*huff* *pufff* *fffff*
come on (Score:3, Insightful)
AOL Worth 1/3 less (Score:3, Insightful)
Re:AOL Worth 1/3 less (Score:2, Insightful)
Nice office! (Score:3, Funny)
And that's just the CEO's office!
Re:Nice office! (Score:5, Insightful)
So what? At 90,000 employees, that works out to an average of 162.5 square feet per employee, including conference rooms, hallways, cafeterias, bathrooms, etc. That doesn't sound like a whole lot to me.
I wonder what Walter Hewlet thinks of this ... (Score:2)
At least Compaq has some actual assets to offer HP -- so maybe, just maybe, Carly won't have to take up poetry in 2005
:-)
Re:I wonder what Walter Hewlet thinks of this ... (Score:3, Insightful)
Re:I wonder what Walter Hewlet thinks of this ... (Score:2)
I'm sure it had some other parts that were profitable, but everyone was going in different directions and the net result was nothing spectacular. Everytime TW sucked up another company, everyone predicted "synergy", but it never seemed to happen.
On the otherhand, AOL was very profitable and very good at coordinated marketing attacks.
Wall Street might had thought that new management at TimeWarner would allow it to better cross-market it's products (particularlly it's cable networks) and actually become profitable.
In the long run... (Score:4, Insightful)
Seriously, these kinds of cross-industry mergers are often appallingly inefficient for the first few years while all of the organizational kinks get worked out.
Then, when you start to see the synergies, they really take off, often out-competing all of the players from the industries the hybrid company was formed from.
In two years, when you see tightly branded Time Warner content (i.e. Bugs Bunny!) "Available Only On AOL!", with AOL billing you per-view on your ISP bill on your DCMA/CBDTPA-enabled home Entertainment Appliance, don't say you didn't have the chance to buy stock now
vkg
Re:In the long run... (Score:2)
Then, when you start to see the synergies,
but the way it continues should be:
They spin off most of these branches that were "not part of the core competency".
See, in couple of years the whole strategy of behemoth company may (will) change. That's the way things work; one fraction sails the boat for a while, then another.
Spin Doctor (Score:5, Interesting)
AOL made a sweet deal. They turned a vast amount of very perishable stock value into some real assets by buying T-W. T-W was blinded by dollar signs in their eyes. They looked at the (temporary) value of the stock, instead of (real) value of the AOL company.
I know they are not going to shrivel up and blow away or anything like that, but if I was a T-W stockholder I would be pretty pissed off. There were billions of dollars here last time I looked. Where did it go?
I shouldn't be too hard on them though. Tyco, who has nothing to do with the dot-com bubble, and nothing to do with energy trading, and makes and sells actual products rather than just having intellectual property, has dropped in value by 30 BILLION dollars in the last 2 weeks. Think about that: 30 billion dollars that used to belong to stockholders has EVAPORATED in the last 14 days.
Re:Spin Doctor (Score:2)
Re:Spin Doctor (Score:2)
Hmm, not quite. There was potentially 30 billion dollars that stockholders might have has, iff they sold the stock to a willing buyer. The opportunity evaporated, not any actual dollars.
Of course, that's still a good reason to be pissed.
Re:dollars (Score:2)
where? read second paragraph of the statement. (Score:4, Interesting)
So, duh, the cable business is growing while the traditional entertainment is dying. No news here, exept trolls like to call it a "dot com bubble burst" and other stupid shit like that. Nope, sorry, the internet subscription is doing well, the rest is flat or sagging. When was the last time you read Time or any other monthly print magazine without wondering what kind of clueless hermit would consider any of it news? Is it any supprise that assets like that might lose value?
Where did the money go? It was "good will" overpayment for those "crown jewels", Time Warner. Enetertainment is not an easy business to be in, especially right before a small recession. The internet business, however, is a good bet. When things get tough what are you going to axe, Time, cable TV or your internet connection? I don't have the first two and I'm doing well.
Dead trees is dead business. Pththth-fit! Good riddance, now those trees can be used on things like houses that don't fill up landfills as fast. Books are doing well, and that is nice but the mags sag. Here, read it for yourself:
Publishing's EBITDA grew 14% in the quarter on revenue gains of 3%. Revenue growth reflected increases in Advertising and Commerce as well as Content and Other revenues, which were partially offset by a decline in Subscription revenues.
Respectfully, no. Not at all. (Score:4, Insightful)
Don't believe me? Look at Margaret Wente's commentary on BCE's chair resigning at the Globe and Mail [globeandmail.ca], Michael Posner's comments on Vivendi's fall from grace [globeandmail.ca], and perhaps most damagingly, a recent NYT comment [nytimes.com] (registration, blah blah) [majcher.com].
One problem is that 'content driving distribution' ends up looking like trying to play monopoly (in general terms, not the board game), especially when the 'synergistic' entity restricts content competition on distribution channels. Remember the ABC cable fiasco from a couple of years ago, when they wouldn't let one channel show up on people's tv screens?
Another is not restricting access to avoid the public/governmental response outlined above: where's the 'synergy'? If there is no 'synergy', why bother?
AOL-TW is just the biggest failure, not the only one. And to be honest, the prospect of seeing this kind of 21st century 'new' mercantilism fail actually doesn't bother me a whit.
Re:In the long run... (Score:2)
Seriously, these kinds of cross-industry mergers are often appallingly inefficient for the first few years while all of the organizational kinks get worked out.
Someone can pay me $50B to work out some organizational kinks any day.
In two years, when you see tightly branded Time Warner content (i.e. Bugs Bunny!) "Available Only On AOL!",
...
Oh, yah. Bugs Bunny on AOL will save them.
But why? (Score:3, Funny)
Re:But why? (Score:2)
well duh... (Score:2, Funny)
Re:well duh... (Score:2, Funny)
Wasn't that surprising?
Re:well duh... (Score:2)
Especially Fox, a subsidiary of News Corporation. In any major media area, save for music (and News Corp. is working on that), if AOLTW is in that sector, News Corp. is, also.
In addition, Rupert Murdoch and Ted Turner (who founded CNN and sold it to TW for a large sum of money and stock) do not get along. Ted has tempted Godwin's Law on at least one occasion in his dealings with Rupert.
One of the more recent chapters in the rivalry was when TW was very slow to put Fox News Channel on their cable systems (especially in Manhattan). In order for a cable channel to survive, it pretty much has to be available in Manhattan. Why? Because most ad execs live in Manhattan and if they can't see your programming, they're not going to buy ads.
Re:well duh... (Score:2)
As an addendum, I should note that the bits on the AOLTW bureaucracy are pretty much describing Murdoch's philosophy on management of a media company (which I agree with, as it happens, though IANA Media Executive). Murdoch has always held that media companies should not be publicly controlled (stock issuance is fine, as long as the shareholders are not in voting control) and that whoever does have control should, at some level, micromanage (or delegate responsibilities to a few very trustworthy people; in Rupert's case, these would include his sons Lachlan and {name escapes me at the moment, though I want to say James} and his longtime lieutenant Peter Chernin; IIRC, Lachlan is essentially in charge of the NY Post, for example, while Chernin oversees Fox TV and movies).
crosses fingers (Score:2, Redundant)
Re:crosses fingers (Score:2)
The benefits are simple: don't have to pay to license IE for every single AOL/Compusever/whathaveyou install. Plus the possibility of actually developing a competive product is probably high and the desire to not become a Slave of MSIE is also, I'm sure, a good motive.
Of course corporate america offen does totaly asi9 things that boggle the mind but this would be an all time f*ck up.
Re:crosses fingers (Score:3, Informative)
First off, Mozilla uses an open source license...while not GPL/LGPL, the idea is the similar. This means that if AOL/Netscape dropped support, someone could always take it up...
But the truth is, Mozilla is one of AOL's biggest hopefuls...it will be taking over as the standard AOL browser and will be used by many companies who want branded browsers and still more that don't want to use IE as their in-house browser (IBM, Sun, etc)...
Re:crosses fingers (Score:2, Informative)
Re:crosses fingers (Score:2)
stopped paying their Mozilla staff, it would be
a bad thing for the project.
(Yes, Slashdot Pod People, I know that someone else
could pick up where they left off, but it could take
a while, and they might not have the expertise, and
if these hypothetical third parties care so much,
why aren't they paying people to work on Mozilla
full-time already?)
Re:crosses fingers (Score:2)
But they aren't...read the terms of the license...
First, AOL using it as their standard browser (as opposed to IE) has a real cost benefit attached...they are currently paying M$ lotsa $$$ (probably millions per year) for the ability to modify IE.
Rebranding will also bring in $$$...under their license, Netscape can (and will) charge $$$ for this ability...
And as for companies using the browser internally...not only will content providers actually be using it in-house, but the browser will also be more widely used...
I'm not too worried (Score:2)
AOL: So, Mr. Gates. Do you want to put AOL links in Windows XP - or do we need to shift to Mozilla and watch as web developers remember how to program HTML 4.0 compliant web pages?
Sun / Netscape / AOL (Score:2)
From the article AOL owns Netscape wholly, but I still don't really see how Sun fits in. Anyone with a cluestick, comments greatly appreciated.
Jeez. (Score:4, Funny)
"You can get as much of a return by investing in a U.S. government bond these days as you can from throwing your money into the AOL Time Warner black hole."
Uncle Sam should definitely co-opt this for advertising: "U.S. savings bonds: not as bad as investing in AOL."
Does that mean... (Score:2, Funny)
What AOL Acquires Turns to Sand... (Score:3, Interesting)
Re:What AOL Acquires Turns to Sand... (Score:2)
Re:What AOL Acquires Turns to Sand... (Score:2, Insightful)
Re:What AOL Acquires Turns to Sand... (Score:3, Insightful)
Re:What AOL Acquires Turns to Sand... (Score:2, Insightful)
1. Their home page. At the time of the purchase, AOL was dominant in the consumer market but had no handle on how to get access to the businesses. They saw the ability to drive significantly more advertising revenue by acquiring Netscape.com as they were the dominant business portal at that time. AOL closed deal after deal with major advertisers because of this.
2. Their browser. AOL hates Microsoft and really hates IE. Between 33% - 37% of their support costs were directly related to IE bugs. At the same time, they were forced to go with IE if they wanted that icon on the desktop of every new PC. By purchasing NSCP, they hoped to get the people and hard-earned know-how to put a competitive browser in play that directly integrated with not only the Internet, but AOL services.
3. Their servers. AOL was also looking at dumping their proprietary architecture and replacing it with a completely browser based solution. This, obviously, didn't pan out. But the thinking was they would have complete access to the best LDAP server, app server (performance and scalability wise), mail servers, and web servers on the market at that time.
The final piece of the puzzle was an agreement with Sun to dump the rest of the enterprise software (BuyerX, SellerX, ECX, etc) on Sun. This was done in simultaneously with a major hardware purchase from Sun ($500M?) with Sun purchasing a huge amount of advertising from AOL ($250M?). This agreement took two years to complete as U.S. tax law would have stuck AOL with a $250M bill if they divested those assets within the first two years of acquiring NSCP.
I, personally, didn't think it was a great deal. NSCP was on the way down and I thought AOL could have bought those assets at firesale prices 3 months later instead of the $4B they paid. Oh well, they made some of my good friends rich.
:-)
Just say no to cool sigs,
gzo
Exec payola (Score:2, Insightful)
These guys (Levin et al) live in a strata that most peons can't even comprehend. Imagine if you can, sitting there, seing on paper a massive payola for you personally if the deal goes through. Now... your task is to spin the deal to the shareholders so it looks like a great deal. Cha-ching.
AOL Time Warner record deal... (Score:3, Informative)
Wilco's recent deal with AOL [thedmonline.com] subsidiaries:
It's their least poppy and most experimental effort to date. Which is why Reprise Records rejected it last summer: if the suits don't think you have a hit single, you're S.O.L, no matter how great your album is. Thankfully, after a fall tour and six months of shopping around, Wilco wrested "Yankee Hotel Foxtrot" back and sold it to Nonesuch. Both are subsidiaries of AOL Time-Warner, so in an ironic twist, the band was paid twice for the same album by the same company.
biggest loss ever by any company (Score:2)
Personally what I think they should do. (Score:2, Interesting)
Re:Personally what I think they should do. (Score:4, Informative)
The AOL Software is buggy, bloated, and won't work. They use VPN's and unlike road-runner, you must be signed into the service before you are connected to the internet. Another good reason is that the AOL Backbones are slower than roadrunner.
We've had customers whose computers that just WILL NOT work with AOL's HSD, but with RoadRunner and AOL's BYOA program, they connect to the net just fine. The pricing? The same (Roadrunner + AOL's BYOA = AOL HSD).
Also, something you have to look at is Support. AOL's support is ok...but RoadRunner's is better. If you're having Road Runner problems (e.g., your 31337 child installed a firewall and now you can't connect to the internet) if you call us, we'll be out in a Day...because it's a PC problem...and we support that. AOL will only support via the phone, unless it's a NO CABLE type of work request, then an line tech goes out...who doesn't have working knowledge of computers.
Anyway...from what I've seen Comwaves (who is our biggest competitor up here) uses RoadRunner at their CEO's and a majority of their employee's houses.
Keep in mind this is a foxnews article (Score:5, Insightful)
And lots of the article is rhetoric and not financial analysis - is it that importent that they own more office space than the pentagon? They are a large company after all. The article also bever analised the earnings, saying thet the assets are most important.
Truth is "good will" (by its technical accounting term) was never really considered as a real asset. Also the billions of dollars of goodwill can suggest that TW shareholders got a good deal, because they got payed a lot over the assets of time warner at the time of the merger.
But i can easily believed that their financial statements are complicated and whole companies are hidden, so their performance cannot be seen. AOlTW is not the first large company to do that.
Re:Keep in mind this is a foxnews article (Score:2)
ok lets think this out (Score:2)
Since TW was being bought it is their goodwill that got put in the books. If that good will was really high, it means that AOL payed a lot over the assets of TW for TW. Which means that TW shareholders got a good deal.
Tell me if i am wrong somewhere.
Re:ok lets think this out (Score:2)
company. The deal wasn't structured as AOL buying
TW, it was structured as a "merger of equals", as
it says in the article.
The write-off reflects the loss of market cap,
again according to the article. So if you want
to know which shareholders got screwed, ask
yourself this: had the businesses remained
separate, whose stock would likely have retained
more value in the last few months? The answer
is obviously TW: stocks are down all around,
but internet stocks are worse.
Re:ok lets think this out (Score:2)
Re:Keep in mind this is a foxnews article (Score:2)
I noticed that too. In that part of the article, they were drawing some comparisons with the Department of Defense - org. charts and office space measured in the non-industry-standard Pentagons (I have yet to see a sign reading "Office Space Available -
Of course - if you really want to make the comparison stick, instead of focusing on the square footage of one DoD building (the Pentagon)... lets compare the square footage of office space claimed by AOL/TW and the square footage of office space held by the entire US DoD.
Betcha the point falls flat.
Re:Keep in mind this is a foxnews article (Score:2)
Good will is how much you *over paid* ... (Score:2, Insightful)
What? Good will is what you carry on your books to reflect the difference between the assets you got in the buy out or merger and what you paid for those assets. In real terms it's how much you overpaid for the company.
Not that this is necessarily bad -- pretty much all companies are worth more than their assets. If it was otherwise somebody would just buy the company and strip them of their assets! This happened in the eighties
...
The reason the SEC is making companies write off good will is that many companies were pretending it was an asset! And succeeding as your message somewhat indicates. It is NOT in any way, shape or form an "asset" and is the one of the biggest accounting hornswoggles ever invented, just before "pro forma" results
:-(
Re:Keep in mind this is a foxnews article (Score:2)
Typical.... (Score:2)
Isn't this just so typical? Who are these elite executives with their golden parachutes? Even the execs of Enron got performance bonuses well after the company went bankrupt. IMO, this sort of cronyism is what is wrong with the corporate world today (apart from mindless greed and monopoly building)
I hope they go down...
To paraphrase comic book guy (Score:2, Funny)
If it was only US$50 Billion... (Score:4, Interesting)
Don't expect them to answer any questions about:
What assets EXACTLY did you write down?
What about the rest of that lost value, when are you going to take that hit?
Inflated
Big problems brewing for the future.
Time Warner traded cow for magic beans (Score:2)
Re:Time Warner traded cow for magic beans (Score:2)
This is just Karma (Score:2)
Everyone who is happy to see these bastards writhing around please follow up with a "me too". And then post something stupid. And then someone else followup (without quoting the original article, or if you do, get the attributions all wrong) with a heartly LOL, or even a ROTFLMAO.
AOL losers make me sick. I never saw a Henry Spencer post with LOL in it.
Re:This is just Karma (Score:2)
Me Too.
(an AOL/TW/RIAA/MPAA (TM))
(admittadly, I posted one "Me Too"...once, and only once, a decade ago.)
Soon there will/shoud be a AOLA (AOL Anonymous) and the meeting will start of with "Hi, my name is ____ and I got a clue...I've been AOL free for XXX days."
The meeting will end with "Give me the strenght to reject the ISP that I can not change, the courage to switch to a real one, and the wisdom to know anything but AOL is better....Me too".
.
It's all those CD's (Score:4, Funny)
Re:It's all those CD's (Score:2)
Insightful? Bah. (Score:5, Insightful)
"Save for the monthly subscription revenue, there was nothing much to the AOL business to begin with, as the first mild downturn in the economy has convincingly shown, with advertising revenues from the service having now collapsed in a heap."
Actually, AOL was making quite a lot of money on advertising, and though the online ad market dove after the merger, that doesn't qualify the statement that there was nothing there to begin with.
The whole tone (mocking poetry writing, yapping about black holes, colloquialisms instead of actual business terms, and the overly familiar 'I-you-we banter' show this article to be a sensationalist 'I told you so (even though I didn't) editorial rant, and not an 'analysis' of any kind.
I'd love to find out where the money went, but the only thing this article taught me is that Fox's online news is the equivalant to WB's prime time news.
Re:Insightful? Bah. (Score:4, Insightful)
Save for the monthly subscription revenue, there was nothing much to the AOL business to begin with, as the first mild downturn in the economy has convincingly shown, with advertising revenues from the service having now collapsed in a heap."
Furthermore, the "save for the monthy subscription revenue"... Dude, the monthly subscription revenue is what makes the company so attractive. If you can count on $21 * (areallylotofusers) / mo. guarenteed, you're already way better off than say, the services industry which is a lot more affected by economic downturns.
The monthly subscription revenue is what separates AOL from your typical ad-market company, it has a large revenue base that i can use to cushion the impact of advertising revenue, which looks to be very cyclical.
Once the ad-market has an upturn, AOL/TW is going to be quite fearsome. They have the ability to do a huge branding effort. Think how MSN teamed up with espn.com. Then MSN teamed with GE for MSNBC. Now multiply that by 20, given the TW media assets. They would have the ability to keep people within AOl/TW owned websites, further increasing ad-revenue. If they so chose, they would have the ability to create 'aol-subscriber' only content, much like they did in the late 90.
Just because things arent working out perfectly doesnt mean a) it was a bad idea, or b) that everyone should abandon ship. While TW was probably charmed by the large amt of stock thrown at them, and soldout for too low, the merger was certainly not as horrible an idea as the article makes it sound.
Re:Insightful? Bah. (Score:2)
For clients that will pay. The big trend in advertising has been better media spending by improved demographic targeting. Charging me more to blast my message across the wrong demos simply because you own a huge chunk of the media outlets won't make it smart. The web is still dominated by 18-35 males, just because you own AOL and TW doesn't warrant extra revenue spending on overly broad demos.
NYPost by way of the Inquirer (Score:4, Insightful)
Yes AOLTW is getting slammed and their value is low, but so are many former high fliers. This guy doesn't provide any real insight into the situation. He's just flaiming AOL/TW.
And to me this just looks like merger pains. In ten years, maybe, we can begin to pass judgement on whether the deal was worthwhile.
Sweat
Its not a troll, its a very good point... (Score:3, Informative)
...coincidentally made earlier today [guardian.co.uk] by Will Hutton (a British economist and newspaper editor) about the pointlessness of big money mergers like this.
He produces some very interesting statistics about how they almost always lose money, for example;The article is really worth a read. Just ignore the, um, inflammatory title!
Re:Its not a troll, its a very good point... (Score:3, Insightful)
Re:NYPost by way of the Inquirer (Score:2)
Tulips for houses (Score?
No wonder they're bleeding money (Score:2)
The irony is that I could actually use my free corporate AOL account if I wanted to, to begin with, but have absolutely no intention to change from the cool and reliable local smallish ISP I'm using.
AOL made a very smart move (Score:2, Insightful)
They did an equity swap (as opposed to getting bond financing) which was a great move. JDS Uniphase could've bought, say, Boeing - but they didn't and now they're worthless [yahoo.com].
No wonder the "original" TimeWarner people are pissed - they were had by a bunch of cowboys, and there wasn't a goddamn thing they could do about it at the time.
Goodwill: The Asset Balloon (Score:3, Interesting)
I think that this can only be true if the keys were bought for a reasonable price. TW shareholders got ripped off because they gave away the keys of the business for too little tangible value (in the form of new AOL shares). TW shareholders got greedy in approving that merger and, if they did not unload their new AOL stock quickly, lost out big time in that deal.
Financial leaders such as the CFO and the CEO need to apply engineering principles to the financial aspects of the companies they are responsible for. How is that tall buildings structurally fail far less often than the corporations that contain them? Shareholders also need to analyze financial statements and the decisions that they vote on (especially mergers) in the same way.
- James
Cost of CDs (Score:2, Funny)
Merger was good for AOL shareholders (Score:4, Insightful)
Interesting... (Score:5, Interesting)
It looks like they are trying to spin this as a positive, but if we belive this [slashdot.org] story, they are almost treated as a liabilty!!!
Ok...so exactly how are they going to spin the fallout when they see a mass exodus after they implement these bandwidth usage quotas...it's been discussed before, regardless of their usage, the average user will flee at the first hint of bandwidth usage quotas...
Re:Interesting... (Score:2, Insightful)
Re:Interesting... (Score:2)
Just wait until the DSL companies start telling the cable subscribers that they could reach that limit in 1-2 days time...
I know alot of ppl that are not geeks that will run when confronted with a technology that they don't understand. Many users are going to see the possibility of being charged for over-quota usage as too much and simply go to DSL.
And even though DSL is slower in most circumstances, many users will take a slower service with unlimited usage over that of a faster service that is monitored.
Re:Interesting... (Score:2)
X bytes, N percent of our cap last month", and then
tell people on their bills how much they used the
previous month. That would calm people's fears.
Yes, people can be easily frightened, but it won't
take a marketing genius to figure out how to calm
their fears on this issue.
Two words... (Score:2)
Lets just wait and see. (Score:2)
However, that is not to say that there is no chance of things working out. That chance is diminishing, but it is still there. Once the situation with media over internet and copyright gets sorted out, things could work out quite well for them. They could very well succeed yet.
Then again, they could also screw it up. In either situation, it should be very intesting to watch. So lets just wait and see what happens.
END COMMUNICATION
Bad for TW, good for AOL shareholders? (Score:2, Interesting)
>> "The conclusion, not surprisingly, is that the merger never should have happened" In fact, this all depends on your perspective.
If you were a Time-Warner who kept your stock instead of selling out during the merger, you are certainly annoyed: your stock, which once represented a share in a company with genuine assets and occasionally real income, was diluted with an immense credit for meaningless goodwill, all in a marketplace that grossly overvalued internet stocks like AOL.
But if you were an AOL shareholder, holding grossly overvalued stock with no reasonable prospect of generating a meaningful return (via dividends or earnings), then buying the Time-Warner assets was a huge improvement. Of course, if you bought those shares at post-1997 prices, you are annoyed, but you are still probably better off than if the merger didn't happen.
Sure, there has been a huge "failure of synergy" and none of the expected benefits of the merger have been obtained, and sloshing the numbers around shows that only an idiot would hold stock in AOL-TW now. (No offense intended -- I was one of the idiots who held AT&T and Lucent and even Enron stock as they plummetted, I just never bought any dot-com stocks, except for a two-week excursion when I was included on a "friends and family" list.)
Another article (Score:2)
Although I don't care for AOLTW, I have noticed a common theme in all the articles I've read about the subject today... they all mention explicitly, "the merger should not have happened". Seems to me like a little fishy business going on in the media, especially with such a story breaking out on a Monday morning. Just be aware that this news may be a bit orchestrated.
Re:Another article (Score:2)
This deal was pushed through so that the TW execs could make a lot of money, and so that AOL could have some real assets when the Internet bubble burst.
Over a square kilometer (Score:3, Informative)
That's substantially over a square kilometer.
It's just under a half-square mile. (10 city blocks by 5 city blocks.)
Of course, the real issue isn't the amount of office space they need, it's that incomprehensible 25% of revenue going into overhead. Not production, but overhead. That's one central office person for every three people who actually produce the product or directly support those who do.
"Synergies"? (Score:2, Insightful)
Isn't this merely another form of the corporate conglomerate? And wasn't the concept of the conglomerate pretty much disproven by all these large corporations in the sixties and seventies experiencing difficulty in operating because no-one had the background, skill and knowledge set to properly run all of these divisions?
Viewed in that light, small wonder AOL-Time Warner ran into difficulty. The skill set needed to run AOL is fundamentally different from that of Time-Warner. Hell, I'm curious as to how efficient Time and Warner were together prior to AOL coming into the mix...
There will be a dramatic split-up or disinvestment coming in the future to AOL-Time Warner - it doesn't matter how they spin it. They need to get a central vision of what the business is and should be, and remove what doesn't fit into it.
From the little-known press release (Score:2)
Bah. AOL just wastes too much money. (Score:2)
They weren't just the regular-old AOL-on-CD type either...one came in hard DVD-like plastic case, the other came in-get this-a metal tin.
All that was in the tin was the CD, nothing but that... talk about a waste of money... is there really any point to putting a CD that is going to get thrown away anyway into a metal tin?! I would say that even the tin would have use...but I really dont want to carry stuff around in a rather large flat tin that has AOL plastered all over it.
AOL-Time Warner would probably do fine if they didnt waste millions of dollars on marketing methods which may have been effective in the past, but probably aren't today. If people want AOL, they know wherre to get it...you don't need to spend millions to keep shoving it down their throats.
Re:Bah. AOL just wastes too much money. (Score:2)
Julius X typed: They weren't just the regular-old AOL-on-CD type either...one came in hard DVD-like plastic case, the other came in-get this-a metal tin.
But if you purchase a Warner DVD, it comes in a sorry-ass flimsy cardboard case that won't hold up to anything. I don't know of any other DVD distributor that does this with ALL of its titles, and they apparently do it just to save $.003 cents per sale. AOL TimeWarner is a busines school class project for MGMT 4106: Customer Alienation.
Article from Time magazine 4/22/02 (Score:2)
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April 22, 2002
The Engine Stalls At AOL
Steve Case's online giant was supposed to take Time Warner to new heights, not lows
BY FRANK GIBNEY JR. AND DANIEL EISENBERG/DULLES
Six years ago, Bob Pittman traded away his job as CEO of the world's largest real estate company to rescue a struggling Internet company that many critics had already written off. He did that and more, using his marketing wizardry to turn America Online into a new media powerhouse, big enough to eventually swallow an old media standard bearer called Time Warner. He became a self-designated prophet of 21st century success: AOL was going to rocket Time Warner into a brave new world, delivering music, movies and you name it, anywhere, anytime--and of course make a killing in the process.
But last week Pittman had to be called on once again to save AOL, which is beginning to look like the media giant's albatross. After eagerly devouring Pittman's hype just a year ago, investors and critics now feel woozy. Incoming AOL Time Warner CEO Richard Parsons, 54, clearly felt that nobody could clean up the mess better than Pittman, which is why he asked his top deputy to go back to Dulles, Va., on a new rescue mission. "AOL is our biggest problem, and so we're putting our best fighting general on it," says Parsons, who was designated CEO when Gerald Levin abruptly announced his resignation last December.
Pittman takes over from Barry Schuler, the former tech entrepreneur who has run AOL since the merger in January 2001 and will now head a new interactive services division. Although Pittman, 48, is known as an agile manager with an uncanny ability to build big consumer brands, this is the Mississippi native's biggest test. He must restore AOL's luster and regain the trust of colleagues, business partners and, most important of all, Wall Street.
The fact is, two years after the merger was announced, AOL Time Warner's top brass is being forced to prove the decision was not a mistake. Despite its powerful brand and unrivaled global member base of 34 million, the AOL division has seen its once stratospheric subscriber growth slow, its ad revenue fall and its international operations bleed money. The much ballyhooed broadband move--in which networked homes will enjoy high-speed connections to movies and music whenever they want--is off to a rocky start. Any delay is crucial to consumers eagerly anticipating the broadband revolution, because if AOL, with all its affiliated cable systems and entertainment properties, can't deliver those services, who can? Microsoft? Comcast? Rupert Murdoch?
The AOL service's woes have infected all of AOL Time Warner, whose stock is the third most widely held in the U.S. By the end of last week, those shares had dropped to $20.10--wiping out nearly two-thirds of the market value of the combined companies since their merger was announced in January 2000. Several Wall Street analysts estimate the company's cable, entertainment and publishing divisions (which include CNN, Warner Bros., Warner Music and Time Inc., the parent company of this magazine) are worth about $19 a share. That leaves AOL near zero. When it reports its first-quarter financial results next week, AOL Time Warner will take a write-down of $54 billion--the biggest such charge in U.S. history--to reflect the decline in value of the combined company. This meltdown has revived questions raised by some Time Warner division heads in the months following the merger: Why was a solid company sold for overinflated AOL stock?
In part, the AOL division is a victim of the lofty expectations generated by its successes in recent years--and the hyperbole of some of its executives. After the online service's ad and e-commerce revenue doubled in 1999 and nearly doubled again in 2000, executives--led by Pittman--declared that AOL could power AOL Time Warner to a 33% annual growth in cash flow, even during a 2001 that was clearly shaping up as a recession year.
But while managers in New York City were trumpeting these goals, the folks at the AOL division's headquarters in Dulles were overwhelmed by them. Even before the merger was finalized, many of AOL's top managers and technologists were retiring--either formally or in practice--on the immense wealth they amassed before the dotcom bubble burst. Pittman, meanwhile, moved to New York to help run the parent company. And founder Steve Case, now chairman of AOL Time Warner, stepped back from day-to-day responsibilities, in part to spend more time in California with his brother Dan, who is battling brain cancer.
That left Schuler--who had never managed anything larger than the 100-person software start-up that he sold to AOL in 1995--in charge of a fast-swelling staff of 15,000 and $9 billion in annual revenue. Instead of setting strategic priorities, Schuler and his lieutenants bounced between brainstorming sessions for soon-to-debut products like universal messaging and agonizing meetings over how to fulfill short-term earnings goals. One executive bemoans that at the old AOL: "Our great strength was keeping it simple, the goals clear and everyone pulled together. We really ended up losing our focus."
In the first move to restore some discipline, AOL Time Warner last fall sent chief financial officer Michael Kelly from the New York headquarters to become the AOL division's chief operating officer. Kelly found what a senior executive refers to as a "big sandbox," in which in the name of synergy, it seemed as if anyone with an idea was suddenly proposing grandiose new projects with Time Warner divisions. "People are doing crazy stuff and wasting money," says the executive. "Someone has to set some priorities." Case, 43, says ruefully that rather than speeding AOL's move into the broadband age, "the merger actually slowed us down."
Case is confident that AOL will haul itself out of the ditch; he points to a history of unfulfilled predictions of its demise. During the winter of 1996, just before Pittman arrived, the company was dubbed America on Hold because its servers couldn't handle the dial-up volume. But AOL invested heavily in fail-safe server technology and launched a massive marketing effort. "I've seen this movie a lot," says Case, who recently bought an additional 1 million shares of stock at $24 a share, after selling twice that amount early last year at a significantly higher price. "I kind of like being the underdog again. That's when we've always done our best work."
The situation is serious enough, however, that Case says he will rely more heavily on his founding fraternity to set the company right. AOL's cash cow is its 26 million U.S. subscribers, most of whom pay $23.90 a month for AOL's dial-up service. Almost half of that subscription revenue represents pure profit. But the U.S. dial-up market is already close to 60% saturation and isn't expected to hit 70% before 2005. AOL subscriber growth this year is estimated to drop to about 10%, just a third of its torrid pace in 1999.
The AOL division's long-term-growth gambit is to attract as many of its dial-up customers as possible into the promised land of broadband, where they would pay more--eventually as much as $200 a month, in Pittman's rosy scenario--for a variety of on-demand services, from wireless instant messaging to the ability to listen to Norah Jones or watch A Beautiful Mind anytime they like.
But delivering those services--and doing so at a profit--is proving a vastly more complex business proposition than anyone imagined. As the ongoing battle over music and video downloads suggests (think Napster), success in a broadband world requires solving complex questions about copyrights and digital encryption. Few executives, even at AOL Time Warner's movie and music divisions, are ready to open their treasure troves to the threat of piracy in an online, on-demand world. The broadband business also requires AOL to pay a cable or DSL provider for access to the pipes that reach customers' homes--at least in the 80% of the U.S. where Time Warner Cable doesn't control the cable systems--and to figure out a way to share additional revenues with a disparate array of partners. Such deals have become especially imperative since December, when AOL Time Warner lost out to Comcast in the bidding for AT&T's 14 million cable customers.
All this adds up to a grim reality: until AOL can offer easy access to premium content such as movies and music on demand, not enough customers will pay even the $55 a month it charges today for its broadband service. Those who do--the early adopters--are actually cutting into AOL profits. Every time one of its dial-up customers shifts to broadband, the AOL service goes from a nearly 40% profit margin to one potentially as low as 10%--mainly because it has to share broadband revenue with cable partners.
Can Pittman put AOL back on track? His appointment was lauded among employees who view him as an impassioned leader with a down-home style that reflects his Southern roots and a long stint in the music business. (After an early spell in radio, Pittman went on to found MTV and VH1 and did a stint at Time Warner before joining real estate firm Century 21.) He flies his own jet and has houses in New York, Colorado and Jamaica. But unlike many other AOL millionaires who spend more time with their toys than at the office, Pittman is committed to the company (although his wife Veronique and their two young children were not thrilled that he will be working two jobs, one of them in Virginia).
Both Parsons and Pittman have insisted that AOL's troubles are not as dramatic as the headlines suggest. Growth may have slowed, but it hasn't vanished. Pittman has told AOL division staff members to refocus on the service's core mission, "figuring out what's important to people and how to make it more convenient for them to do that online."
But his immediate priority is to attract more advertising. If it weren't for the $130 million that AOL's sister divisions plowed into promoting their brands on the service during the fourth quarter, ad revenue would have plunged 26% instead of just 7%. In fact, AOL Time Warner is one of its own biggest advertisers. Many of the New Economy companies that used to advertise on the AOL service are either bankrupt or close to it. And although consumers are spending more and more time and money on the Internet, Fortune 500 companies and their agencies remain doubtful of the impact of online ads.
AOL executives say that by using its online network to build buzz for such hugely successful Warner Bros. films as Harry Potter and Lord of the Rings, the AOL service has proved its worth. Likewise, AOL's revamped music channel--one of its hottest content areas, drawing 9 million visitors a month--is fast becoming a key promotional vehicle in the record business..
But to draw more advertising, the AOL division is going to have to change its notorious our-way-or-the-highway culture. The AOL service's business partners, suppliers and advertisers trade stories of sitting around tables listening to AOL executives yammer on about who is wealthier or has a nicer private jet. To his credit, Schuler had started an effort to inject a little humility. One might expect that a battered stock price had already done that. "They're still copping attitude and alienating people," says an ad executive. Managers at a telecom giant found AOL so uncompromising on a recent contract that they are shopping their business elsewhere.
For all its troubles, the AOL service, which accounts for nearly a quarter of the media giant's cash flow, is a global leader whose 34 million subscribers dwarf the 8 million of its nearest competition, Microsoft's MSN. None of AOL's competitors offers a service that so successfully combines simple e-mail, instant messaging and chat. And no one matches AOL's unique system of parental controls, which makes it the family service of choice. But to keep its user base growing, AOL has been giving away more subscriptions--one reason its revenue per user has stayed flat, despite last year's $2 price increase. Kelly maintains that the trial offers are worthwhile because nearly three-quarters stay on as full-paying members.
Though AOL says its members have never been happier with the service, independent surveys show that dissatisfaction is on the rise. In one by the Yankee Group, a Boston, Mass., research firm, AOL fared worse than the industry as a whole at "providing value for the money." Last fall, in a Consumer Reports look at Internet service providers, AOL came in last in connection reliability, far behind leaders EarthLink and AT&T WorldNet. To many, AOL seems more and more like a carnival barker, flashing pop-up ads in their faces. Pittman last week indicated to colleagues that he considers the pop-up ads out of control and will move quickly to fix the problem.
AOL believes it can still count on users' loyalty. Plans are in the works to further segment AOL, so that "professional" subscribers would get more features for their money, while the budget-conscious would pay less. And AOL will soon introduce a variety of multi-user family packages. But so far, at least, subscriber "stickiness" may have less to do with satisfaction than with complacency. As Standard & Poor's analyst Scott Kessler puts it, "Nobody wants to change their e-mail address." The competition is working hard to get those AOL subscribers. Microsoft, which banished AOL from its Windows XP desktop last summer, is investing heavily in new features for its MSN service and generally getting good reviews.
To help turn things around, the AOL service has forged a few promising partnerships with hardware and software powerhouses, including Sony and Apple. Online retailer Amazon has contracted to provide AOL with its powerful shopping search technology, beginning this fall. But AOL hasn't yet made the most crucial kind of deal--with another cable provider. After investing billions to upgrade infrastructure, rival cable providers aren't ready to hand over their lucrative customer relationships. AOL will soon enjoy access to all of Time Warner Cable's 13 million homes, but that's less than 20% of the total market. Its high-speed service, now offered as an option on the Baby Bells DSL service and 20 of Time Warner Cable's markets, has garnered only around 500,000 paying customers, about 5% of the 10 million U.S. residential broadband users. Part of the problem is that AOL charges around $55 a month, compared with $30 to $50 for rival cable and telephone companies. Even on Time Warner's cable systems, the cheaper high-speed isp that the cable guys built before the merger, called Road Runner, has nearly 2 million customers and is reportedly still outselling AOL.
The AOL division's quest for rapid growth overseas, meanwhile, has been slow and costly. AOL Europe lost $600 million last year, even as AOL was forced by contractual obligation to buy out the 50% stake in that business owned by German media giant Bertelsmann. The price--$7 billion--had been set at the height of the Internet bubble and represents about twice what the Bertelsmann stake is worth today.
That sort of liability is just part of a debt burden that, combined with the current ad recession, hampers AOL Time Warner's ability to pay for new cable assets or another TV network. In fact, analysts are concerned that its balance sheet may put the company at a disadvantage when competitors like Microsoft are hoarding cash to fight tomorrow's new media battles.
Throughout AOL Time Warner, morale is slipping along with the stock price. People gossip about Pittman's stock sales--he sold 1.5 million shares last year for $70 million and now holds only about 13,000--and wonder how he will handle two full-time jobs. Company sources say there may be more executive moves as early as May, when Parsons formally succeeds Levin; while some speculate that if Pittman is successful he could be back at corporate full-time in a matter of months, others say that if he can't show progress at AOL by year-end, he may leave the company altogether.
For his part, Steve Case is confident in his former deputy and their joint vision. "The AOL business is still the crown jewel in the AOL Time Warner portfolio," Case says. "It will surprise the world yet again by raising the bar and inspiring imagination."
$54 bil in losses is NON CASH and goodwill only! (Score:2)
Basically the FASB 'used' to allow for amortization (e.g. 'writing-off') good-will over a period of many, many years (40 I think). Remember that goodwill basically is an asset on a purchaser's balance sheet and has the value of the excess paid over the net worth of the purchased company. That is to say if AOL paid $100B for Time Warner and all of Time Warner's assets etc. added up only accounted for $46B then the 'excess' paid would be goodwill (stuff like trademarks, that stupid Road Runner 'beep beep', other intangibles, etc.).
Naturally almost every buyout includes that sort of thing. Before the accounting change, however, this excess paid (goodwill) would be written off as an expense over a period of 40 years. However, the new accounting change by the FASB says "No more!", so now AOL/Time-Warner must write off the ENTIRE amount. Again, this is a NON-CASH write-off and says NOTHING to the value of Time Warner, AOL, etc. -- if we were going on past FASB declaration this $54 billion would have been written off over a number of years anyway -- and no one would've cared.
But, since it is the largest 'loss' by a company in US history everyone is jumping on it as some sort of a monumental failure. Granted AOL probably overpaid, but traditionally this overpay was smoothed out over the amortization period. Now they had to take it all at once, but to say that somehow the merger should have 'never taken place' or that AOL is now '1/3rd the company it was' is pretty wrong.
Their financial statement breaks my parser (Score:4, Insightful)
The press release touts "Normalized EBIDTA" instead of net income, always a bad sign.
I have no idea what's really going on with this company. I doubt that anybody else on the outside does, either. There's too much "creative financing" involved.
A Grain of Salt (Score:2)
You're a lot more right than you think (Score:3, Interesting)
Re:Why I think this is cool. (Score:2, Informative)
AT&T, Microsoft, the Rockefellers, and on and on.
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