By Frank Ahrens
Originally published at 8:58 a.m., May 28, 2009
Updated at 12:35 p.m., May 28, 2009
Media giant Time Warner announced this morning that it is unloading its struggling AOL advertising-and-dial-up unit, which will face life as a stand-alone, publicly traded company.
The move, which Time Warner had said it intended to make more than a year ago, officially ends the nine-year saga of Dulles-based AOL and the New York-based media titan. The union began when AOL co-founder Steve Case engineered what was hailed at the time as the first of what would be several mega-marriages between old and new media.
Time Warner owns 95 percent of AOL, with Google holding the remaining share. Time Warner plans to purchase Google's share of AOL in the third quarter of this year, then spin off the company. It will be run by current chief executive Tim Armstrong, who came from Google in March.
The move was signaled as early as February of last year by Time Warner chief executive Jeffrey Bewkes.
"We believe that a separation will be the best outcome for both Time Warner and AOL," Bewkes said in a statement. "The separation will be another critical step in the reshaping of Time Warner that we started at the beginning of last year, enabling us to focus to an even greater degree on our core content businesses. We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company."
Time Warner explored a number of options for AOL, including splitting it up and selling it off for parts. Other dial-up Internet businesses sniffed around AOL's dial-up division, for instance. But in the end, and after hiring Armstrong to run AOL in March of this year, Time Warner felt a spin-off was the best option. It will be up to Armstrong if he wants to keep the dial-up business in AOL's portfolio.
At the time of the 2001 merger, AOL's stock was peaking at nearly than $100 per share, pushed skyward by the euphoria of the dot-com bubble. On paper, the merger seemed like a no-brainer: With 22 million subscribers, AOL would be the pipeline to distribute Time Warner's world-class content, from its Warner Bros. movies to its Time Inc. publications to its WB television shows.
But things never worked out that way. In the pre-broadband Internet era, movies and TV shows were nearly impossible to watch via dial-up. Time Inc. was not Web-savvy; it had already tried and failed to create its own portal for its magazines. And the culture clash between the brash, deal-oriented AOLers and the established Time Warnerites was poisonous. One small example: Time Warner chafed at taking on the "@aol.com" suffix on their work e-mail address.
A procession of layoffs and executives streamed through Dulles as they tried to turn around AOL. They included longtime radio salesman Jimmy De Castro to Barry Diller acolyte Jonathan Miller to former long-time NBC sales chief Randy Falco.
Miller's plan was radical: Turn AOL from a dial-up subscription company to an advertising-supported business. He allowed dial-up subscribers to shed by the millions and built out AOL's Platform A advertising business. It worked, to a point. But not enough for Bewkes and the other Time Warner overlords. After four years, Miller was ousted in 2006 for Falco, who had been passed over for the top NBC job for Jeff Zucker.
Falco shed more AOL staffers -- 700 more, or 10 percent, this year -- and moved AOL's headquarters business to New York. He drew on his advertising experience to work to complete AOL's transition to an advertising company.
In March, Falco was ousted for Armstrong, who carried the tech bona fides that Falco never had.
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