Time Warner to Spin Off AOL
A little over ten years ago, at the height of the dot-com frenzy, Internet access supplier AOL did the seemingly unthinkable: it bought Time Warner. The young, feisty, new media company purchasing the century-old old media company became emblematic of the brave new future. Old media companies would become less relevant, needing to make deals with their visionary, new media counterparts to survive; in turn, the new media companies would gain business savvy, valuable content and experience. Both companies would benefit from synergy after the union, producing a powerhouse that would dominate the market.
What a difference a decade makes. The dot-com bust followed the boom; then came 9/11, a long period of high unemployment focused on the tech sector, an increasingly unpopular war, and deepening economic gloom. The marriage between Time Warner and AOL never delivered the powerhouse it promised; in fact, a few years into the union, Time Warner removed AOL from its new corporate name. Now the drama is playing out to its inevitable last act: Time Warner revealed that it will be spinning AOL off as a separate company, after buying out Google's five percent stake.
What happened? AOL wasn't the company it appeared to be on paper. Its strength came from its dial-up subscribers and its walled-garden approach, but even then, dial-up was becoming the wave of the past thanks to broadband, and walled gardens were giving way to the World Wide Web's more freewheeling, Wild West appeal. It was not a merger of equals, despite being pitched as such; but the conservative executives at Time Warner were not used to operating on Internet time, so could perhaps be forgiven for not seeing how quickly things could go south for their new partner.
AOL will be leaving Time Warner with a new CEO at its helm: Tim Armstrong, previously the head of Google's advertising sales operations. It seems appropriate. John C. Abell, writing for Wired's Epicenter about the spin-off, blamed the merger's decline on the fact that Google came along and ate everyone's advertising-business lunch on the open web. Apparently the hope is that he'll bring some of that advertising magic and revenue to AOL.
Will AOL and Time Warner recover as separate entities from their ill-fated union? Time alone will tell, but each company seems prepared to shift their focus back to what each of them does best. For Time Warner, that's producing movies, magazines, and other content. For AOL...well, that may remain to be seen. They have the fourth most visited site on the web, after Google, Yahoo, and Microsoft. That may or may not be enough to fuel their advertising business.
In any case, AOL must be prepared to make some serious changes if it hopes to survive in this new era. It can't depend on Time Warner for help, and it can't fall back on its old business model. That model doesn't work anymore, and hasn't worked for years. Before it can move forward, it will need to embrace the new in new media and relearn what it means to be an innovator.
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