Time Warner Splitting Up AOL Amid Losses

By Zachary A. Goldfarb

Time Warner said today it is splitting its AOL division into an online advertising unit and a dial-up access unit, a move many analysts expect could lead to the sale of the access business.

It was the first announcement of plans for AOL by new Time Warner chief executive Jeff Bewkes. He is under shareholder pressure to increase the company's stock price and resolve AOL's future. The advertising unit, called Platform A, has been growing steadily, but not enough to offset losses in the access unit, which is hemorraging subscribers.

"We're working to separate AOL's access business from its higher growth audience, communications, community and ad platform businesses," Bewkes said in a conference call. "We think it will take several more months because it's fairly complicated. ... It's one of our top priorities."

He did not comment specifically on whether AOL would seek to sell off the dial-up business.

"As for strategic options, it's simply always a good idea to align your businesses in terms ... [of] where your efforts are with where the growth possibilities are and that's really what we're doing. In doing that, it provides the most advantaged position for any of our operations should they need to make some kind of arrangement with other companies," Bewkes said

Fourth-quarter sales at AOL dropped 32 percent as it lost 740,000 customers for its service that provides traditional dial-up Web service. Operating profit at AOL declined 70 percent. Fourth-quarter ad sales grew 10 percent

Bewkes addressed the news of Microsoft's $44.6 billion bid for Yahoo. Some analysts have said the potential deal denies AOL's two of its more likely suitors, though the actual impact is muddied by the fact that Time Warner has been spending heavily to beef up the advertising unit, and it's not clear Microsoft, Yahoo or anybody else would be interested in the dial-up business.

"One thing we should point out, it does underscore the value of Internet properties with large audience," Bewkes said. "It does have a beneficial lift, really, to the value of our eyeballs ... because they're going to be more vibrant competitors for search and as we said, I think it just verifies the importance of moving to the kind of display and third-party monetization platform that we've built."

Bewkes said he does not envision a change in strategy's for AOL advertising unit, which is meshing sales of ads on AOL-branded Web sites with third-party sales on Web sites such as Facebook.

John Martin, Time Warner's chief financial officer, warned that advertising may not grow as robustly in the coming months because of the loss of a large advertising client.

Bewkes also said Time Warner is reevaluating its ownership in Time Warner Cable, a separate public company in which it owns most shares, and looking at other ways to save costs.

By Dan Beyers  |  February 6, 2008; 2:00 PM ET  | Category:  AOL
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Comments

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It's way too late to bemoan the AOL aquisition (or vice versa).
AOL shoul be dumped and its ad segment realigned totally.
Getting out of cable TV is a decision that must be thought out v-e-r-y carefully.
Pouring more effort, staff and $$$ into the magazines -- TW's potentially (and formerly) strong suit -- would pay off, when combined with an Internet presence. Rejuvenate the mags, make them unique.
What the hell, I retired 10 years ago.

Posted by: wobudong | February 6, 2008 5:32 PM

AOL is STILL in business?
Wow, I'm getting nostalgic for my old 386-

Posted by: HK | February 6, 2008 5:43 PM

It must be very lonely in the Herndon campus.

Posted by: VB | February 6, 2008 6:51 PM

Time Warner should just give AOL back to Steve Case - they have made a disaster of the business.


Let's be serious guys. Time Warner seems to know more about destroying a business than creating one.


Posted by: Anonymous | February 6, 2008 8:21 PM

AOL was the leader in getting most of America (perhaps even the world) into using the internet; it was an easy to use program that was most things for most people, and their e-mail was (essentially) the standard for e-mail. AOL either misread the market, didn't understand the market, or failed to react to the changing market. AOL took over Netscape, once the dominant web browser, and apparently failed to upgrade Netscape in the face of a growing MicroSoft Internet Explorer; in the mid 1990s usageshare of Netscape browsers was 90% of the market, and dropped, while owned/marketed by AOL to less than 1% by 2006. That was simply a failure by AOL. AOL's marketing of AOL was a financial and corporate disaster for Time Warner.

While I haven't used AOL in a long time... a very long time, it's a shame to see it sink to the level it's reached. While AOL may continue to operate as a portal and dial-up internet provider, it's more likely it will go the way of the Oldsmobile; or, in the computer world, the way of WordStar, Lotus 1-2-3 and VisiCalc, Word Perfect, and... Netscape.

Posted by: Dungarees | February 6, 2008 9:02 PM

Hey VB,

I'm pretty sure the campus is in Dulles.

Posted by: jdogg | February 6, 2008 10:21 PM

AOL needs to dump its dial-up internet service.

Posted by: John | February 7, 2008 3:44 AM

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