AOL to go AWOL in Time

The story from today's Australian media section about the break up of AOL-Time Warner brought back a flood of memories of early this century when a little start-up Internet company took over a media giant.

And that's where the story started to get interesting.

Not long after, the Internet's fortunes started to get a little wobbly as speculators realised that the "www" was a capital and resource hungry beast that would require plenty of feeding and nurturing if it was to realise its potential.

Only a few had the business savvy and the stamina for it.

So what was the true story.

Here are a couple of differing, but interesting perspectives - they're a couple of years old but still very timely:

The Best Deal Ever: AOL Time Warner from Broadcasting and Cable:

When the deal was cut in 2001, AOL was headed for disaster. The dotcom crash was coming and Case's team had been cooking the books, playing all sorts of games with advertisers to substantially overstate the company's growth. When that unraveled AOL would have absolutely met financial disaster, probably Chapter 11.

Wall Street, regulators and - most importantly - Time Warner's Gerry Levin and Dick Parsons hadn't figured this out. They all thought AOL would continue to soar. So Case was able to use his overinflated new media currency to buy control of Time Warner's solid, healthy old media assets.

But did Time Warner really end up with a dog?

Tim Mullaney from Business Week disagrees:

The lesson: By the time this deal was done, the real bubble was a cable bubble, much more than an Internet bubble. The price of cable assets fell apart and stayed down. The price of Net assets had mostly fallen apart before AOL-Time Warner closed, got worse for a while, and then rebuilt.

But the real ways Time Warner wrecked AOL are more subtle.

Today, Time Warner attempts to disentangle itself from a series of what proved in hindsight to be ill-advised investments.

From The Australian:

TIME Warner gave the clearest sign yet that it plans to move beyond its disastrous 2001 merger with AOL, saying it expects to press ahead with a spin-off of all or part of the ailing Internet unit.

Time Warner chief executive Jeff Bewkes Picture: Bloomberg
Jeff Bewkes, who took the CEO reins 15 months ago, has been pushing through a vision of the media company as a slimmed down parcel of mostly television and film businesses. The company has already spun off its cable-TV service business.

Executives cautioned that an AOL spin-off isn't cemented, but a decision on AOL is expected "very soon".

What will be interesting to see is how the popularity of watching video on line will affect film and television revenue models and how old media will merge with new media.