Time Warner Mulls Sale of AOL's Internet Access (NewsFactor)
Frederick Lane, newsfactor.com 18 minutes ago
Faced with slumping profits, communications giant Time Warner is floating the possibility of dividing up and selling its America Online division. First on the auction block is likely to be AOL's online access service, which has faced steadily rising pressure from a variety of high-speed options.
The possible sale was announced by new Time Warner CEO Jeff Bewkes during a telephone conference with analysts about the company's fourth-quarter report. Earnings were down more than 40 percent, in part because Time Warner earned sizable profits in 2006 from the sale of AOL's online access business in Europe.
Bewkes declined to predict how quickly any such sale might take place, telling investors they will have to be patient. But even the hint of a sale encouraged investors, who drove Time Warner's stock price up 2.5 percent Wednesday.
Hanging Up on Dial-Up
The big question, of course, is whether anyone will want to buy what Time Warner might sell. Dan Kamyck of Forrester Research provided statistics showing traditional dial-up access to the Internet has fallen behind high-speed options.
"Cable and DSL providers have edged out traditionally dial-up-focused ISPs," Kamyck said. "Eleven percent of North American households use AOL as their primary home Internet service, trailing behind Comcast (12 percent) and AT&T/SBC/Yahoo (12 percent)."
Those figures match the dramatic changes that AOL has seen in the past year. The company saw its subscriber base drop 29 percent, and revenues plummeted by nearly a third. The grim reports are further bad news for Time Warner, whose 2000 merger with AOL is rapidly turning into a business-school cautionary tale.
With Microsoft willing to pay $44.6 billion for Yahoo, the most marketable piece of AOL may be its online portal. According to Kamyck, the company still has a sizable number of loyal users.
"Google has the highest proportion of exclusive users, with 43 percent of its total users using it exclusively," Kamyck said. "AOL comes in second, with 33 percent of its total users using it exclusively. Following is Yahoo with 27 percent and MSN with 25 percent."
Those loyal users have provided AOL with one of its few bright spots: The portal side of AOL's business reported a six percent increase in ad revenues and a seven percent rise in content revenues.
The Google Angle
It's increasingly difficult to find an Internet-related story these days that doesn't have a Google angle, and the possible sale of AOL's Internet access service is no exception. Two-and-a-half years ago, Google purchased five percent of AOL for $1 billion, which implied that the online service had a total value of $20 billion. Given the steady rise of high-speed Internet access and the corresponding drop in AOL's subscriber base, it's hard to imagine Google would put the same value on the service today.