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AOL uncoupling a chance for fresh start

29 мая 2009

Sumner Redstone, one of the last of a near-extinct breed of media mogul, declared the death of the entertainment conglomerates in 2006 after breaking off his CBS broadcast television network and radio stations from Viacom’s cable networks and film studios.

Time Warner’s decision this week to hive off AOL – fixing a nine-year mistake – is another nail in the coffin.

Yet for Time Warner, with assets that span cable networks to magazines amassed over decades of buying sprees that never quite fitted together, the year-end split from AOL positions the company to buy and build more content assets in the next few years.

Bankers are already drawing up plans to pitch to Time Warner, according to one banker who has conducted business with the company.

A $9bn dividend payment from the prior spin-off of its cable services unit will help fund purchases in emerging markets such as central and eastern Europe, Asia and new growth areas like video games, Jeffrey Bewkes, Time Warner chief executive, said.

“They’re going to seek acquisitions that are fairly modest in size,” said Hal Vogel, a veteran media analyst, adding that investors would revolt if Time Warner attempted another big deal.

But it is Mr Redstone’s Viacom, the leader in cable entertainment for children and young adults, that has emerged as particularly attractive to Time Warner. Viacom’s cable assets (MTV, Nickelodeon, Comedy Central) match up nicely with Time Warner’s top ranked general interest channels.

However, dreams of putting together a cable networks goliath will have to wait. For Mr Redstone, who has vowed to never sell Viacom, that property is a case of ’til death do us part.

For AOL, the road ahead is the bigger challenge. The company’s last restructuring to focus on advertising was premised on an unsustainable growth in online advertising of 35 per cent upwards over five years, Mr Vogel said.

The immediate task for Tim Armstrong, chief executive of AOL and a former Google advertising chief, is to dig its way out of a paradox. “How do you cut and grow at the same time?” asked one person familiar with AOL’s plans.

AOL has slashed more than $2bn in costs in the last three years but now its portal eyes a 20 per cent drop in advertising revenue this year and another 16.7 per cent next year, when industry wide growth is expected to rise 9.4 per cent, according to eMarketer estimates.

If success on the internet demands larger scale, which inspired Mr Bewkes to attempt mergers of AOL with Yahoo or Microsoft, then an independent AOL will emerge as a weaker competitor in the internet big leagues and one without any search advertising asset.

Keeping the dial-up access business, which Mr Armstrong has vowed to do, could also ward off potential acquirers such as Microsoft, Google or Yahoo, one person familiar with AOL’s plans said.

Mr Armstrong is busy realigning assets that range from its popular content properties and instant messenger service to weaker new products such as its social network service Bebo.

Midway through a 100-day strategic review, Mr Armstrong is considering parking relatively new divisions, such as Bebo and the Truveo video search engine, under one umbrella called Ventures. The division would solicit its own financing outside the company and have the room to develop like a start-up, nurturing new ideas and seeking new acquisitions, one AOL source said.

“We’re keeping all options open,” Mr Armstrong told reporters.


Источник: Financial Times

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