Much speculation circulated the tech industry recently after the reports surface of discussions between Time Warner and Microsoft over the future of AOL. Anxiety continues to build in Time Warner stockholder as CEO Richard Parsons tries to steer the multimedia corporation back to higher stock prices.
When Time Warner and AOL merged, many thought it would be the salvation for Time Warner and drive up the relatively stagnant stock price. It didn’t and last year they dropped AOL from their official title.
Right now, Parsons is under intense pressure to get the stock to perform and corporate raider Carl Icahn moved in to begin trying to apply a full-nelson to the CEO. Icahn, know for his strongarm tactics in corporate board rooms, will try and squeeze Parsons into buying back $20 billion worth of shares and dump its cable-television unit. There has also been discussion of spinning off AOL as well.
Parsons spoke Wednesday at Goldman Sachs Group Inc.’s Communicopia conference and made his first public comments about the beleaguered internet entity. He said AOL is Time Warner’s top focus for the moment and the they plan to “hang on” to AOL and its “potential.”
Bloomberg’s quoted his speech from the conference, “We need to accelerate the path we’ve been on with greater urgency,” Parsons said at the conference. AOL needs to increase ad sales to counter a drop in subscription revenue.”
Difficulty is sure to ensue however as AOL continues the shift from profits by subscription to ad based revenues. To this end, they’ve been focusing on the teenager demo with much of their product including their instant messenger and some of the programming including a downloadable reality show for the next. They’ve also aimed for other markets though as they signed the Tulane/Miss. St. football game as well. This combined with the fact that AOL users hang around over six hours a day would make an attractive package for advertisers.
That’s also why Time Warner has been in talks with Microsoft and to a lesser extent, Yahoo and Google. Since they want to generate revenues from advertising and they already provide search functions for AOL, Google might be a logical choice but Google is somewhat limited in their advertising base insofar as alternative mediums are concerned. Almost all their work has been in the online venue and even then, primarily contextual ads. They’ve not done they type of massmarketing/advertising AOL would need. They are working on it, but Microsoft would seem the better choice at this point.
Microsoft is better at this stage for a couple of reasons. One, they’ve got the multimedia thing down a little better. They’ve been partnering on a TV station for years now in the form of MSNBC and that provides a primary feed for a lot of news content for MSN. MSN also already has the mass advertising thing going well. They are still way behind in the contextual market but they are starting it. Also, while Google is certainly an up and coming company, they will probably experience some growing pains in the coming years as the make their own internal adjustments. Microsoft is already a mature company with rock solid revenues that are diversified, something Google lacks.
At this stage, everything is up in the air. Mr. Parsons has a lot of work today and some tough decisions to make regarding the direction of AOL and whoever they may end up pairing with. Profits are the driving force behind what he needs to do however and in the end, that will drive his final decision.
John Stith is a staff writer for Murdok covering technology and business.
