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AOL versus Time Warner, what is left?

|Includes: AOL Inc. (AOL), TWX

I began to study "mergers and acquisitions of convergence" in the information and communications industries, 6 months before it became a hot topic in the media, with the merger of AOL with Time Warner (deal announced January 10, 2000). After this transaction the term "mergers and acquisitions of convergence" became widely popular and several M&A followed in few years, making combinations of content with pipes: i.e. Vivendi and Universal, Quebecor and Videotron, BCE and CTV and Globe & Mail, etc.

According to Wikipedia: Time Warner (formerly AOL Time Warner) is the world's second largest entertainment conglomerate in terms of revenue (behind Disney and ahead of News Corporationand Viacom), as well as the world's largest media conglomerate. Formerly two separate companies, Warner Communications, Inc. and Time Inc., (along with the assets of a third company, Turner Broadcasting System, Inc.) form the current Time Warner, with major operations in filmtelevision and publishing. Among its subsidiaries are New Line CinemaTime Inc.HBOTurner Broadcasting SystemThe CW Television NetworkTheWB.comWarner Bros.Kids' WBCartoon NetworkBoomerangAdult SwimCNNDC Comics and Castle Rock Entertainment.

What was the value creation of AOL and Time Warner? In December 2009, Time Warner made a spin-off of AOL and they became two distinct firms.  You can see in the second chart that AOL-TimeWarner destroyed a lot of value for its shareholders, and after the spin-off, Time Warner started a recovery. The share of AOL is almost at the same level of the day of the spin-off, one year ago.  

The recent quarterly results of Time Warner showed that the firm raised its 2010 profits growth target from 20% to high 20s.  It appears that they had solid advertising and subscription growth.  New technologies appliances such as smartphones and iPad has helped to increase the demand of its content.  The new Harry Potter movie started November 19.  In publishing, the firm faced lower subscription levels but made big cost reductions.

The recent quarterly results of AOL showed that the company is deeply restructuring and in massive divesting of unsuccessful assets such as: ICQ messaging, travel website Kayak and social network Bebo. They newly redesigned web sites such as the portal, MapQuest and AOL Travel.   While, their advertising revenues has dramatically dropped from 27%, eMarketer estimates that overall advertising spending grew around 12% compared to Q3-2009.  The firm hopes that its new advertising system will create important shareholders' value.    One growth avenue resides also on selected M&A.  They bought recently the tech blog TechCrunch for $25M and 5min Media, which is a syndication platform for lifestyle, knowledge and instructional videos for $65M.

Sources: Yahoo news, Bloomberg, Wikipedia.

For more information on M&A of convergence see

Louis Rhéaume
Infocom Intelligence 

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.