Paul tipped me off to coverage of in BusinessWeek that has my blood boiling.
Nobody bought into that hoo-ha more wholeheartedly than AOL Time Warner, and no company has fallen as hard. Its stock, now trading at just $12 a share, has lost more than $100 billion in market value since the merger closed in January, 2001. Newly elevated CEO Richard D. Parsons pledges that he hasn't given up the vision that spawned the merger--and he has no plans to sell or spin off AOL.
Let us review: AOL bought Time Warner, not the other way around. AOL provides cash flow to help pay the enormous debts. If they succumb to pressure from analysts and spin off AOL, what would happen to AOL's share of the debts? Would they dump all the debt on AOL, effectively killing the company just to make Time Warner look better? Again, who bought whom, and who has the more valuable assets?
While it's featuring such things as online movie trailers and exclusive premieres of songs from Britney Spears, it hasn't tapped the treasure trove of Time Warner content. AOL won't launch a music-subscription service until late summer because its December trial version was a flop.
AOL is, no doubt, having problems getting everyone on the same page. Time Warner has a lot of valuable media, but until the executives get over the idea of zero piracy (all retail companies accept that some shrinkage is unavoidable), they will not come up with an application that consumers find compelling.
You are seeing all the growth in CD sales in the used market, adding to the bottom line of eBay (owns half.com) and Amazon. It does not seem to occur to AOLTW that customers are fleeing the new CD market because the prices are too high. In point of fact, the "flopped" service from December was restricted and cumbersome.
So, what do they need to do? This will never happen, but they need to offer content very cheap, at least initially, if they want to kill Peer-to-Peer the way they should, in the market place. It's called a loss-leader, and it's a well-known ploy.
It wouldn't be hard to provide a higher quality product than pirates do, and after it takes off, they can raise the price a bit so that they have a sustainable model. I think that once people get high-quality material with instant gratification and complete fair-use rights, you'll see piracy decline. They can have some of the market or they can have none of it, and it appears that, at least for now, they've chosen to get none.
Another article in BusinessWeek points out a really alarming fact:
AOL still has $80 billion in goodwill on the books, including $35 billion assigned to America Online from acquisitions made before the Time Warner merger.
And they are likely to write that down. I suspect that the stock will be worth less than $10 a share if they do this. I also find myself wondering if the SEC isn't going to come knocking wanting to vet revenue figures.
Where it will all end, I don't know, but I do know that the old-fashioned media people at Time Warner are holding back innovation at AOL, a company that before the merger was known for being first to market. I simply do not understand why analysts don't see this fact -- it's as plain as the nose on their face.
Posted by nicole at July 11, 2002 12:42 PM