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AOL-Time Warner's Money Pit
ElitusPrime writes: "There's an interesting analysis of the recently released balance sheet net worth of AOL Time Warner. The net worth of the largest media conglomerate on earth has now been slashed by more than one-third. The conclusion, not surprisingly, is that the merger never should have happened. But there's some interesting financial analysis to show exactly how bad the merger has been for Time Warner."
While I cannot present any proof, I am convinced what AOL acquires, AOL screws up. Netscape is a prime example. Certainly Netscape had value (server app, a browser...) prior to its acquisition by AOL and after acquisition, AOL left Netscape with a simple homepage. I guess I'll see if AOL brings Time Warner's assets to its knees. Certainly the Road Runner service is not improving since the merger.
"There ought to be limits to freedom"
In order for them to be succesful they need to have time warner drop roadrunner and make it AOL high speed access. The simple fact that its possible to have time warner roadrunner without AOL reduces the value of AOL-TimeWarner. Granted, this would make some of RoadRunner's users unhappy, but if they charged a comperable rate to what RoadRunner is right now I would assume the vast majority (power users excluded) wouldn't care. And for those that hate AOL they could up the price of basic roadrunner service and give a faster connection without AOL. I work for a competitor of RoadRunner (although I live in RoadRunner subscriber area) and I personally recieve about 5-10 phone calls a day about people wanting our service so that they can use it in conjunction with AOL.
...but unfortunatly the value of AOL/Time Warner is down over $150 billion if you look at stock prices now and what they were when the "merger" took place.
.com dollars from AOL didn't buy Time/Warner. It was a stock trade that did it and that's what will kill Time/Warner on their end of this "deal."
Don't expect them to answer any questions about:
What assets EXACTLY did you write down?
What about the rest of that lost value, when are you going to take that hit?
Inflated
Big problems brewing for the future.
I predicted a few years ago that since AOL's marginal cost for aquiring each new customer keeps going up, and their revenue per customer keeps going down, at some point in the next few years it will cost them more (in advertising and CD distribution) to aquire each new customer than they earn from that customer -- at which point the business implodes. Apparently it hasn't happened yet, but I still consider it a real possibility. AOL doesn't have a viable business model. At least Time Warner had a business model -- milk your (historical) content for all it's worth, and screw your cable customers out of every penny you can get.
My accounting teacher got pissed at me last year when I opined that the "goodwill assets" are often what a company overpaid for some other company. He called it the "keys to the business" and said that it was something of value.
I think that this can only be true if the keys were bought for a reasonable price. TW shareholders got ripped off because they gave away the keys of the business for too little tangible value (in the form of new AOL shares). TW shareholders got greedy in approving that merger and, if they did not unload their new AOL stock quickly, lost out big time in that deal.
Financial leaders such as the CFO and the CEO need to apply engineering principles to the financial aspects of the companies they are responsible for. How is that tall buildings structurally fail far less often than the corporations that contain them? Shareholders also need to analyze financial statements and the decisions that they vote on (especially mergers) in the same way.
- James
Wow, you sure have a bunch of nice buzzwords packed into that short post. But I don't see how any "synergy" is going to turn the AOL unit into a money-making and growing division like it used to be. They are not going to be "out-competing" my local ISP. If they were to start making T-W content exclusive to AOL, they are only going to be choking off the potential for T-W.
AOL made a sweet deal. They turned a vast amount of very perishable stock value into some real assets by buying T-W. T-W was blinded by dollar signs in their eyes. They looked at the (temporary) value of the stock, instead of (real) value of the AOL company.
I know they are not going to shrivel up and blow away or anything like that, but if I was a T-W stockholder I would be pretty pissed off. There were billions of dollars here last time I looked. Where did it go?
I shouldn't be too hard on them though. Tyco, who has nothing to do with the dot-com bubble, and nothing to do with energy trading, and makes and sells actual products rather than just having intellectual property, has dropped in value by 30 BILLION dollars in the last 2 weeks. Think about that: 30 billion dollars that used to belong to stockholders has EVAPORATED in the last 14 days.
Don't moderate flamebait as Troll. Know the difference or you will be Meta-moderated.
As the leading U.S. broadband provider, Time Warner Cable added 278,000 net high-speed data subscribers this quarter, for a total of 2.2 million. This is an increase of 1.0 million high-speed data subscribers, or 86%, since the same period last year. At the end of the quarter, digital subscribers represented 28% of basic cable subscribers while high-speed data subscribers represented 11% of eligible homes passed.
It looks like they are trying to spin this as a positive, but if we belive this story, they are almost treated as a liabilty!!!
Ok...so exactly how are they going to spin the fallout when they see a mass exodus after they implement these bandwidth usage quotas...it's been discussed before, regardless of their usage, the average user will flee at the first hint of bandwidth usage quotas...
>> "The conclusion, not surprisingly, is that the merger never should have happened" In fact, this all depends on your perspective.
If you were a Time-Warner who kept your stock instead of selling out during the merger, you are certainly annoyed: your stock, which once represented a share in a company with genuine assets and occasionally real income, was diluted with an immense credit for meaningless goodwill, all in a marketplace that grossly overvalued internet stocks like AOL.
But if you were an AOL shareholder, holding grossly overvalued stock with no reasonable prospect of generating a meaningful return (via dividends or earnings), then buying the Time-Warner assets was a huge improvement. Of course, if you bought those shares at post-1997 prices, you are annoyed, but you are still probably better off than if the merger didn't happen.
Sure, there has been a huge "failure of synergy" and none of the expected benefits of the merger have been obtained, and sloshing the numbers around shows that only an idiot would hold stock in AOL-TW now. (No offense intended -- I was one of the idiots who held AT&T and Lucent and even Enron stock as they plummetted, I just never bought any dot-com stocks, except for a two-week excursion when I was included on a "friends and family" list.)
-- http://www.MarkWelch.com/ Pleasanton California
Remember people that Fox News is the direct competitor to CNN and AOL-TW. They are a just a little biased.
So, duh, the cable business is growing while the traditional entertainment is dying. No news here, exept trolls like to call it a "dot com bubble burst" and other stupid shit like that. Nope, sorry, the internet subscription is doing well, the rest is flat or sagging. When was the last time you read Time or any other monthly print magazine without wondering what kind of clueless hermit would consider any of it news? Is it any supprise that assets like that might lose value?
Where did the money go? It was "good will" overpayment for those "crown jewels", Time Warner. Enetertainment is not an easy business to be in, especially right before a small recession. The internet business, however, is a good bet. When things get tough what are you going to axe, Time, cable TV or your internet connection? I don't have the first two and I'm doing well.
Dead trees is dead business. Pththth-fit! Good riddance, now those trees can be used on things like houses that don't fill up landfills as fast. Books are doing well, and that is nice but the mags sag. Here, read it for yourself:
Publishing's EBITDA grew 14% in the quarter on revenue gains of 3%. Revenue growth reflected increases in Advertising and Commerce as well as Content and Other revenues, which were partially offset by a decline in Subscription revenues.
DMCA, Hollings, Palladium. What might have sounded like paranoia is now common sense.
Actually, the reason they're doing so poorly is the Zik Zak Effect. Does anyone here remember Max Headroom (the ABC TV series that aired during the 1980's)? There was an episode in which Zik Zak, a large corporation, bought out a controlling share in Network 23 thinking they would increase their profits. What actually happened was that many of the other companies who were advertising with Network 23 stopped doing business with them because they did not want to pay a rival for the air time and Network 23 (and Zik Zak) ended up losing money rather than gaining it. In the end, the only way for Zik Zak to recover was to sell Network 23 back to the original owners. Essentially, AOL has done the same thing by buying a controlling portion of Time Warner. Unless they are willing to take initial loss and sell it back to its original owners, AOL will no doubt find Time Warner to be a white elephant.