Slashdot Mirror
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."
AOL just didn't do enough advertising. Especially on its TW media outlets.
pr0n - keeping monitor glass spotless since 1981.
yet they hold three very popular programs amongst the slashdot crowd, AIM, ICQ, Winamp and support Mozilla. Should slashdotters really feel bad that AOL-TW is going down?
Slashdot Hypocrisy at work?
Hm... AOL/TW is just an experiment. Things can and do go wrong in experiments. Keeping personal opinions aside, (I hate AOL/TW's guts!), I think it's fortunate for all of the other smaller companies to have a chance. AOL/TW's not making as much money as it could be, in fact, it's losing money. Capitalism at its best (or worst, in AOL/TW's case).
Live or die trying.
Did you know, for example, that AOL Time Warner, at latest tally, has nearly 13 million square feet of office space on its books?
And that's just the CEO's office!
Attention all planets of the Solar Federation! We have assumed control! - Neil Peart
I think they will make out like banditos!
:-)
Seriously, these kinds of cross-industry mergers are often appallingly inefficient for the first few years while all of the organizational kinks get worked out.
Then, when you start to see the synergies, they really take off, often out-competing all of the players from the industries the hybrid company was formed from.
In two years, when you see tightly branded Time Warner content (i.e. Bugs Bunny!) "Available Only On AOL!", with AOL billing you per-view on your ISP bill on your DCMA/CBDTPA-enabled home Entertainment Appliance, don't say you didn't have the chance to buy stock now
vkg
Hexayurt - open source refugee shelter,
AOL charges $10+ more a month than most other ISPs how could they be losing money?
-= I can't think of anything witty, creative, or insightful for my sig, so deal with this. =-
From the article:
"You can get as much of a return by investing in a U.S. government bond these days as you can from throwing your money into the AOL Time Warner black hole."
Uncle Sam should definitely co-opt this for advertising: "U.S. savings bonds: not as bad as investing in AOL."
Simpli - Your source for San Jose dedicated servers and colocation!
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"
Wilco's recent deal with AOL subsidiaries:
It's their least poppy and most experimental effort to date. Which is why Reprise Records rejected it last summer: if the suits don't think you have a hit single, you're S.O.L, no matter how great your album is. Thankfully, after a fall tour and six months of shopping around, Wilco wrested "Yankee Hotel Foxtrot" back and sold it to Nonesuch. Both are subsidiaries of AOL Time-Warner, so in an ironic twist, the band was paid twice for the same album by the same company.
pronoblem
...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.
They probably just wanted to send out a couple of samples, but due to programming deficiencies ended up in an infinite loop and now they can't stop sending people free CD's.
Not likely...
First off, Mozilla uses an open source license...while not GPL/LGPL, the idea is the similar. This means that if AOL/Netscape dropped support, someone could always take it up...
But the truth is, Mozilla is one of AOL's biggest hopefuls...it will be taking over as the standard AOL browser and will be used by many companies who want branded browsers and still more that don't want to use IE as their in-house browser (IBM, Sun, etc)...
The linked article is actually very poorly written, and highly specious in its analysis.
"Save for the monthly subscription revenue, there was nothing much to the AOL business to begin with, as the first mild downturn in the economy has convincingly shown, with advertising revenues from the service having now collapsed in a heap."
Actually, AOL was making quite a lot of money on advertising, and though the online ad market dove after the merger, that doesn't qualify the statement that there was nothing there to begin with.
The whole tone (mocking poetry writing, yapping about black holes, colloquialisms instead of actual business terms, and the overly familiar 'I-you-we banter' show this article to be a sensationalist 'I told you so (even though I didn't) editorial rant, and not an 'analysis' of any kind.
I'd love to find out where the money went, but the only thing this article taught me is that Fox's online news is the equivalant to WB's prime time news.
Kevin Fox
Yes AOLTW is getting slammed and their value is low, but so are many former high fliers. This guy doesn't provide any real insight into the situation. He's just flaiming AOL/TW.
And to me this just looks like merger pains. In ten years, maybe, we can begin to pass judgement on whether the deal was worthwhile.
Sweat
It breaks my pluginses, my precious!
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.
Steve Case, chairman of AOL is an investing genius. AOL stock was wildly overvalued at the time of the merger; the price would have tanked with our without the merger. Case used internet bubble speculation to buy Time Warner, converting soon-to-be-worthless paper into a valuable asset. Without the Time-Warner side of the company AOL would be worth a lot less today. (The Time-Warner side might be better off today without the merger, but it was definitely good for AOL shareholders.)
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...
"Synergies": dot.com-speak for "We don't know what the hell we are going to do next".
Don't believe me? Look at Margaret Wente's commentary on BCE's chair resigning at the Globe and Mail, Michael Posner's comments on Vivendi's fall from grace, and perhaps most damagingly, a recent NYT comment (registration, blah blah).
One problem is that 'content driving distribution' ends up looking like trying to play monopoly (in general terms, not the board game), especially when the 'synergistic' entity restricts content competition on distribution channels. Remember the ABC cable fiasco from a couple of years ago, when they wouldn't let one channel show up on people's tv screens?
Another is not restricting access to avoid the public/governmental response outlined above: where's the 'synergy'? If there is no 'synergy', why bother?
AOL-TW is just the biggest failure, not the only one. And to be honest, the prospect of seeing this kind of 21st century 'new' mercantilism fail actually doesn't bother me a whit.
========================================
Death will come, and will have your eyes
-- Pavese
...coincidentally made earlier today by Will Hutton (a British economist and newspaper editor) about the pointlessness of big money mergers like this.
He produces some very interesting statistics about how they almost always lose money, for example;
The article is really worth a read. Just ignore the, um, inflammatory title!I'm struggling to come to terms with 13 million square feet of office space.
That's substantially over a square kilometer.
It's just under a half-square mile. (10 city blocks by 5 city blocks.)
Of course, the real issue isn't the amount of office space they need, it's that incomprehensible 25% of revenue going into overhead. Not production, but overhead. That's one central office person for every three people who actually produce the product or directly support those who do.
For every complex problem there is an answer that is clear, simple, and wrong. -- H L Mencken
The AOL Software is buggy, bloated, and won't work. They use VPN's and unlike road-runner, you must be signed into the service before you are connected to the internet. Another good reason is that the AOL Backbones are slower than roadrunner.
We've had customers whose computers that just WILL NOT work with AOL's HSD, but with RoadRunner and AOL's BYOA program, they connect to the net just fine. The pricing? The same (Roadrunner + AOL's BYOA = AOL HSD).
Also, something you have to look at is Support. AOL's support is ok...but RoadRunner's is better. If you're having Road Runner problems (e.g., your 31337 child installed a firewall and now you can't connect to the internet) if you call us, we'll be out in a Day...because it's a PC problem...and we support that. AOL will only support via the phone, unless it's a NO CABLE type of work request, then an line tech goes out...who doesn't have working knowledge of computers.
Anyway...from what I've seen Comwaves (who is our biggest competitor up here) uses RoadRunner at their CEO's and a majority of their employee's houses.
I disable sigs...do you?
This is different, though. HP vs. Compaq is about two similar companies merging to reap the (perceived) benefits of increasing scale. AOL vs. TimeWarner, on the other hand, I've always felt to be about an overpriced dotcompany doing the smart thing and taking all that investor money to buy something that was actually worth something. Yahoo should've done the same thing and bought Disney back when they could.
News and bla for computer musicians: http://lomechanik.net/
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.
The press release touts "Normalized EBIDTA" instead of net income, always a bad sign.
I have no idea what's really going on with this company. I doubt that anybody else on the outside does, either. There's too much "creative financing" involved.