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."

Comments

The reason is simple

[flacco]

AOL just didn't do enough advertising. Especially on its TW media outlets.

In the long run...

[vkg]

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

Jeez.

[SlashChick]

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."

If it was only US$50 Billion...

[AKAJack]

...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.

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 .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."

Big problems brewing for the future.

It's all those CD's

[teslatug]

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.

Insightful? Bah.

[KFury]

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.

Re:Insightful? Bah.

[figment]

Yes.

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."

Furthermore, the "save for the monthy subscription revenue"... Dude, the monthly subscription revenue is what makes the company so attractive. If you can count on $21 * (areallylotofusers) / mo. guarenteed, you're already way better off than say, the services industry which is a lot more affected by economic downturns.

The monthly subscription revenue is what separates AOL from your typical ad-market company, it has a large revenue base that i can use to cushion the impact of advertising revenue, which looks to be very cyclical.

Once the ad-market has an upturn, AOL/TW is going to be quite fearsome. They have the ability to do a huge branding effort. Think how MSN teamed up with espn.com. Then MSN teamed with GE for MSNBC. Now multiply that by 20, given the TW media assets. They would have the ability to keep people within AOl/TW owned websites, further increasing ad-revenue. If they so chose, they would have the ability to create 'aol-subscriber' only content, much like they did in the late 90.

Just because things arent working out perfectly doesnt mean a) it was a bad idea, or b) that everyone should abandon ship. While TW was probably charmed by the large amt of stock thrown at them, and soldout for too low, the merger was certainly not as horrible an idea as the article makes it sound.

NYPost by way of the Inquirer

[sweatyboatman]

I know trolls are an ever-present nuisance on Slashdot, but posting a troll as a news post? I mean come on!

• "a biblical-sized tidal wave of losses"
• "To reconnect with his feminine side and "write poetry" as he eases into early retirement."
• "the largest balance sheet evisceration"
• "advertising revenues from the service having now collapsed in a heap"
• "after more than fifteen months of bloodletting"
• " last week's write-off has only thrown $54 billion of it into the trash bin"
• "more could disappear before the carnage is complete"
• "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."

...etc...

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

Spin Doctor

[phriedom]

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.

Merger was good for AOL shareholders

[andrel]

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.)

Interesting...

[OneFix]

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...

Respectfully, no. Not at all.

[twilight30]

"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.

Re:Personally what I think they should do.

[ONU CS Geek]

Ok. I work as an Installation Coordinator for a contractor for AOL-Time Warner. Albeit your idea is a nice one, there is a good reason why AOL HSD (High-Speed Data) won't work.

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.

where? read second paragraph of the statement.

[Erris]

Revenues for the quarter increased 4% over the same period in 2001 to $9.8 billion. Subscription revenues increased 14% to $4.7 billion, reflecting strong subscriber growth in the Company's AOL and Cable businesses. Content and Other revenues were essentially flat at $3.2 billion, primarily because of robust theatrical results in the current year, offset by strong prior-year syndication sales. Advertising and Commerce revenues declined 13% to $1.8 billion, reflecting weakness in the overall advertising market and difficult comparisons against last year.

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.

Re:Nice office!

[Jay L]

Did you know, for example, that AOL Time Warner, at latest tally, has nearly 13 million square feet of office space on its books?

So what? At 90,000 employees, that works out to an average of 162.5 square feet per employee, including conference rooms, hallways, cafeterias, bathrooms, etc. That doesn't sound like a whole lot to me.

Their financial statement breaks my parser

[Animats]

There's so much nonstandard material in their financial statement that my financial statement parser can't parse it properly. Trying to make sense of it manually is also tough. This is one of the most confusing financial statements I've encountered. They have columns labelled "Historical" and "Pro forma" in the main balance sheet in their SEC filing. They have something called a "backlog securitization facility", which sounds like something Enron would have tried. AOL used to capitalize the costs of AOL disks, until the SEC made them stop. Now they seem to be capitalizing something else. There's other wierd stuff, too.

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.