Time Warner to split AOL Internet business

by Elizabeth Montalbano

February 6, 2008 —

Time Warner plans to split up the Internet access and audience businesses of
its AOL segment to run them each independently, Time Warner CEO and President
Jeff Bewkes revealed Wednesday.

The move comes as little surprise, as former CEO Dick Parsons acknowledged
in September that Time Warner would at some point divest itself from the AOL
access business, though he made no commitment to do so at the time.

On Bewkes' first quarterly financial conference call Wednesday since taking
his position as CEO on Jan. 1, he said Time Warner's plans to split AOL's businesses
will help hasten the segment's business-model transition from "a declining
ISP subscription business to a growing Internet ad business."

"This should significantly increase AOL's strategic options for each of
these main business sectors," Bewkes said on a call to reveal Time Warner's
fourth-quarter 2007 earnings. He made a distinction between AOL's for-fee Internet-access
service and its ad-supported audience business, which includes AOL's online
services and content.

Bewkes did not give a specific timeline or other details for when and how the
split will occur. AOL's Internet-access business, which still provides for-fee
service, continues to decline in subscribers even as Bewkes noted that Time
Warner has reduced operating expenses at AOL by "well over a billion dollars."

Still, even as AOL's goal is to become a viable online advertising competitor
against Google, Yahoo and Microsoft -- the latter two of which may soon become
a single and more formidable rival -- advertising revenue for AOL has been growing
less than the industry
average for several quarters.

In the fourth quarter, ad revenue at AOL grew 18 percent, less than the current
International Advertising Bureau's industry average of 25 percent. As a point
of comparison, Google's ad revenue grew 51 percent in its fiscal fourth quarter.

AOL's ad revenue growth was below industry average for both its 2007 second
and third quarters as well. It grew 13 percent in the third quarter, which ended
Sept. 30, and 16 percent in the second quarter, which ended June 30. The industry
average was around 26 percent for those time periods.

Time Warner's financial results for the quarter overall met Wall Street expectations,
but net income was down for the quarter. The company reported $1.03 billion,
or $0.28 a share, for the fourth quarter, down from $1.75 billion, or $0.44,
last year. However, the results for the fourth quarter of fiscal 2006 were bolstered
by an income-tax benefit as well as income from the sale of AOL Internet access
businesses in the U.K. and France.

Quarterly revenue rose 2.4 percent, from $12.34 billion in the year-ago quarter
to $12.64 billion, reported Wednesday.

Bewkes on Wednesday also outlined other cost-cutting and strategic measures
that Time Warner plans to take to make the business run more effectively. The
company's AOL business is not the only one that will be affected; the company
also is considering reducing its investments in its Time Warner Cable business,
he said.

(Juan Carlos Perez in Miami contributed to this report.)

IDG News Service