In 2000, America Online Inc. used its soaring stock price to gobble up Time Warner Inc. and create the world's largest media conglomerate. Nearly a decade later, it's Time Warner that's spitting out AOL.
Time Warner said in a regulatory filing Wednesday that it intended to spin off the struggling Internet property, whose advertising revenue plunged 20% in the first quarter.
For The Record
Los Angeles Times Friday, May 01, 2009 Home Edition Main News Part A Page 4 National Desk 1 inches; 31 words Type of Material: Correction
AOL: An article in Thursday's Business section about Time Warner Inc.'s planned spin-off of AOL misspelled the last name of Thomas Eagan, of the financial advisory group Collins Stewart, as Egan.
AOL's decline contributed to falling sales and profit at Time Warner. The company's profit dropped 14% to $661 million, also hurt by shrinking revenue in its publishing and film segments and charges from the March spin-off of Time Warner Cable. Time Warner's revenue fell 7% to $6.95 billion.
Still, its shares rose 21 cents to $21.98.
The company didn't say when it planned to let go of AOL, which recently ousted Chief Executive Randy Falco and replaced him with Google Inc. advertising executive Tim Armstrong.
AOL continues to be the fourth-highest trafficked Web property in the U.S., behind those of Google, Yahoo Inc. and Microsoft Corp., having drawn more than 104 million unique visitors in March, according to Web ratings service ComScore.
Although that was a 7% decrease from a year earlier, AOL still has enough traffic to be competitive, said Thomas Egan of Collins Stewart, a financial advisory group. "It's really the monetization of it that has been disappointing."
AOL has overhauled its business, trying to replace dwindling revenue from its dial-up Internet service with revenue from Web ads. But it has struggled to keep pace with competitors.
"The downturn in ad revenue there is much sharper than any other major online space," said David Hallerman, an analyst at research firm EMarketer.
AOL, he said, may have focused too heavily on a low-cost, high-volume type of advertising that it sells across a range of third-party sites.
Time Warner also said it planned to buy back the 5% of AOL equity owned by Google. The search giant acquired that stake for $1 billion as part of a search-engine advertising deal in 2005, outmaneuvering rival Microsoft Corp.
Google wrote down the value of its investment in AOL by $726 million in January, then last month exercised a clause forcing Time Warner to either sell its AOL shares on the public market or buy them back at "fair market value."
Out from under its corporate parent, AOL may have more flexibility to innovate and continue to make strategic acquisitions, analysts said. Less certain is the grander vision.
"This definitely feels like a move away from something that didn't work," said Josh Rose, a creative executive at Deutsch, a Los Angeles ad agency that does business with AOL. "But I think what everyone's looking for is what they are moving toward."