Time Warner separating AOL's dialup business
Posted
Feb 06 2008, 03:12 PM
by
Kim Peterson
Time Warner is separating AOL's Internet dialup business from the rest of the division -- and it's about time. AOL has been trying to reinvent itself as a serious advertising company, and it couldn't do that with the dialup albatross around its neck.
The growth of high-speed Internet access has made the dialup business
a loser for years now. AOL had 9.3 million U.S. dialup subscribers at
the end of 2007, a 29% decrease from a year earlier. There are an estimated 60 million high-speed Internet subscribers in the country.
Still, that doesn't make AOL's industry position any better. There is no way the division can compete with two giants, Google and Microsoft-Yahoo (if that merger goes through), in the online advertising game. Sloughing off the dialup business "will significantly increase AOL's strategic options," CEO Jeff Bewkes said today in a conference call. Ding! The "for sale" sign has been hung.
Time Warner shares rose 2% on today's news to close at $15.71.
Let's take a look at the AOL portion of Time Warner's earnings today. The revenue trend is ugly. Q4 revenue fell 32% from the year-ago period to $1.25 billion. Full-year revenue of $5.18 billion was down 33% from the year before.
Now pull out just the advertising revenue (since this is an advertising company now, right?). Total ad revenue for 2007 was $2.2 billion, an 18% increase. Not bad, except for the fact that growth across the U.S. online advertising market was 21%, according to analyst David Card at Jupiter Research. By comparison, Google's revenue in 2007 grew 56% to $16.6 billion, and nearly all of the company's revenue comes from ad sales.
AOL's operating income fell 70% in Q4 to $274 million. To be fair, part of the revenue and income drop was due to AOL selling its dialup business in the U.K., France and Germany. But it also lost U.S. subscribers who got wise to the fact that you can get AOL's e-mail, music and other products for free now.
If the trend continues, AOL will have fewer than 9 million U.S. dialup subscribers by the end of March. I imagine it will soon sell off its U.S. access business. Then AOL can go on with the business of becoming an advertising company -- and it needs all the help it can get.
