AOL and Time Warner in the divorce of the decade

Forget Madonna and Ritchie, Jen and Brad or even Macca and Mucca, today’s news that AOL is to finally split from Time Warner is the divorce of the decade.

Some nine years and three months after their very public, ostentatious wedding, the veteran film and publishing giant Time Warner is walking away from its younger partner, AOL, due to what can only be described as “mutual disappointment”.

The upcoming parting of ways will draw a line under the defining first wave of media convergence deals, and neither will escape unsullied.

The partnership was consummated in the pre-dotcom bust winter of 2000. The $164 billion deal was the largest in corporate history, and brought together one of the biggest traditional media stalwarts of the 20th century, (which would later become home to IPC Media) and the largest provider of dial-up internet.

It was credited for creating “unparalleled resources” and opening up millions of new subscribers. The internet has boomed, burst and reshaped itself since then, while the publishing business is experiencing cyclical and structural change, the likes of which have never been seen before.

To say the marriage had issues is something of an understatement, and a separation has been on the cards for several years.

Time Warner stopped wearing AOL’s ring (using its corporate name) just three years after the deal, and since 2005 the company has moved away from subscriptions to focus belatedly on an advertising-led model.

The company’s share price has mirrored this uncertainty, dropping more than 30%, and in the last year net income has fallen from $4.39bn profit to a loss of $13.40bn.

Today, Time Warner’s new chief executive Jeff Bewkes called the separation “another critical step in the reshaping of Time Warner that we started at the beginning of last year”. Already, consensus is building that it is likely to lead to the eventual sale of the access division.

Nigel Gwilliam, head of digital at the UK advertising body IPA, believes this can only be a “huge relief” for Time Warner and admits the future for a standalone AOL is “uncertain”.

He adds: “AOL has struggled to evolve and has lagged behind its competitors even when times were good. [AOL CEO] Tim Armstrong has a major challenge ahead of him.”