By Catherine Yang Known as a smooth operator, Time Warner (TWX) CEO Richard Parsons has worked long and hard to calm Wall Street about the notoriously rocky merger with AOL. But lately, his public musings about a possible spin-off of AOL have served only to roil investors anew -- sparking speculation that the parent company is about to dump the online unit.
Far from it, contend company insiders. BusinessWeek has learned that Parsons has committed to loosening the parent company's purse strings so AOL can make the acquisitions it needs to succeed in its new Web-based strategy. If the shopping list gets too expensive, he would consider a spin-off -- most likely retaining a large stake -- to give the division its own equity with which to snap up hot Internet properties.
But "AOL is not for sale," he told the online unit's employees at a May 6 meeting at their headquarters in Dulles, Va. "AOL is for keeps."
TRAILING YAHOO. A spending spree could certainly help jump-start AOL's new Web strategy. Facing an ongoing defection of dial-up subscribers, the online company is launching a free AOL.com Web site as early as July to take advantage of the surge in online-ad spending.
All told, AOL's Web properties, ranging from Mapquest to AOL Music, attract 110 million unique visitors a month, lagging behind Yahoo!'s (YHOO) 116 million, according to comScore Media Metrix. But with new flagship portal AOL.com and a conscious strategy to direct visitors from any one of its sites to the others, AOL intends to increase its page views to gain more ads.
"We're going for AOL Inc. as the largest [online] audience out there," says CEO Jonathan F. Miller. "It's not something we could do if we limited ourselves as a subscription business."
BIGGER ALLOWANCE. Last June, Time Warner gave AOL a hand with its ad business via a $435 million acquisition of Advertising.com (see BW Online, 6/24/04, "What Advertising.com Means to AOL"). The big ad network, which aggregates ad inventory across many third-party Web sites to sell to marketers, generated a healthy $60 million out of $331 million in total AOL ad revenues in the first quarter.
Miller and other top execs now have made a plea for a bigger allowance from Parsons. In a meeting that took place directly after the all-employee confab in Dulles in May, AOL execs explained that they recently had problems getting approval from the parent company's bean counters for potential acquisitions, according to a senior AOL exec present at the meeting.
The big one that got away: About.com, a network of Web sites on topics ranging from personal finance to hobbies, which The New York Times (NYT) bought from Primedia (PRM) for $410 million in February. With 22 million unique visitors a month at the time, according to the Times, About.com could have catapulted AOL beyond Yahoo in monthly unique visitors to its Web sites. AOL execs contended that Yahoo gained its girth as much through acquisitions of Overture, Inktomi, Launch, and Hot Jobs as it did through organic growth.
OPENING VAULT. In May, Parsons asked if AOL would need to follow in Time Warner Cable's footsteps. The pending spin-off of the cable unit gives the company equity it could use to make acquisitions. AOL execs said they would get back to Parsons on that in a year, after their new Web strategy had a chance to play out.
Meanwhile, Parsons agreed to give AOL access to the corporate treasure chest to make more acquisitions.
AOL won't comment on the companies it may seek to buy. But Jupiter Research analyst David Card suggests that to generate more page views and attract advertisers, CEO Miller could look at leading news site CNET.com (CNET), with a $1.6 billion market cap, women's site iVillage.com (IVIL) with a $429 million market cap, or even the privately held Neopets.com, where kids build cyberpets and feed them online.
MONEY TALKS. iVillage boasts top-shelf consumer-brand and pharmaceutical ads. And Neopets.com ranks as one of the leading Web sites in time spent online per user, according to comScore Media Metrix. Other possibilities to bolster local ad revenues include local search sites Miva.com and InfoSpace.com (INSP).
With yet another new strategy for growth now charted, AOL's fate still hangs in the balance. If Time Warner follows through on its promise to put investment dollars behind the online unit, that move alone will speak greater volumes to investors than Parsons' words ever could. Yang is a correspondent in BusinessWeek's Washington bureau