(UPDATE: This transcript of a Washington Post interview with Steve Case, may be of interest).
It's good to see the founder of one of the fastest growing iconic online businesses in history speak out passionately about the opportunities ahead for his company. No, I'm not talking about Larry and Sergey or Jerry and David, but about Steve Case in this weekend's Washington Post.
In the better late than never column, Steve finally seems to be speaking from his heart about the current tough choices for Time Warner, and the future opportunities for his baby, AOL.
The entire piece , almost 2,000 words long, is worth reading if you have any interest in the subject at all. As someone who covered America Online (AOL) as an equity research analyst since 1995, and a current shareholder of Time Warner, I found the piece had much merit.
Steve makes a good case for why Time Warner should be broken up, independent of the initiatives that outsider activist shareholders lead by Carl Icahn. Specifically, he says:
"This past July, having concluded that integration would never happen, I proposed to the company's board that it was time to "liberate" and split the conglomerate into four freestanding companies -- Time Warner Cable, Time Warner Entertainment, Time Inc. and AOL -- each with its own strategy, stock, balance sheet, management team and board.
Each of the four units would benefit from the separation. Time Warner Cable would be better positioned to compete effectively against aggressive communications companies like Verizon and the new AT&T -- and it would lose little in being divorced from the Time Warner movie and television companies, as few benefits have ever materialized from having Time Warner Cable and Turner Broadcasting under the same roof.
Time Warner Entertainment (Warner Bros., New Line, HBO and Turner Broadcasting) could build on its strength as one of the world's leading entertainment companies, and more vigorously embrace new technologies and new distribution channels.
Time Inc. would be able to grow from being a traditional magazine company into a multifaceted media and information company, focused on expanding its brands well beyond magazines.
AOL would be the fourth company, and perhaps the one with the greatest potential."
I agree with these potential directions in general, coming at it more from the need for Time Warner to be competing more horizontally than vertically at a time when each of the businesses is facing major head winds due to disruptive changes in the technology and communications industries. Back in March, in a piece sub-titled "To flatten or not to flatten", I argued:
"If the end game for distribution companies in “media” clothing is more horizontal re-structuring, then the next task would be to make sure that each horizontal layer has the sufficient scale to compete within its peer group.
Ideally, most companies' shareholders would prefer to have the competitive advantage that comes from being able to leverage content with distribution (a la Time Warner or Microsoft).
However, most technology-driven industries do not have that advantage, unless it's in the form of regulatory largesse (cable, telco, cellular franchises come to mind)."
Given that those worlds are changing in the face of the relentless, continuing headwinds of exploding bandwidth and computing, the individual divisions of media conglomerates like Time Warner are potentially better off competing horizontally than as vertically integrated entities.
They'll otherwise end up spending more time and resources protecting the status quo of otherwise slowing business models, rather than focusing on growth in the newly competitive individual marketplaces.
As you'd expect, the most impassioned part of Steve Case's piece is when he talks about AOL. He outlines specific measures that could potentially be a major comeback for the company as a standalone entity, similar to Apple after the return of Steve Jobs (is Steve trying to tell us something here?). He makes a strong case for the opportunities for AOL still in a "Web 2.0" world, given the remaining assets of the company (see my recent posts on these two subjects here and here respectively).
Here again, in a recent piece sub-titled "Let's (NOT) make a Deal", I commented on the current Time Warner negotiations with Microsoft, Google and Yahoo! via the media:
"Time Warner in this instance has been unable and unwilling to exploit the synergistic opportunities that briefly existed with it's various divisions and AOL for the past five years. As an outsider it seems it's been because of internal resistance by the various divisions to keep their own turfs rather than to lose individual power at the expense of a stronger and potentially faster growing whole in the longer term.
That being the case, I've been of the opinion for some time that the best alternative for AOL is as a standalone company again. With the right, focused management, AOL as a standalone has some potent opportunities given the current "Web 2.0" trends and the broader Internet technology tail-winds, EVEN at this seemingly late date.
However, given the reality Time Warner is UNLIKELY to make AOL a standalone entity again, the SECOND most likely outcome is that the AOL properties are better off WHOLLY with a third party.
These "third parties" are likely to be a different tier of companies than the "GYM" companies currently kicking the AOL tires in a potential joint venture with TIme Warner. Joint ventures generally do not work strategically in the fast-moving technology industries other than in tactical instances.
These "third parties" are potentially companies like Barry Diller's IAC, Earthlink or even eBay or an Apple. But those companies are not likely to come anywhere near the valuations currently sought by Time Warner and it's vocal investors."
In that post, I also outlined six specific issues that make negotiating joint venture deals with third parties difficult.
As a Time Warner shareholder, it'd be potentially more profitable to see AOL as a standalone company again with the right management team. But given the current directions pursued by the parent, it's more likely that AOL will be more how I described it at the end of my previous post:
"In the meantime, AOL continues to melt like ice in an Web world that's heating up again."
Who knows, Time Warner could yet break it's continuing trend to grasp defeat from the jaws of victory.
Comments