Time Warner – Cutting Loose AOL Access and Cable Holdings

Implications: The toughest part about restructuring is knowing when to walk away.  Saying yes to a deal or a situation is very simple.  Telling someone NO or selling off assets is NOT easy.

Analysis:  It looks like Jeff Bewkes has hot the road running.  Good for him and the shareholders of Time Warner.  In a nutshell, Bewkes has announced plans to separate AOL’s Internet access business from its web portal and online advertising businesses.  Thank goodness for this decision.

In addition to selling off its AOL access business, Time Warner is also looking at ridding itself of its cable properties.

The result would be a Time Warner comprised of the following:
    ·         Television assets
    ·         Film assets
    ·         Web Portal and Online Advertising assets
    ·         Magazine assets

It should be noted that shareholders should not expect instantaneous positive results because restructuring is a long and painful process.  Worse still, this is taking place at a time when the national and global economies are in recession.  Do not expect an instantaneous turnaround.  However, you should expect a stemming of the bleeding.

The first thing that restructuring does is bandaging wounds.  Bandaging the wounds will stop the corporate cash blood flow.  As noted, much of the early restructuring plans are focused on AOL because it is a drain that can be stopped quickly (comparatively speaking). Time Warner said it will split off the AOL access business, which is losing customers in droves after AOL made most services free.

Unfortunately the recession will be felt in the advertising sector soon.  Hence, Bewkes’ plans to grow the company’s advertising division will not happen as quickly as he would like.  Nevertheless, the decision to keep the advertising unit is correct.

The belief that the advertising revenues will rebound by spring of 2008 may actually happen as businesses decide to migrate their advertising dollars to an online environment.  However, I believe that expectations for massive growth need to be tempered.  We are in a recession and will be in one through 2009.