Media Deconsolidation, Part 8: Time Warner Spin Off of AOL Likely

by on May 17, 2005

How quickly we all forget the collective hand-wringing and mass hysteria that was generated by the announcement just five years ago that AOL and Time Warner would be merging. As journalist Matt Welch has noted, when the deal was announced, the Chicken Little crowd came out in full force with claims that the AOL-Time Warner deal represented “Big Brother,” “the end of the independent press,” and a harbinger of a “new totalitarianism.”

As it turned out, Welch notes, AOL-Time Warner was “the Big Brother who never was.” In fact, by April of 2002, just two years after the marriage took place, the firm had reported a staggering $54 billion loss. Losses grew to $99 billion by January of 2003. And then in September of 2003, Time Warner decided to drop AOL from its name altogether. It would be an understatement to say that the merger failed to create the sort of synergies (and profits) that were originally hoped for.

And as Fortune reported yesterday, Time Warner CEO Dick Parsons announced that he would consider entirely spinning off AOL as a separate stock if the division’s latest business strategy doesn’t work.

Here, again, is an example of just how dynamic the media marketplace is and why the media critics’ “sky-is-falling” rhetoric is so unwarranted. When media companies–no matter how large or small–fail to deliver something of value to the public, they will perish. We’ve recently been witnessing a wave of media divesitures and DE-consolidation that has reversed much of what we saw taking place in the late 1990’s.

In some cases, the “synergies” that many media operators hoped for simply did not develop. Combining various media properties and personalities proved much more difficult than expected. In other cases, technological change and the rapid evolution of the media marketplace overtook them and nullified any advantages that might have been gained from the mergers.

Regardless, as I have said many times, this is an example of a well-functioning, competitive marketplace at work. Media critics think any merger or acquisition is all just part of some sort of grand conspiracy to destroy democracy or competition, but in the end, things sort themselves out and we end up with an ever-expanding universe of media options at our disposal. In sum, despite what the Chicken Littles predict, the sky never falls. Seriously, ask yourself a simple question: Do you have more media options and outlets at your disposal today than you did 5 to 10 years ago?

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