The news this week that AOL Time Warner reported a nearly $100bn
loss for 2002 as well as the departure of another top executive has
stirred what was already considerable speculation over the media
conglomerate's past and future.
America Online and Time Warner tied the knot in January of 2001,
but now that knot appears to be unravelling as AOL suffers
financial losses, internal tension and the exits of former AOL top
brass, including founder Steve Case.
During the release of AOL Time Warner's results on Wednesday, it
was revealed that vice-chairman Ted Turner is the latest executive
to jump ship, preferring to pursue "philanthropic interests".
Turner said that he did not come to the decision lightly, given
that the company had been part of his life for more than 50 years.
Both Turner and Case will depart in May, leavings much of AOL Time
Warner's future in the hands of chief executive officer Dick
Parsons, who may tapped to take over Case's post as chairman when
he officially steps down.
On Wednesday, Parsons said that investigations into AOL Time
Warner's accounting practices were continuing. The probes were
initially disclosed last year, and focus on allegations that AOL
double-booked advertising revenue.
The conglomerate launched an internal investigation into AOL's
accounting and turned up a handful of questionable transactions,
leading the company to announce late last year that it would be
restating two years of financial results.
The accounting issue is just one of the financial problems weighing
on the AOL division, which reported an 11% decline in earnings
before taxes, interest, depreciation and amortisation for the
fourth quarter of 2002 on revenues that fell 6% year on year.
AOL's pre-tax earnings for the quarter came in at $474m on revenue
of $2.3bn, compared with $701m for the fourth-quarter of 2001 on
revenue of $2.2bn.
AOL's continued weakness, which has been pinned on the evaporation
of the online ad market, slowed subscriber growth, and a slow move
into broadband has been cited for a near 70% drop in AOL Time
Warner stock since the merger.
The problem has not only resulted in former Time Warner executives
wresting power from AOL, it has prompted the conglomerate to take
multibillion-dollar write-downs over the difference between what
AOL was valued at during the merger and what it is worth now.
On Wednesday AOL Time Warner announced that it took a staggering
$45.5bn non-cash goodwill charge as a result of the decline in
value of AOL and other intangible assets during the fourth quarter.
The company took another $54bn charge in the first quarter of 2002
under new accounting rules to reflect a decline in assets since the
merger.
Many industry observers have come to question the wisdom of the
merger, which was valued at $350bn when the all-stock transaction
occurred, and AOL Time Warner executives are already aware of the
comparisons. Chief financial officer Wayne Pace said, "I know these
are big numbers and are going to create a lot of comments in the
marketplace."
The company is keeping a stiff upper lip, however, as Parsons
tagged 2003 as a "reset year" for the company. Although he forecast
no immediate improvement in the online advertising market or in
AOL's revenues, he did proclaim his faith in the strategy to revamp
AOL.
This plan includes increasing the number of broadband subscribers,
scoring exclusive content deals and serving up premium services.
However, analysts have been speculating over the possibility that
AOL might be spun off.
While denying that a spin-off is in the works, AOL time Warner
executives did not discount it as a last-ditch effort to get the
company back on track.
For now, AOLTW will be focusing on reducing its debt load and
refocusing its capital investments, Parsons said.
Users filled up Internet chat boards with their own take on the AOL
saga yesterday.
One user, identified as "George W Boosh", wrote, "Of course they
are losing money. They charge an arm and a leg for services that
are available from any ISP for free."
Another user, identified as "Carl23" took a more practical
approach, writing, "At least now AOL will have to focus on
improving."