Media Curmudgeon

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April 15, 2006

Buy, Sell, or Hold?

Why did Dick Parsons tell the National Cable & Telecommunications Convention attendees last Thursday, April 13, that "AOL needs to get in the game and be more competitive against Google and Yahoo to show that it's not dead?"

For Time Warner CEO Parsons this is a different tune from the one he sang last summer when he was negotiating to sell half of AOL to Microsoft. Parsons said then that AOL was a cash cow and was worth at least $20 billion. Microsoft dicked around and wouldn't close the deal, which it should have, and Google swooped in and for $1 billion bought five percent of AOL. Google played its poker hand brilliantly and blocked Microsoft from getting AOL's massive search traffic.

Last summer and fall Parsons couldn't be positive enough about AOL's cash flow and future. So why is he giving AOL's management the needle now and urging them to get competitive? Quite a different tune and a slap in the face. I believe this clearly signals that Parsons is not considering selling any more of AOL to Google or anyone else. When he wanted to sell AOL, he touted its value. So, now when he complains about AOL's value, you know he isn't trying to sell it. His strategy now is to hold.

But if he's going to hold, he wants AOL to get in the game and get competitive to show it's not dead. AOL may not be dead, but it's dying a slow death. AOL cannot sell enough advertising on its free portal, AOL.com, to offset the losses it's experiencing as about 850,000 subscribers to its dial-up service bail out each quarter. AOL finally raised the price of its dial-up service to $25.40 to match what it charges for its broadband service to encourage dial-up people to switch to broadband. But AOL made the move five years too late.

AOL is making a lot of innovative moves in providing original video content and is catching up…but not fast enough. There are still too many internal political power plays and too much internecine infighting going on at AOL--too many people vying to get credit and prove who's in charge--to catch up fast enough and match the innovation of Google and Yahoo. And Parsons knows it. He's given his warning.

If Jon Miller and other top AOL execs don't get into the game to Parsons' and stockholders' satisfaction (and I don't think it will happen), then expect some major top management changes in six months. By next Halloween there will be new names on the doors of the AOL executive suite. Mark the date on your calendars.

Posted by Charles Warner at April 15, 2006 04:15 PM

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