Mon - Is Time Warner in a corner over AOL

Last week saw news that Time Warner was in conversations with Microsoft over some kind of tie up between AOL and MSN. As a result Time Warner's shares bounced up to $18.90. Now, it seems the AOL genie is bursting out of the box. Time Warner shareholders are pushing Parson's to do something to unclock the value of AOL.

The real problem is that since the disastrous merger of Time Warner with AOL, AOL has been left to languish while Yahoo and Google have stolen the show. AOL and MSN's ISP based business models are proving to be inadequate under the barrage of broadband adoption. And AOL has been too slow to adapt to the more successful advertising based, free portal strategy.

AOL's management do seem to be stating that they recognize that the way forward is for AOL to develop a free, ad based portal to compete aggressively with Yahoo and Google. Rumours are now abounding of AOL getting spun out from under the huge corporate umbrella of Time Warner. Some are even suggesting that AOL get broken into two companies, one focussed on their original business, being an ISP, and a new company set up to compete head on with Yahoo/Google. Maybe the ISP could be sold to a group of private equity firms and the free portal company merged with MSN?

My gut is that Parsons should do neither. Granted, this may not be popular with investors and even Time Warners short term stock price, but as AOL continues to morph into a free, ad based portal, they ironically finally get to enjoy the benefit of Time Warner's vast amount of content. And this is exactly the piece that Yahoo and Google lack. Parson's could then boost the value of his entire group by making AOL work within Time Warner. Maybe poor old Mr Case was not so foolish after all.