Time Warner to split AOL Internet business

Time Warner CEO Bewkes said the company plans to split up the Internet access and audience businesses of its AOL segment.

Time Warner plans to split up the Internet access and audience businesses of its AOL segment to run them each independently, Time Warner CEO and President Jeff Bewkes revealed Wednesday.

The move comes as little surprise, as former CEO Dick Parsons acknowledged in September that Time Warner would at some point divest itself from the AOL access business, though he made no commitment to do so at the time.

On Bewkes' first quarterly financial conference call Wednesday since taking his position as CEO on January 1, he said Time Warner's plans to split AOL's businesses will help hasten the segment's business-model transition from "a declining ISP subscription business to a growing Internet ad business."

"This should significantly increase AOL's strategic options for each of these main business sectors," Bewkes said on a call to reveal Time Warner's fourth-quarter 2007 earnings. He made a distinction between AOL's for-fee Internet-access service and its ad-supported audience business, which includes AOL's online services and content.

Bewkes did not give a specific timeline or other details for when and how the split will occur. AOL's Internet-access business, which still provides for-fee service, continues to decline in subscribers even as Bewkes noted that Time Warner has reduced operating expenses at AOL by "well over a billion dollars."

Still, even as AOL's goal is to become a viable online advertising competitor against Google, Yahoo and Microsoft -- the latter two of which may soon become a single and more formidable rival -- advertising revenue for AOL has been growing less than the industry average for several quarters.

In the fourth quarter, ad revenue at AOL grew 18 percent, less than the current International Advertising Bureau's industry average of 25 per cent. As a point of comparison, Google's ad revenue grew 51 per cent in its fiscal fourth quarter.

AOL's ad revenue growth was below industry average for both its 2007 second and third quarters as well. It grew 13 per cent in the third quarter, which ended September 30, and 16 per cent in the second quarter, which ended June 30. The industry average was around 26 per cent for those time periods.

Time Warner's financial results for the quarter overall met Wall Street expectations, but net income was down for the quarter. The company reported US$1.03 billion, or $0.28 a share, for the fourth quarter, down from US$1.75 billion, or $0.44, last year. However, the results for the fourth quarter of fiscal 2006 were bolstered by an income-tax benefit as well as income from the sale of AOL Internet access businesses in the UK and France.

Quarterly revenue rose 2.4 per cent, from US$12.34 billion in the year-ago quarter to US$12.64 billion, reported mid-week.

Bewkes also outlined other cost-cutting and strategic measures that Time Warner plans to take to make the business run more effectively. The company's AOL business is not the only one that will be affected; the company also is considering reducing its investments in its Time Warner Cable business, he said.

(Juan Carlos Perez in Miami contributed to this report.)