Okay. Now then.
Paul's "Before/After chart" is kind of a selective use of numbers. Let's phrase matters this way:
America Online Before After TTM Sales $5.7 billion $23.5 billion '00 Est. Net Income $950 million $1.765 billionThat makes the acquisition seem a little bit more palatable, doesn't it? Yes, the acquisition does make AOL a slower growing company, but that is in part a product of having suddenly quadrupled in size immediately as a product of the merger. Growth is already achieved through the merger, and there's something to be said for the one-in-the-hand-rather-than-two-in-the-bush philosophy.
Paul states that many of Time Warner's properties are the exact things that AOL and the Internet are making obsolete, but I think this is a bit of a misdirect. Whether or not print media and television stations themselves are becoming obsolete is one issue. The other is whether content, writ large, is becoming obsolete -- and that certainly isn't the case.
It may be that the distribution mechanisms that are currently profitable for Time Warner (e.g. magazines, the WB network) are not exactly the growth industry that the Internet is, but that just means that the best content is going to gravitate more and more to the Internet anyway. The sunk cost of having developed the trusted brand names in content that Time Warner has is a pretty tough barrier for others to compete with. It is going to be cheaper to distribute an already established brand than to create new ones out of whole cloth. What, again, do people read on AOL that AOL has actually created?
Look, this was a move that AOL had to make sooner or later. Maybe not today, maybe not tomorrow, but soon, because the days of the expensive monthly subscription fees for dial-up access are closing down, just the way that full-service brokerage accounts are. You can take a snapshot of the growth of current subscribers at this very moment and pretend that that kind of growth was sustainable -- but that's just whistling past the graveyard.
Look just a little bit beyond the short term and see that indefinite growth through the current business model had exactly zero percent chance of working over the long term. Consider the declaration by David Wetherell of CMGI <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CMGI)") else Response.Write("(Nasdaq: CMGI)") end if %> that 1stUp.com, which provides free Internet access, will be growing accounts faster than AOL as of February. Hmm... February, how far off is that in Internet time? Oh -- that's now. 1stUp.com, a company which provides free Net access as a package deal to companies that want to offer the service to their customers, is a company that most people haven't even heard of. But so what? If you think AOL's brand is so important, that its business model has no holes in it, then obviously AOL needn't be afraid of the competition of free access -- but that simply isn't the case.
Whether AOL shareholders are willing to admit it or not, the business model had to change, and it had to change before it was too late. Think about it this way -- AOL is going to be the biggest media company in the world, and it funded that achievement off of a business model that today we can look at and see isn't going to last halfway through the decade.
That's playing your cards right. That's masterful management. You've got to be impressed at the accomplishment.
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