It seems to me that none of the rumored partnerships--AOL, Google, or Comcast--will be enough to save AOL. In my opinion, what is needed is another bold, bet-the-company move, similar to the recent removal of the garden wall or the switch from per-hour to flat-rate pricing back in the mid-1990s.
What most observers miss is that the company cannot just be chopped in half and the subscription business left to die. In addition to producing most of the operating profit, the subscription business produces most of the company's page views--and without them, there would be no "content" business. As previously described, according to Time Warner, each "subscriber" amounts to about 2.5 users, and each of those users tends to generate about 2.5 times as many pageviews as the average non-affiliated web user. Which means that, for each subscriber the company loses, it must attract about 5 new web users just to stay in place. And subscriber losses are accelerating...
As a result, the company must find a way to stem the subscriber bleed, even if it means signing broadband distribution deals that only generate, say, $3 per subscriber per month (like Yahoo!). Such a move would obviously wreck the company's cash flow in the near-term, which is why it is unlikely that parent Time Warner would ever pursue it. But it is probably also the only kind of move that will save the company over the long-term.
A merger with MSN or Google would help AOL, as would a distribution deal with Comcast. But, in my opinion, none of these moves alone will save the company.
For those interested, we explored these issues in more detail in a recent Cherry Hill Research Report: The Outlook for AOL: The Accelerating Bleed and What Must Be Done to Stop It. Disclosure: I own Time Warner and Microsoft stock.
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Posted by: Network | December 15, 2010 at 07:33 AM