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Painful Dismemberment of a Media Monolith

StrategyEye reports that Time Warner is slowly coming around to face the harsh reality -- creating a media monolith for the 21st Century wasn't such a good idea after all.

Conceived in 2000 as the biggest media merger in history, America Online found a cable strategy and Time Warner found an Internet strategy, as the pair merged in a stock swap valued at $350 billion. Seven years later, the lesson-learned is fodder for an MBA case study.

Time Warner has said that it will consider the possible sale of its AOL dial-up internet access business in the U.S. market, after doing the same in Europe, in a bid to boost its share price.

However, chief executive Richard Parsons believes selling off the internet arm would be difficult given that it contributes to visitor traffic on the portal -- the primary surviving remnant of the America Online business unit. "It's much more complicated here than in Europe," he told investors at the Goldman Sachs Communacopia media conference.

Some investors and Wall Street analysts have called for the sale or spin-off of the entire AOL business unit, as well as a complete divestiture of Time Warner Cable -- already a separately traded stock 84 percent owned by the parent company -- and the sale of its publishing company Time Inc.

Shares in the world's largest media company have fallen about 11 percent in the past three months.

However, while Mr. Parsons apparently does not deny the possibility of spinning off its cable division he says "We would like to see if the whole is greater than the sum of its parts, which I believe it to be. The focus right now is let's see if we can build it."

I'm reminded of the title of a book -- Hope is Not a Strategy -- when I consider the rationale behind this statement. Clearly, Mr. Parsons is reluctant to dismember this big media mammoth.

Meanwhile, AOL announced earlier this week that it is combining its various advertising businesses to form a new unit called Platform A. The company also announced it is moving its corporate headquarters from Dulles, Virginia to New York City.

AOL has also recently completed a series of acquisitions as it shifts its business model from a paid subscription to one that's supported by advertising. While it's too soon to determine if the company will regain its lost momentum, perhaps a change of scenery and the infusion of some savvy new talent will make a difference.

I believe that Time Warner's trials and tribulations mark the closing chapter to the era of a big media monolith, while they also highlight the emergence of a significant and invigorating change to the media status quo. The notion of micro-marketing is a driving force to this disruption.

That said, not everyone agrees that focused and nimble is the logical approach to apply to digital media distribution. "With the increasing fragmentation of online audiences, the best way to serve advertisers is to enable them to harness massive advertising networks that reach across the entire Internet, not just our AOL websites," said Randy Falco, Chairman and CEO of AOL.

Perhaps proving once again, it's really difficult for some people to think of media innovation without including the word mass within the equation.

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