AOL/Time Warner Missed Opportunity

I think the opportunity of the AOL/Time Warner merger that kicked off in 2000 and seems to now be undoing itself never really developed in the first place. Time Warner is doing the opposite of what I would have expected–they seem to be divesting themselves of their delivery medium.

I’ve often argued in the past that companies selling stuff like music on CDs should recognize that their distribution medium changed. Rather than selling content on discrete units of physical storage media (compact discs), they needed to recognize that the Internet is the medium for distribution.

The old physical delivery mechanism, CDs, mostly have no value. There’s little reason to buy a physical item that requires a lot of effort and resources to produce and deliver but provides no significant advantage (nor even quality anymore).

I was never a fan of AOL but when Time Warner and AOL announced their merge in 2000, I thought it was a sign that finally a big media company delivering all sorts of content had recognized that their delivery mechanism changed. Big media got a clue. Rather than complaining about people copying and distributing content on their own (thus losing sales of their discrete physical storage medium), Time Warner must have realized that the delivery medium they should be selling is the one that people value, Internet access. That’s how content will be delivered, so if they wanted to collect money from customers, they’d better offer the actual product (actually that product is now a service) that’s in demand. But I don’t think Time Warner ever really did get this concept. They failed to recognize their own combined strengths and offer them in an appealing way to customers.

Time Warner has been divesting its control over access to the Internet medium. It spun off its Time Warner Cable division earlier this year. They’ve been driving AOL further into the ground, as far as I can tell, since they went from providing Internet access to being largely just a consumer profiling and advertising delivery system. Thats’s the big opportunity that they missed taking advantage of. Rather than doing anything truly interesting and innovative with their merged relationship.Had Time Warner/AOL/Time Warner Cable really focused on gaining Internet access subscribers, they could have used their content to offer people all kinds of innovative, quality, unrestricted content, attempting to boost bandwidth usage (sell more of their service medium). But now Time Warner doesn’t want AOL anymore either.

In the meantime, what’s been happening with Time Warner’s core content publishing business? According to the press, it doesn’t sound fantastic. From the AFP:

“Revenue from Time Warner’s Networks unit, which includes CNN, HBO and Turner Broadcasting, rose six percent in the quarter to 2.8 billion dollars.

Filmed Entertainment unit revenue fell seven percent to 2.6 billion dollars on lower DVD sales and only moderate box office success…

Revenue for the publishing unit fell 23 percent to 806 million dollars with advertising revenue down 30 percent and subscription revenue down 16 percent.

Advertising sales at AOL… were down 20 percent while subscription revenue fell 27 percent.”

The company’s publishing, film, and advertising revenue all fell (notice the drop in DVD sales/physical delivery medium). Its television networks unit rose a bit. But essentially that’s another publishing medium that will be reproduced through the Internet. Ad and subscription revenues there, I imagine will be effected.

So Time Warner, making all kinds of content (and continuing to focus on that area of business), still faces challenges for harvesting money from the content it makes. It seems that won’t happen through owning access to the dominant distribution medium–they never put the right effort into making that successful. Perhaps they foresee problems with that model as well–free wireless community access is on the rise (though that’s an oversimplification).

Whatever it is they do with their content, I’m certain that the (movies, music, etc.) will continue to be widely replicated through the labour of individuals on the Internet and will take place quite outside of Time Warner’s control.

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