AOL loses nearly $100B; Ted Turner leaving

[Atlanta Skins Fan]

As noted by the Washington Post,

AOL Time Warner Inc. yesterday reported a $98.2 billion loss for 2002, the biggest annual loss ever by a U.S. corporation and a total largely attributable to a steep drop in the value of once highflying America Online.

The company also announced that Vice Chairman Ted Turner, founder of CNN and the media company's largest individual stockholder, will step down at the annual meeting in May.

As to the loss, it's about godd@mn time. I sold AOL short in a big way back in 1996 and went on to take the worst loss in the markets I've ever taken. I wasn't wrong about AOL, just wrong about how many stupid people there are in this country and how long it would take them to wake up to the fact that AOL sucks big time and always has.

As for Ted Turner, way to go AOL Time Warner: you're pushing out the one guy who could have saved the company. That guy has built more real value in his career and been right about more things than all the employees and board of AOL Time Warner put together. The company might have had a chance at a turnaround if they'd finally made Turner CEO and/or Chairman.

I'm sorry for the fine folks in the D.C. area who have to endure this downdraft. AOL always was the biggest pimple on the boil known as the dot-com boom, and now it's finally popping.

This is said by someone with both feet in Internet/computer technology as a career, for what it's worth. AOL was the fat moron who staggered into the party, sprayed beer in everyone's faces, and took a crap in the punch bowl. There's a lot of bitterness.

[Zen-like Todd]

Boy are you an idiot. You couldnt possibly know less about what you are talking about.

[OrangeSkin]

Hard to believe a corporation lost more than the GDP of Egypt.

[Atlanta Skins Fan]

Originally posted by TheChosenOne

Boy are you an idiot. You couldnt possibly know less about what you are talking about.

OK, TCO, I'll make this easier for you. Which of these statements do you disagree with?

A) AOL Time-Warner just turned in the worst fiscal performance of any company in U.S. history.

That fiscal collapse was a direct result of the merger with AOL and the wildly excessive market valuation of AOL that made that merger possible.

C) The wildly excessive market valuation of AOL happened because millions of morons continued to buy AOL stock, despite the fact that AOL had the highest negative ratings by users of any major ISP, and despite the fact that an ISP (even a good one) had no hope of justifying AOL's market cap.

D) Ted Turner, through his TBS Superstation and later CNN was one of the individuals most single-handedly responsible for creating cable television and making it successful.

E) Turner has created more successful media properties than anyone alive, including TBS, CNN, CNN International, CNN Headline News, TNT, Turner Classic Movies and the Cartoon Network, among others.

F) Turner created the first national sports team by combining his ownership of the Braves with nightly national TBS broadcasts of Braves games, greatly increasing the value and market success of both properties.

G) Among the living, only Rupert Murdoch rivals Ted Turner in individual achievement in media industry leadership, and Turner has arguably created "better" value in terms of content.

H) All of the above.

[Romo]

ASF,

I agree with you on the Ted Turner comments. While in some ways I dont like Ted's personality I do think he is quite a genious when it comes to his business sense. We actually spent a whole class on him in a Pop Culture class I took at university, basically about how he changed cable television and in turn forced the networks to make changes to keep up.

All internet companies were and probably still are overvalued. When I heard AOL had mergerd with Time-Warner I thought it was a joke because it seemed stupid for long established companies to tie their ship to an unknown.

The one mistake Ted Turner did was relinquish control of his company. Not sure what he was thinking.

[Zen-like Todd]

First of all, while those arent particularly relevant to your first post, I'd say that A, B, C, E, and G are all either incorrect, as a result of mischaracterization, or simple lack of knowledge. But since you asked, there you go.

[88Comrade2000]

Originally posted by TheChosenOne

First of all, while those arent particularly relevant to your first post, I'd say that A, B, C, E, and G are all either incorrect, as a result of mischaracterization, or simple lack of knowledge. But since you asked, there you go.

He's right about A. AOL was worth 200 billion before the merger and now it's worth about 7.9 billion.

AOL was overvalued. Alot of dot.com companies were. Why do think the stock market collasped? There was a bubble that burst in early 2000.

To think I once considered moving to a dot.com company. AOL took TIME WARNER for a ride.

[Zen-like Todd]

He's right about A. AOL was worth 200 billion before the merger and now it's worth about 7.9 billion.

That doesnt make him correct. It just shows a simplistic view and lack of understanding.

Market Cap is Market Cap. That's all.

Of course all of those companies were overvalued. What does that have to do with the actual performance of that company, and how its run?

[Atlanta Skins Fan]

Originally posted by TheChosenOne

That doesnt make him correct. It just shows a simplistic view and lack of understanding.

Market Cap is Market Cap. That's all.

Of course all of those companies were overvalued. What does that have to do with the actual performance of that company, and how its run?

TCO, you'd help your arguments in all this if you provided more detail. If you can't be arsed to do so, then why bother posting?

Regarding this one nugget of detail -- my criticism of AOL's market cap is a reflection of two facets of its overvaluation: 1) the overvaluation of all Internet-related companies, and 2) the specific overvaluation of AOL.

On the first point, I was sick of morons running up the market to unsustainable levels, because it caused morons to get rich and caused an absolutely inevitable market crash that demolished much of the good with the bad. (I've been in the Internet area since 1989 and in the computer industry since 1985, so I've watched all this happen with a pretty long view. I've always been a big believer in the Internet, just not Internet stocks and the destructive boom-and-bust whiplash caused by idiotic speculation and hype.)

On the second point, AOL was and is worse than many other Internet-related companies. Earthlink, eBay, Yahoo, Google and Amazon are all examples of superb Internet-related companies. AOL was essentially a pyramid scheme feeding on morons: the morons who signed up, and the morons who bought AOL stock. It was doomed to collapse as far back as 1996 -- the miracle was that it took so long, and that it suckered so many, including Time Warner. It's a titanic tragedy that a sidewalk con artist has taken down giants of real value -- Time-Warner spans many fine, historic companies, and now they'll be lucky to survive their con at the hands of AOL.

[Zen-like Todd]

I dunno dude, I just don't have Art's energy or inclination to deal with inane, ridiculous posts. Virtually everything you've said is just silly. First of all, it's a goodwill writedown, not an operating loss. Before last year, it would have been amortized over 20-25 years and been barely noticed on their financial reports. They did wind up writing down much more than expected (some people I know who are close to the situation and familiar with such things are suggesting that the over-aggressive writedown is an attempt to present AOLTW as overly conservative in its accounting practices in order to get the SEC off its back in terms of any antitrust or accounting practices investigations). That they've written down such an enormous amount right now will actually make their future earnings statements look better. It's a bit like an enema. If you need me to explain goodwill a bit more, I will (its a concept foreign to most people, as it should be, and is wholly related to the merger).

You're obviously bitter that you took a bath when you shorted AOL in 1996. That's understandable, and its also understandable, although not altogether appropriate, for you to carry your frustrations forward and apply them to your emotions about the company.

As far as those silly comments about the "the fat moron who staggered into the party, sprayed beer in everyone's faces, and took a crap in the punch bowl. There's a lot of bitterness.", come on. You're bettter than this. That is simply not true. Its just not. And its rather disgusting and repulsive imagery.

As far as Ted Turner, he wasnt doing dick at the company anyways, wasnt doing anything of substance at TW before the merger went down, hasnt shown that he has any valuable input into the current state of affairs (his success in the cable industry took place in vastly different conditions, both in terms of competition and complexity). I quite doubt that you know what's involved in directing a multi-billion dollar company period, let alone ones in various industries. Therefore, its kind of silly for you to make comments about Turner being the only one who could turn the ship around. Are you honestly telling me that you are familiar with EVERYBODY on the AOLTW board, and the abilities of those now running the show (such as Parsons) to execute their duties? BTW, Ted Turner was initially highly supportive of the merger, so if you thought it was a bad decision, well, perhaps Ted isnt your guy.

Your bitterness over the valuation is pretty funny. There were THOUSANDS of companies who never brought in ANY revenue during the late 90s, yet had ridiculous market caps. AOL had (and still does have) a paying subscriber base (recurring revenues) of tens of millions of users, was continuuously profitable, and growing. Now, as we know, Market Caps are based on past performance and predicted future growth. That growth hasnt really taken place over the last year or two. Why? How are they expected to grow their revenues? Well, they could add another 10-20 million users, but the market is pretty saturated at this point. The other way is to increase the revenue on a per user basis. There are two approaches that AOL could have taken, and in 98 (note, this is quite a bit after you shorted the stock) or so, some people came into influence in the company who pushed them down the wrong path, namely that of passive advertiser revenues. It was a silly move, and one that was not widely supported in Dulles. The other way, of course, is to sell access to high-value services. In other words, content, which is what cable companies bust their *** doing, what with digital tv, 80 HBO channels, video on demand, cable modems, and the like. Their goal has always been to make your cable bill larger, if necessary, by creating new types of services. Now, in the late 80s and early 90s, this was the case at AOL. You should never make the mistake of thinking of AOL as an ISP. Unlike ISPs, which are a commodity business, AOL used to own, and be responsible for, the user experience, end to end. To that end, they had developed not only a media relay system far better suited for low bandwidth users (2400 -14.4) in Rainman, a host based template system developed by a crazy Russian crew. They developed easy to use message boards, chat rooms, instant messaging, absolutely instantaneous and efficient e-mail solutions, and above all else, original content. The internet was sh!t at this point, content wise. AOL delivered a rich set of content that was widely unaccessible, in terms of magazine content licenses, original content and services, etc. Anyways, late in the 90s, a champion of originally produced, added value content over the chasing of ad revenue was kind of pushed out of the way. Who was he? None other than our lovable hockey/basketball owner, Ted Leonsis. Formerly the head of AOL Interactive Properties, he wound up getting shifted around and played by other high level execs to the point where he got bored and went to go play with his new toys (the sports teams).

The value of AOL is not in delivering internet access to users. That is a commodity business, and be definition, low margin. The value in AOL is in its userbase. That userbase needs to be leveraged by upsale, that is, the delivery of premium content. Where can that content come from? Well, Time Warner happens to have one of the largest collections of content producers and content libraries in the world. Should be a natural fit, eh? Then what happened? Well, I'll tell you later, since I have to run, I've been typing for awhile, and there's much more to say.

[Atlanta Skins Fan]

Well, thanks for the additional detail. It's more interesting to know where you're coming from.

Originally posted by TheChosenOne

First of all, it's a goodwill writedown, not an operating loss. Before last year, it would have been amortized over 20-25 years and been barely noticed on their financial reports. ... It's a bit like an enema. If you need me to explain goodwill a bit more, I will (its a concept foreign to most people, as it should be, and is wholly related to the merger).

No, I'm familiar with the accounting concept from running my own corporations. And if you understand goodwill, you understand that it is an accounting convention used, in stock-based acquisition cases like this, to bridge the gap between two sets of facts: 1) the value of AOL on paper, and 2) the market cap of AOL. In other words, when AOL used its wildly inflated stock to purchase Time-Warner, the accountants were forced to invent the difference between AOL's actual value and the value attributed to it by lunatic investors. This difference was "goodwill." It was fiction then, and the latest writedowns finally put that fiction to rest.

Coca-Cola has goodwill -- real stuff, real value, even if intangible. All AOL ever had was hype, which the accountants recorded as goodwill.

And now AOL Time Warner is saddled with massive debt incurred in the merger. The writedown makes it even harder for the company to service its debt, because the company's credit rating will continue to slide, increasing its borrowing costs.

As far as Ted Turner, he wasnt doing dick at the company anyways, wasnt doing anything of substance at TW before the merger went down, hasnt shown that he has any valuable input into the current state of affairs (his success in the cable industry took place in vastly different conditions, both in terms of competition and complexity). I quite doubt that you know what's involved in directing a multi-billion dollar company period, let alone ones in various industries. Therefore, its kind of silly for you to make comments about Turner being the only one who could turn the ship around. Are you honestly telling me that you are familiar with EVERYBODY on the AOLTW board, and the abilities of those now running the show (such as Parsons) to execute their duties? BTW, Ted Turner was initially highly supportive of the merger, so if you thought it was a bad decision, well, perhaps Ted isnt your guy.

My point about Turner is that he's one of a handful of individuals (arguably one of the top two) who created cable TV and led the creation of multiple media properties. Most people doubted him at every turn: almost every new Turner venture was scorned before it became a success.

Turner was never given a strong voice in Time-Warner, mainly because Gerald Levin didn't want Turner taking his job as CEO. So, Turner was idled mainly in support of Levin's selfishness. With Levin in full control, TW went nowhere. Then, when TW was bought by AOL, Turner had even less influence. Once again, the new AOL-TW went nowhere.

You'd think that in an atmosphere of such floundering, that the corporation would at least try to use the talents of its only HOF-level player. Instead, he's been dismissed and marginalized.

And please don't suggest that Turner was dismissed because of wacky ideas. Every Turner idea was a wacky idea until implemented and proven to be a success.

Your bitterness over the valuation is pretty funny. There were THOUSANDS of companies who never brought in ANY revenue during the late 90s, yet had ridiculous market caps.

I agree. But AOL was instrumental in creating that situation, through the runup in AOL's stock price in the mid-1990s. Recall that back then, AOL was one of the *only* "pure play" Internet stocks. The dramatic runup of AOL's stock price in defiance of logic and any understanding of economics almost single-handedly kick-started the bullsh!t about the "new economy", where profits didn't matter, and all that mattered were brands, market share and mindshare.

In short, like Helen of Troy, AOL was the face that launched a thousand sh!ts.

AOL had (and still does have) a paying subscriber base (recurring revenues) of tens of millions of users, was continuuously profitable, and growing.

AOL had a nice little utility business going. The electric company, the phone company and the gas company are all businesses who have paying customers, millions of users, profitability and growth. It was lunacy to think AOL ever had much more significant value than these other companies, given the fixed costs of an ISP business (similar to fixed costs of other utility companies). Almost all the differential in market cap was simply hype.

And AOL wasn't even a particularly good utility company. Customer satisfaction ratings continually lagged the industry. Customers with Earthlink consistently reported higher satisfaction, despite the fact the Earthlink delivered fewer "services". The main difference was that AOL's world was a proprietary universe of services (dragged down by ads and backward technology), while Earthlink was an open gateway to the public Internet, delivered reliably. AOL's main value was to handhold morons who couldn't understand the Internet and wouldn't invest the time to do so. As it turned out, there were enough morons out there, despite AOL's high attrition rate, to keep the hype machine going for five or six years after 1996, when I shorted AOL.

There are two approaches that AOL could have taken, and in 98 (note, this is quite a bit after you shorted the stock) or so, some people came into influence in the company who pushed them down the wrong path, namely that of passive advertiser revenues. It was a silly move, and one that was not widely supported in Dulles. The other way, of course, is to sell access to high-value services. In other words, content, which is what cable companies bust their *** doing, what with digital tv, 80 HBO channels, video on demand, cable modems, and the like. Their goal has always been to make your cable bill larger, if necessary, by creating new types of services. Now, in the late 80s and early 90s, this was the case at AOL. You should never make the mistake of thinking of AOL as an ISP. Unlike ISPs, which are a commodity business, AOL used to own, and be responsible for, the user experience, end to end. To that end, they had developed not only a media relay system far better suited for low bandwidth users (2400 -14.4) in Rainman, a host based template system developed by a crazy Russian crew. They developed easy to use message boards, chat rooms, instant messaging, absolutely instantaneous and efficient e-mail solutions, and above all else, original content. The internet was sh!t at this point, content wise. AOL delivered a rich set of content that was widely unaccessible, in terms of magazine content licenses, original content and services, etc. Anyways, late in the 90s, a champion of originally produced, added value content over the chasing of ad revenue was kind of pushed out of the way. Who was he? None other than our lovable hockey/basketball owner, Ted Leonsis. Formerly the head of AOL Interactive Properties, he wound up getting shifted around and played by other high level execs to the point where he got bored and went to go play with his new toys (the sports teams).

I'm familiar with this history, and I knew Leonsis before he ever went to AOL. (He used to run Redgate Communications in Vero Beach, among other ventures since early in the PC days.)

Leonsis was brought in as part of the fad-of-the-moment back then, which was, "content is king." The theory was, proprietary services like AOL needed to create their own unique content in order to keep people coming back. The analogy was HBO (think Sopranos).

The problem was that modem connections don't permit much interesting content to be delivered, aside from chat rooms (which AOL already had), email and Web pages (which aren't unique to AOL). A lot of money was flushed down the toilet chasing ideas that could enrich the AOL experience over a modem connection. That Leonsis failed doesn't surprise me: it wasn't a reflection on him, but on the limits of modem-based Internet experiences, and the competition of millions of other Internet destinations.

The primary problem with AOL was that they clung to such proprietary notions at all. They maintained a backward email reader and web browser, for example, when far better solutions existed for free, independent of AOL.

I do think there was an opportunity for AOL to do the Earthlink thing with an AOL spin. In other words, be open, deliver high-quality service, no ads, *then* throw in some unique strengths like chat rooms and so forth. Then offer some additional synergies, like a super-rich cable-modem/DSL experience (made especially easy after the TW merger) and unique content over that fat pipe.

Instead, AOL persisted delivering a value proposition that only made sense for two categories of users: 1) morons who didn't realize how bad AOL was, and 2) chat-room addicts.

Personally, I didn't see $200 billion of value in that value proposition.

The value of AOL is not in delivering internet access to users. That is a commodity business, and be definition, low margin. The value in AOL is in its userbase. That userbase needs to be leveraged by upsale, that is, the delivery of premium content. Where can that content come from? Well, Time Warner happens to have one of the largest collections of content producers and content libraries in the world. Should be a natural fit, eh? Then what happened?

See, this is the big question. TW should have brought cable-modem access and premium content to AOL. Why they haven't been able to get that obvious synergy to work (yet) is a mystery to me. There's a lot of potential value in the combination that hasn't been realized.

[Awgustlab]

Jeez - y'all are making a big deal about this. I would hope that none of you would even think of paying money every month to that big piece of crap ISP anyways. Hell, I used to work for AOL so I have my bitterness for that company rooted in me. I would never think of paying a monthly fee to them. That company practices sh!tty tactics and screws over their members left and right. Long live broadband and screw dial-up AOL crap.

[RiggoDrill]

I thought AOL was crap in 1995. It's still crap.

As far as delivering content for pay, Real Networks has gone that direction (RealOne) , and, from initial reports, they're actually succeeding at it.

[Atlanta Skins Fan]

Originally posted by RiggoDrill

As far as delivering content for pay, Real Networks has gone that direction (RealOne) , and, from initial reports, they're actually succeeding at it.

RealOne is an adware virus. It installs multiple adware engines under different names (Gator, etc.) that slow down your computer and make it unstable.

The cures are: 1) uninstall RealOne, 2) run the free Ad-Aware utility to clean your computer, 3) run the free Startup Manager utility to see what else is slowing you down, and 4) stick to Microsoft's Windows Media Player or equivalent Mac player (QuickTime player).

Only Real could make Microsoft look good. It's fitting that they popped up in an AOL thread, because they belong with AOL in the Internet hall of shame. And to think they once invented valuable technology . . . .

P.S. You can get those free utilities here: http://www.answersthatwork.com/Downright_pages/downright.htm

P.P.S. If you care about PC performance, you might want to rethink virus scanners, or at least how you use them. They are generally a constant drag on PC performance. They are best used in batch mode (overnight, etc.). The best virus scanner is good judgment in what you click on.

[Zen-like Todd]

Keeping this really short (or at least I'll try, I dont have the time to give it the attention it actually deserves).

People use their market cap all the time to make business acquisitions. People invest in companies based on the prospect of future earnings, and these companies often use that capital to acquire resources from often larger (asset-wise) partners, whether that capital is intellectual, labor, brand, or physical. Its not a sham, and I dont know whether this ever hit the wires or not, but a year earlier, TW approached AOL about acquiring them, not the other way around (AOL's market cap was smaller at that point). The end result was a more specifically a merger and not a true acquisition. That the market drove up AOL's market cap at that point in time is not AOL's problem, and was far more a condition of the market than of AOL in particular.

As far as the debt, it's not that massive, and some of that will disappear in the next few months through IPOs and the sale of non-core assets (such as your precious Atlanta Braves )

AOL was never a pure Internet play. AOL was in business long before the Internet hit the mainstream, and had millions of subscribers before it ever had any means of Internet access. Again, you are speaking as if the stock runup was a condition of AOL, which is just silly. I could name a ton of crazy high profile IPOs by Internet companies that unlike AOL had no income to speak of, let alone profits, yet wound up with huge market caps. Again, AOL had a huge, growing, thriving subscriber base.

Again, AOL is NOT a utility. It never was. Would you call TIME a utility? No, of course not. AOL is not a utility simply because AOL provided connectivity infrastructure (not strictly true, the true base infrastructure obviously belonged to the telco companies). They were always about content, value added content, and their content offerings in the early 90s stomped all over the weak offerings available on the Net at that time.

You keep going on with this later as you speak of them not being a particularly GOOD utility company. They aren't. Not at all. As far as bandwidth constrictions in interesting content, I wouldnt necessarily say thats true, although again, its irrelevant, because at its core, AOL is not an ISP. Otherwise, they wouldnt be selling BYOA (Bring Your Own Access). What do you get for BYOA? A screenname so you can send IMs? You get that for free anyways. You're paying for the content.

Their e-mail reader wasn't backwards. In fact, their e-mail hosting and distribution system was, and still is, for the most part, far more advanced than typical internet schlock, managing massive amounts of e-mail delivered instantaneously (really, instantaneously) within the system. While the interface was simplified, that was completely intentional, and was a design choice rather than a result of limitations of any sort.

Damn, ran out of time again. Two quick things.

Personally, I didn't see $200 billion of value in that value proposition

Its not a value proposition. Not at all. It's all about millions of eyeballs (subscribers), specifically, eyeballs with a credit card on record who trust that AOL isnt going to rip them off (which is more than can be said for the random webstore).

See, this is the big question. TW should have brought cable-modem access and premium content to AOL. Why they haven't been able to get that obvious synergy to work (yet) is a mystery to me. There's a lot of potential value in the combination that hasn't been realized.

Duh. No time to talk about this, but in simplest terms, the merger was sabotaged internally by TW division managers who viciously protected their bottom lines, treating the divisions as independent businesses, while AOL (perhaps nievely) entered into the partnership with open arms, cross promoting like mad, increasing revenues for New Line and the WB movie divisions, among other thing, while making AOL look nasty. The other divisions wanted to charge AOL for the content, etc, etc.... Sounds stupid, but at the end of the day, the press releases show a weaker AOL unit, while the other divisions are sitting pretty. Ultimately destructive to the overall company, but corporate infighting is a nasty business. I could tell you why and how things got this way, and what the problems actually are, but I dont have the time, and probably shouldnt share this anyways.