Interesting inside look at what transpired at Time Warner, with Jon Miller being replaced by Randy Falco:
Mr. Falco was not interested in anything but a chief executive’s position — otherwise he would have happily stayed at NBC Universal — but he was surprised when Mr. Bewkes offered him the job of running AOL. With digital distribution and the Internet the current obsession of all media executives, Mr. Falco did not see his lack of direct management of a Web business as an impediment.
“I’m not sure that convergence is the issue anymore,” he said. “There is a shift going on, and it’s dramatic; the consumer is living on the Net and as a result, the advertisers are on the Net.”
Read the full story here. I agree with Mr. Falco on that, the whole “convergence” buzzword is as much hype as synergy talk when there is a merger. The key is: there is an opportunity, people spend 25% online and advertisers spend 5% of their budgets online, we call it 25/5 Divide, feel free to suggest something catchier.
The interesting thing is that if AOL really wants to pursue ad opportunities, they should perhaps adapt their portal strategy and focus on developing niches, contextual ones. That seems to be the best way to manage one’s inventory. The problem with portals is that indeed they can charge hundreds of thousands of dollars for their main page, but the main page is limited in the sense that you can only sell 365 home page displays. Sure, this capped supply drives up proces, but it drives up prices to the point that advertising becomes cost prohibitive and marketers look elsewhere. This is what we think happened to Yahoo!, when it warned against Q3, 2006 earnings.
By cutting up a major site like AOL in smaller, more focused niches, they might make more money in the long run.
The thing that is curious is how long stockholders and Wall Street will remain patient. Time Warner’s stock has done much better than Viacom but has lagged Disney and News Corp. in 2006 (see which media company was the stock of the year here). If they sell AOL, which we don’t think they will, they will lose a lot of growth. It was growth that drove News Corp.’s stock in 2006. The problem is that MySpace - which drove growth at News Corp.’s FIM division is a few years old; AOL is mature and as such, moving the needle might prove harder.
We would know, working with AOL is not easy, never has been easy, and won’t be easy. But when Time Warner’s CEO Dick Parsons issues out his wish list, we can’t help but smile at the dichotomy between theory and practice. We’ll leave it at that…
Disclaimer: Yahoo!, I own the stock.
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