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Is Time Warner Finally 'Getting' The Internet?

Time Warner seems to be finally putting its six-year-old AOL merger debacle behind it, thanks to recent aggressive moves to promote a new Web strategy.

Time Warner seems to be finally putting its six-year-old AOL merger debacle behind it, thanks to recent aggressive moves to promote a new Web strategy.The recent decision to move to an advertising-supported model for AOL, and to offer for free services previously available only to paid members, was a decided step in the right direction, according to preliminary results revealed by Jeffrey Bewkes, president and COO of Time Warner, in a presentation to the Goldman Sachs Communacopia conference this week.

The most positive news: The strategy is successfully wooing new visitors to the site--visitors who have never been paying customers. According to Bewkes, more than 40% of new users of its expanding portfolio of services are neither existing nor former subscribers. Calling advertising sales "robust"--albeit without giving any specific numbers--Bewkes emphasized that the advertising model will result in lower operating costs and therefore higher profits in the long term. However, he admitted that the loss of subscription revenues will outpace increases in advertising revenues for at least another 12 months.

Still, Bewkes said, "People weren't leaving AOL because they didn't like it; they were leaving because they wanted to go to broadband." He stressed that the company's estimates of the potential for online advertising revenues for other Time Warner brands such as CNN and People was substantial.

Among other announcements made just this week that bode well for Time Warner's online prospects:

  • AOL on Monday opened its video search platform to third-party developers and content owners. Through the program, AOL has made application programming interfaces available for content owners to submit feeds to the AOL Video Search index. The purpose: to build as large an index as possible for AOL users looking for video content throughout the Web.

  • Stepping up its aggressive strategy to deliver video on demand, AOL announced it would give users the capability to watch movies, TV shows, music videos, concerts, and other AOL Video content on a TV attached to a Viiv computer.
  • Finally, Warner Music Group--a sister company of AOL--signed a deal with YouTube to legally put videos and music on the popular video-sharing site. The arrangement allows millions of people who upload their homemade videos to YouTube to license an array of Warner Music's songs, including music from Paul Simon, Madonna, and Red Hot Chili Peppers. The pact also helps the music label distribute videos, behind-the-scenes footage, artist interviews, and original programming, as well as allows them to share the ad revenues derived from ads placed next to Warner content.
  • Investors believe Time Warner is moving in the right direction. For the last eight months, Time Warner shares have experienced larger and faster growth than new media powerhouses such as Google, eBay, and Amazon, as Douglas McIntyre reports on his blog. Although AOL has experienced deteriorating sales and operating profits, investors are obviously being patient that Time Warner is finally making some right decisions.

    And by any account, early signs of a turnaround have come none too soon. Nielsen NetRatings released numbers this month that showed the media giant's largest online brands actually declined over the past 12 months. A case in point: AOL's total unique audience for August 2006 was 74.5 million. This was down slightly from the 75.7 million measured in August 2005. Included in these figures were AIM and Moviefone, which have also failed to achieve any increase in visitors over the past year. CNN, however, managed to hold its own, tallying up 23.5 million unique visitors in both August 2005 and August 2006.

    It's too soon to tell how recent online strategizing will impact these numbers. Indeed, the big question that analysts are asking is whether the firm is being as aggressive as it needs to be. Bold as recent moves have been, Time Warner has a lot of catching up to do when it comes to increasing traffic at rates comparable to those being seen by the other major portals. More deals are necessary, particularly with further sharing of revenues by allowing online distribution of content.

    What do you think? Is Time Warner finally on the right track? Is it doing enough? Weigh in by responding below.

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