Time Warner CEO Jeff Bewkes said Friday that plans to unload AOL were forestalled last year by ongoing discussions with potential partners in pursuit of a strategic merger.
“We thought about it last year. (But) there were a lot of things going on last year, including some conversations (with and) between other companies. Some of those scale opportunities were under consideration,” Bewkes told investors Friday at the Sanford C. Bernstein & Co. Strategic Decisions Conference in Gotham.
He spoke one day after the media giant announced plans to spin off AOL, and Wall Streeters were full of follow-up questions.
Bewkes didn’t name the companies involved in the talks. But it was widely reported as Yahoo, Microsoft, News Corp., AOL and others danced around each other for many months — with ultimately little to show for it.
Bewkes said the main hurdle in divesting AOL is filing with the Securities and Exchange Commission “and having the SEC declare the filing accepted.” That takes a few months. He noted that the process to divest Time Warner Cable took much longer because it had to pass muster with the Federal Communications Commission. He reiterated that the AOL transaction should be wrapped up by year’s end.
Asked for details of the transaction to create a new, stand-alone AOL, he said, “It’s really up to us” and hasn’t been decided. It could be “a spin, or a combination of a spin and other elements.”
AOL does not have its own board of directors; Time Warner Cable already had its own pre-split. Bewkes said one would be in place at AOL by year’s end.
He said he can’t specify how much debt will be attributed to the new AOL until its method of separation is determined.
And queried on why Time Warner decided not to split AOL into two companies, subscription and advertising (a solution that had been considered), he said the parts are too closely linked.
“The health and strength and launching velocity of the advertising part of AOL uses the engagement of the paid subscriber pool… Traffic from the subscription business works in a dynamic way with the growing audience business,” he said. “We decided it wasn’t a good use of time” to figure out how to separate them.
He’s upbeat on AOL’s prospects under CEO Tim Armstrong, a former Google exec. “Tim is really very good, and we think the team is going to be very successful. (It’s) working very well and has a renewed sense of optimism and energy.”
All of which doesn’t change the fact that Time Warner was “crazy” to do the merger with AOL back in 2001, Bewkes said.
Looking ahead, Bewkes echoed the sentiment of other CEOs in noting that economic conditions have stabilized somewhat for Time Warner since the company reported its first-quarter results in late April.
Time Warner is less exposed to advertisings fluctuations than some of its peers. About 25% of its business is ad driven — a figure that will drop to 20% after the split from AOL.
Ratings at most of the cable networks are up. The studio continues to generate oodles of cash.
Readership of Time Inc. magazines is also up. But publishing, squeezed by a prolonged advertising drought, is a drag on growth this year, as it was last year, Bewkes said, sounding a warning note.
He said the division has cut costs as much as it can. “But where you’re talking about an advertising drop of the degree we’ve seen, you can’t offset it in 12 months,” he said.
“The question is, is it secular or cyclical? We think our publishing earnings can grow from where we are now…We think it’s going to be a support (in terms of earnings to the rest of the company). If it isn’t, then it doesn’t make sense for us to maintain public company ownership of something that we all agree can’t grow.”