AOL is planning to hire hundreds of journalists, editors and videographers in the coming year as it builds up its content-first business model. David Eun, president of AOL’s media and studios division, says: “We are going to be the largest net hirer of journalists in the world next year… Our mission at this company is to be the world’s largest producer of high-quality content, period.” He argues that “the content driving our traffic is home-grown, and 80% of it is now produced by folks on the AOL payroll.” AOL employs about 500 full-time editorial employees. The content operation, which includes more than 100 brands, including AOL Health and AOL Autos and brands such as Fanhouse and PopEater, will be reorganised into 17 separate “networks” that the company will package to advertisers. In addition to hiring staff, Eun also wants to ramp up the number of freelancers contributing to AOL. Currently, there are about 40,000 freelances contributing to AOL.
Buying a fledgling social networking site is the quickest way for a giant corporation to gain credibility with a youthful audience, but it is also the fastest way to waste a few hundred million pounds.
US internet giant AOL snapped up Bebo, the UK equivalent of Facebook, for $800m two years ago, only to announce last week that it was embarking on a “strategic review” that is likely to lead to its closure. At the time of the deal in March 2008, which made millionaires of Bebo’s founders Michael Birch, a Briton, and his Californian wife, Xochi, AOL described it as “a game-changing acquisition” that “puts us in a leading position in social media”. That lead evaporated remarkably quickly.
Back then, Bebo had a global audience of between 7.1 million (according to online ratings company Nielsen) and 40 million (said Bebo). Most agreed it was the third largest social networking site in the UK behind Facebook and MySpace, although it had struggled to gain traction in the US. According to figures from ComScore, Bebo’s global unique visitors in February 2010 totalled 12.8 million, down 45% on February 2009. Facebook had 462 million visitors, MySpace nearly 110 million, and Twitter 69.5 million.
What went wrong? Being brought by a global corporation tarnished the cooler-than-thou image of an independent start-up that was particularly popular in school playgrounds. Aggressive expansion by Facebook also played a part. Like most social networking sites, Bebo also benefited from a novelty factor that can disappear as quickly as it emerges. News Corp, the media conglomerate controlled by Rupert Murdoch, bought MySpace for $580m in 2005, only to watch its appeal diminish along with its value as it loaded the site with adverts.
ITV took a gamble on another UK start up, Friends Reunited, paying £120m in the same year, only to sell it at a huge loss last year. Company insiders criticise AOL for failing to invest in Bebo, and point out that an acquisition by a corporate giant tends to stifle creativity. That may hide a more uncomfortable truth, however, which can make a mockery of the savviest owners. Social networking sites are businesses based on the fickle behaviour of internet users, who are free to move on to the next site when a competitor emerges and are offered few reasons to stick with their existing site. In that sense, Bebo was a fad.
It may not have fallen into the trap of letting naked commercialisation scare its teenage users away, but nor did it evolve in the manner that many of its competitors did. Facebook is used by adults as well as children. Much of Twitter’s power, influence – and likely longevity – derives from the fact it has become a professional tool, rather than an online outlet for gossip posted by its users.
Start-ups rarely fare well when they are taken under the wing of a bureaucratic corporate parent, and Bebo may also have suffered by hitching its wagon to AOL, a business that has itself seen better days. It is owned by Time Warner, an American media giant that owns CNN, Time magazine and a host of other assets, but the $162bn deal that brought AOL and Time together is now regarded as one of the most disastrous in corporate history.
Buying Bebo was an attempt to build on AOL’s status as the world’s first internet provider by bolting on a new audience, but internet users are notoriously promiscuous. For Bebo’s young users, the site turned out to be the online equivalent of a teenage crush – intense while it lasted, but it didn’t last…
Faded Internet star AOL is reinventing itself as a digital age news operation with an army of freelance writers wielding online tools. Fresh from being spun off by Time Warner in December, AOL launched Seed.com to groom freelance writing talent to crank out stories for its array of websites on topics ranging from pets and sports to politics and technology. “AOL is repositioning itself as a news and information company,” Seed programming director Saul Hansell said Tuesday as he demonstrated the website at the annual South By South West (SXSW) gathering of technophiles. AOL editors post assignment descriptions on an online Seed bulletin board. Pay for writing jobs ranges from five dollars to 300 dollars per article. Writers then submit their versions of a story along with headlines and pictures. AOL editors sift through queues of submissions deciding whether to accept, reject or kick stories back for improvement. Authors names are displayed on stories at AOL Web properties without “asterisks saying ‘look at the cute little citizen journalists,'” Hansell said. Freelancers that have proven themselves may be given personal assignments and invited to pitch story ideas. Seed is in a testing phase and is expected to evolve with feedback
More than 200 new sites have adopted hNews microformatting, the new transparency system for organising metadata in news stories, the Associated Press has confirmed. hNews, a past winner of the Knight News Challenge, attaches location and authorship information to news stories. It also provides the subject matter of the story, where it was written, any usage rights associated with it and any news principles to which it adheres. Part of the Value Added News project, it was launched by the Web Science Trust – of which Sir Tim Berners-Lee is a trustee – and the Media Standards Trust. This month’s new sites join hNews existing partners OpenDemocracy, AOL and TownNews. In July 2009 the AP announced it would trial the microformat on all AP news stories and launch an AP Developer API in beta, making news stories in the new microformat available to third parties.
AOL is pushing ahead with its focus on creating content by launching two websites, Owl and Seed, which allow users to post “expert” advice and get paid for submitting essays and photographs. Despite being in the midst of a major redundancy programme, AOL is pressing ahead with new launches as part of chief executive Tim Armstrong’s strategy of doubling its content properties in the next 12 months. Owl, which is currently in Beta, claims to be a “breathing library where useful knowledge, opinions and images are posted from experts the world over”. It covers topics such as arts and entertainment, health, lifestyle, money, science and technology and sports. The site encourages users to upload and share their thoughts by submitting content via Seed. Seed, also currently in Beta, gives writers and photographers the opportunity to submit work either on any topic they like or in answer to a brief posted by AOL. Payment to writers for open submissions is 50 percent of AOL’s profits if the piece is exclusive or 20 percent if it is not. Where pieces are submitted in response to a brief AOL takes exclusive rights over the content in return for payment calculated by a formula taking into account advertising and page views for the pages where the content lives. The site will be housed within AOL’s Media division, which was rebranded last year from MediaGlow.
US Internet company AOL announced on Tuesday that it intends to close its French and German offices as part of a worldwide round of job cuts. AOL began meetings at its European offices on Monday, when it announced plans to shut down installations starting in Spain and Sweden. AOL, which was spun off from media giant Time Warner last month after a troubled merger, had announced in November it would take a 200-million-dollar charge as part of a restructuring as it regained independence. In December, AOL said the reduction in the workforce, representing about 2,500 jobs, was to be voluntary, with involuntary lay-offs to be used only if the restructuring target were not met. But only 1,100 employees took the voluntary departure programme, AOL spokeswoman Alysia Lew said on Monday. In the United States, the New York-based company said it began notifying “a limited number of individuals” affected by the lay-offs on Monday, with the majority of the pink slips being delivered on Wednesday. AOL, which employed 19,000 people in 2006, will have 4,400 employees after the restructuring plan is completed. The company is currently the number four gateway to the Web after Google, Microsoft and Yahoo, while its dial-up Internet access business has been gradually supplanted by high-speed broadband services.
AOL is putting the finishing touches on a high-tech system for mass-producing news articles, entertainment and other online content, the linchpin of Chief Executive Tim Armstrong’s strategy for reviving the struggling 25-year-old Internet company after Time Warner spins it off next month. Mr. Armstrong’s goal is to make AOL, which has been losing visitors and revenue, a magnet for both advertisers and consumers by turning it into the top creator of digital content. He hopes to do so in part by turning some media and marketing conventions on their ear, and potentially blurring the lines between journalism and advertising. AOL is betting it can reinvent itself with a numbers-driven approach to developing content, based on what Web-search and other data tell it is most likely to attract audiences and sponsors. Instead of waiting to sell ads until an article or Web video is produced, AOL—which has scores of niche sites, such as beauty and fashion site Stylelist, in addition to its AOL brand—says it plans to offer marketers the chance to work with its editorial team to create custom content. AOL says that its ad model will allow advertisers to be affiliated with the content but not control what is written or created. Media experts and others say that disclosing when articles or videos have been shaped by advertisers will be crucial to AOL’s credibility.
It was an auspicious occasion, the business titans of the West standing shoulder to shoulder at the dawn of a new century. On the stage of the Shanghai International Convention Centre, in late September 1999, the crème de la crème of business achievement smiled at the hundreds of delegates, both Chinese and from around the world, who had gathered for the Fortune Global Forum.
From AIG’s Hank Greenberg to Viacom’s Sumner Redstone, from Yahoo!’s Jerry Yang to General Electric’s Jack Welch, the three-day gathering was a veritable who’s who of corporate America.
Among the high-powered throng were two other men, perhaps less well known to the crowd. Gerald “Jerry” Levin, chairman of Time Warner, the media giant which had been formed 10 years earlier from the $14bn (£8.4bn) combination of Time Inc and Warner Communications; and Steve Case, chairman of AOL, the dotcom darling which had effortlessly swallowed Netscape for $4.2bn just months earlier.
It was at this rather grand gathering that the first seed was sown. Case pulled Merv Adelson, a long-time Time Warner board member, to one side, and asked him whether Time Warner’s board had thought about merging with AOL. Adelson went straight to Levin, who shrugged and initially dismissed the suggestion. But within three months – after a series of clandestine meetings in New York and Boston and a dinner at Case’s home – the two men announced the $360bn combination of AOL Time Warner on January 10 2000.
One of the world’s biggest media content companies was to merge with one of the largest distributors of internet content – a match made in mergers and acquisition heaven. It was the biggest corporate merger the world had ever – or would ever – see, and the supposed start of an expectant new age where traditional media companies would work hand-in-hand with their internet rivals.
Or at least, that was the theory. But within months – before the merger had even received regulatory approvals – things were beginning to sour. By December 2000, Time Warner issued a damaging profit warning that saw its shares plunge by 14pc within a day. It was downhill all the way from then on, and by the time the two companies formally combined in January 2001, it was clear to insiders that the cultural clash between the two would prove insurmountable.
A decade on, with AOL on the verge of stepping out from Time Warner’s shadow, by means of a long overdue demerger scheduled for December 9, the corporate world now has a chance to assess not only what went wrong, but also what the implications are for the two companies as they emerge from a decade-long corporate headlock – and for the rest of the industry as well.
Levin and Case knew little of one another – and arguably of one another’s businesses – before they struck the deal. An ageing Levin, a lawyer by training, had worked his way quickly through Time Inc’s corporate ranks, and while aware of the need to have an internet strategy, had little idea of the best way to get one.
Case, 20 years his junior, could not have been more different, having worked first in marketing for Pizza Hut, and then at a business which initially delivered computer games down telephone lines and eventually grew into America Online (AOL). A poster child for the internet age, by the age of 40 he had amassed a $1.5bn fortune and was running one of the world’s 25 biggest companies.
In the negotiations for the deal, Case used AOL’s larger market value to dominate Levin. He made sure he would have his key men around him, with AOL lieutenants taking the top financial job and one of the co-chief operating officer roles. Case became chairman and Levin chief executive in charge of operations. Neither man wanted to cede control.
According to Nina Munk, whose book Fools Rush In is the authoritative account of the merger and the subsequent fall-out, “even before the deal was announced, it was clear to just about every insider that this was going to be a fiasco”.
“As one of the top bankers who worked on the deal told me, trying to merge AOL with Time Warner was ‘like trying to mate a horse with a dog’,” she told The Sunday Telegraph.
Munk’s argument is that the deal was motivated not by logic or strategy but by egos, in particular the “fragile ego of an ageing Jerry Levin”. Board discussions quickly became fraught following the merger itself. Ted Turner, a director and the company’s largest shareholder, went public over his dislike of Levin, while Case and Levin came to blows on several occasions. The door to the chief financial officer’s office became a revolving one, with four occupants in three years and by the start of 2003, Case and Levin had both fallen on their respective swords.
The boardroom ructions meant that the new company never really merged. Although each of the two original companies had its own reason for merging – AOL wanted broadband capability from Time Warner Cable and additional content to use across its sites; Time Warner desperately needed a way to digitise its content and reach out to a new online audience – neither strategy was played out in practice.
Integration did not take place – apart from at a corporate level – and as the various business units continued to stand alone, so the expected financial benefits from merging the two companies did not emerge. Negative synergies even developed, as AOL was held back from getting involved with external providers, in part because of a great suspicion of AOL managers by their Time Warner counterparts who believed they wanted to take over the entire company.
One of the biggest blows to the merger was the damaging revelation that AOL had been inflating sales to cope with falling advertising in 2000 and 2001 to the tune of $190m. The company paid a heavy price, with write-downs leading it to report a $98.7bn loss for 2002 – the largest in US history at the time. It also had to pay sizeable fines.
Given all this coincided with the bursting of the dotcom bubble – without which the all-share merger would never have been possible in the first place – it was perhaps no surprise that the men behind the disastrous merger jumped ship, and by January 2003, Dick Parsons, formerly co-chief operating officer, was left to single-handedly sort out the mess. What Parsons started – a slow unravelling of the merger which began with the removal of the AOL name from the merged business in 2003 – his successor Jeff Bewkes has accelerated in the 22 months he has been chief executive.
Where Parsons was heavily criticised for not being swift enough in demerging parts of the empire, Bewkes could not be accused of being slow to act. In his first year fully in charge – Parsons only stepped down as chairman at the end of last year – he has completed the demerger of Time Warner Cable, which produced $9bn in cash which he still has to hand, and paved the way for the impending demerger of AOL.
Unlike his forebears, Bewkes is not a fan of marrying distribution to content, believing the two should be separately managed, and has taken what many view as the correct decision to focus the company on its niche: content. Although a firm believer in the power of the internet in terms of increased viewers and readers, he does not see the need to reinvent content for online readers, rather just repackage and direct it in the best way possible.
Whilst its publishing division, the Time magazine business, is struggling – sales fell 18pc in the three months to September – Bewkes has recently dismissed suggestions that he might turn most of its 23 magazines into online-only operations.
When it comes to television, Bewkes believes in what he calls “branded networks” – that speak to specific segments of the audience. In the US, the business, through its Turner division, has a stable of strong cable channels including TBS, which positions itself as the home of comedy, TNT, the home of drama, and CNN, the home of independent news. The content-led strategy flows through into Bewkes’ remaining two divisions – premium content cable channel HBO and film business Warner Brothers – and is one he is set on.
To date his strategy appears to be paying off and while third-quarter results showed a slight dip in profits, he told investors the outlook for 2010 would deliver “steady and attractive” returns, perhaps why Time Warner’s share price has risen almost 50pc since the start of this year.
AOL’s future, however, does not look as bright. Although the strategy of chief executive Tim Armstrong is almost identical to that of Bewkes, focusing on content and increasing on-site advertising, the challenges he faces are more significant. Not only is he in the process of asking just over a third of AOL’s 6,900 workforce to take voluntary redundancy, but he also has to get the outside world to understand not only that AOL actually still exists, but what it stands for today.
At the recent Money and Media conference in New York, Armstrong stressed that AOL would not be the unfocused one-time internet behemoth of the past. Instead, he said he wants it to be the king of content, content people might not readily realise belongs to AOL. The company has slowly acquired a wide and varied network of news websites and blogs, from special interest news sites like Politics Daily and Blogging Stocks, to locally-focused news sites like the “Patch” sites currently operating in New Jersey and Connecticut. He’s also focused on delivering video content online, and is a strong believer in the power of social networking tools to deliver content, through the likes of Bebo and also AOL’s popular AIM and ICQ online chat tools. The theory is that the content and its viewer-base will drive advertising, in particular banner and display advertising.
But that’s where the mis-match is between Armstrong’s rhetoric and reality. What he does not really talk about is the fact that the “vast majority” – according to Time Warner’s recent results – of AOL’s profits come from its dying internet access subscription business. That business lost 2.1m users in the year to September 2008, and now has just 5.4m users and counting, downwards. The media business, which relies for some of its web traffic on the access business, loses approximately $600m a year. Unless Armstrong can work out how to replace those profits – and quickly – AOL’s financial future looks highly uncertain.
Just as AOL finally emerges from Time Warner’s shadow, two other media companies look set to travel the same rocky route. Comcast’s advanced discussions with General Electric about a joint venture with the industrial conglomerate’s NBC Universal division is exactly the marriage of distribution and content that failed at AOL Time Warner.
And just as they did nearly 10 years ago when that merger was taking shape, Wall Street’s technology and media analysts are getting over-excited at the prospect of Comcast and NBC joining forces, in spite of the lessons of the recent past.
It would “accelerate new business models, momentum for online authentication, new approaches to on-demand and online windowing content, and interactive advertising initiatives,” wrote Bank of America Merrill Lynch analyst Jessica Cohen in one note. Very few have sounded caution, although Macquarie’s Ben Stretch did note earlier last week that there appear to be growing “howls” about the deal, arguing that “vertical integrations fail to add value”.
Some media giants appear to have learned from the mistakes of their rivals, with Sumner Redstone’s Viacom spinning off CBS and creating Viacom’s cable networks business, while Barry Diller’s IAC has demerged a number of smaller entities to provide value for shareholders and strategic focus. Yahoo!’s decision to essentially hive off its search engine to Microsoft and focus on big-name advertising clients is somewhat similar.
Indeed, although not directly related, the lessons of the financial crisis are also prescient here. Some argue that the marriage of consumer banks to investment banks in the 1980s and 1990s created a toxic atmosphere which led to the creation of derivative products and the absence of risk management, the after-effects of which are still being felt. The excess and lack of forethought seen in the AOL- Time Warner deal is similar to this.
In a corporate world where big has always tended to be seen as better, perhaps the implications of the fall-out from the AOL-Time Warner fiasco might stop other business leaders wandering aimlessly down the value-destructive path trod by Case and Levin 10 years ago. The titans were brought down to Earth with a crash.
The UK Internet Service Providers Association ( ISPA ) and broadband ISP TalkTalk ( The Carphone Warehouse , Tiscali , AOL etc. ) have both come out in strong opposition to some of yesterdays Digital Economy Bill measures, which have been designed to tackle illegal downloading.
The Bill proposes that the Government can introduce new measures to punish people they think are infringing copyright without having to prove their case in court. This so-called secondary legislation appears to side-step any debate, oversight or public scrutiny. Both are particularly concerned that the proposals grant far too much control to the Secretary of State, who will have the power to make specific recommendations on costs and impose an obligation on ISPs to use technical sanctions. The ISPA believes that an independent body would be a fairer way to assess these factors.
ISPA Secretary General, Nicholas Lansman, said:
“ISPA is extremely disappointed by aspects of the proposals to address illicit filesharing. This legislation is being fast-tracked by the Government and will do little to address the underlying problem. Rather than focusing blindly on enforcement, the Government should be asking rightsholders to reform the licensing framework so that legal content can be distributed online to consumers in a way that they are clearly demanding.”
ISPs believe that to reduce illegal filesharing, music and film fans must be encouraged back to legal services through education and by making content available in a form and at a price that people find acceptable. TalkTalk’s own research shows that over 85% of people think there is not enough legal music and film content available on the Internet at a fair price. Dunstone has again reiterated his promise to only release customer details to rights holders following a court order, although ironically yesterdays Bill promised that details would only be released to copyright owners for further action “after obtaining a court order“. TalkTalk added that they would refuse any request to cut-off customer accounts and take legal action to protect their users.
Meanwhile the ISPA has also raised concerns about the allocation of cost. Consistent with the principle of beneficiary pays, ISPA rejects an apportioning of costs and believes that rights holders should shoulder this burden including reimbursement of ISPs’ reasonable costs. Presently the copyright owners will only pay the cost of notification letters. Both TalkTalk and the ISPA also oppose all of the new technical measures, which include the ability to slow a customers connection, block illegal sites and services or even cut-off user accounts, and have called for them to be dropped from the bill. Sadly we fear this is highly unlikely to happen as the government has proven unwilling to listen. It should be noted that ISPs do appear to support the notification / letter warning system.
The co-founder of Twitter today warned Rupert Murdoch that his plans to charge for online content, and block Google from using stories produced by his News International titles, were a vain attempt to “put the genie back in the bottle”.
In recent weeks Murdoch has launched a vitriolic attack on Google and other web companies, accusing them of “stealing” content created by his titles, including the Times and the Sun. Management at News International is working on plans to introduce an online paywall next spring and prevent stories from being linked to by sites such as Google News.
Twitter co-founder Biz Stone today warned that Murdoch “should be looking at it as an opportunity to do something radically different and find out how to make a ton of money out of being radically open rather than some money by being ridiculously closed”.
Speaking at an event organised by the National Endowment for Science, Technology and the Arts (Nesta) in London, Stone added that the speed of change on the internet meant Murdoch’s plan was likely to “fail fast”. He was joined in his attack by Reid Hoffman, co-founder of networking site LinkedIn, who added: “I am sure that during the transition from horses to automobiles there were some people bemoaning the loss of horse transport.”
In contrast, Stone said Twitter’s future lay in making more of the service available to application developers and other partners so they could build on the stream of “tweets” created by its users. The social networking site’s users post more than 500 messages per second. The service is increasingly being used by news organisations as a way of discovering breaking news.
“I don’t know what the future of traditional media is,” said Stone. “But from my perspective and Twitter’s perspective I think there is a wonderful co-operative alliance there in terms of the wisdom of crowds, and as we add things to Twitter… maybe we can help.”
Twitter, which was valued at more than $1bn just over a month ago, is looking to drive revenues and eventually start making a profit. It plans to introduce some new features over the coming months. Stone, who set up the company just two years ago, said that by the end of the year it would have begun to offer its corporate users a suite of new analytical tools to help them use Twitter to keep in touch with customers and keep an eye on their brands. An increasing number of corporations, from mobile phone companies to airlines, have added Twitter as a means by which customers can get in touch.
Twitter is also considering giving its users reputation scores, which would help traditional news organisations using the social networking service to spot breaking news stories. Twitter recently announced search deals with both Google and Microsoft’s Bing and the deals added fuel to recent speculation that the micro-blogging site might be a takeover target for either business.
But Stone emphasised a sale was not on the cards: “That was never something we were interested in talking about”. Instead, the company was interested in doing more partnership deals. “One of the things we are seeking to do as we have already done with Myspace as we have done with LinkedIn, as we have done with AOL, as we have done with Google, as we have done with Bing, is to share our data and form partnerships that are long standing… Twitter wants to work with social networks, with mobile networks, with TV networks with search engines… we want to put a little Twitter in everything.”