Time Warner Inc. is dumping AOL after spending nearly a decade trying to build a new-age media empire only to wind up in a weaker position than when the marriage began.
The divorce, announced Thursday, will spin out AOL as a separate Internet company run by former Google Inc. advertising executive Tim Armstrong. He was hired in March to try to restore the luster to a brand once known as America Online.
Time Warner owns 95 percent of AOL and will buy out Google Inc.’s 5 percent stake during the third quarter. From there, AOL will be spun off into a separate publicly traded company around the end of the year.
“We believe AOL will then have a better opportunity to achieve its full potential as a leading independent Internet company,” Time Warner Chief Executive Jeff Bewkes said in a statement.
The $147 billion deal in which AOL bought Time Warner in 2001 epitomized the mind-boggling wealth created during the dot-com boom and quickly became one of the worst corporate combinations in history. In 2002 and 2003, Time Warner absorbed nearly $100 billion in charges to account for the rapidly diminishing value of the combined company. Time Warner even dropped AOL from its corporate name.
AOL once defined the Web for millions of people. But much of its original revenue came from providing dial-up access, a business that peaked for AOL in 2002 at 26.7 million subscribers, back when AOL commonly stuffed free trial CDs in magazines and mailboxes. The march of broadband ate away at that business, and AOL had just 6.3 million dial-up subscribers at the end of the last quarter.
AOL responded to the trend by giving away most of its services, like e-mail, to drive traffic to its free, ad-supported Web sites. It also laid off thousands of employees to try to streamline. But after a few strong quarters, ad growth slowed and then began declining.