In The News

September 19th 2003

Once-Golden 'AOL' Is Shed From Name of Media Giant

By Edmund Sanders, Times Staff Writer

WASHINGTON — When it came time to christen the world's largest media conglomerate three years ago, there was no question which company's name would come first: that of the highflying Internet service provider America Online.

Thursday, AOL Time Warner Inc.'s board of directors voted to erase the most visible reminder of that ill-fated marriage of old and new media. The company will be known as Time Warner Inc., reverting to the name of the stalwart entertainment and publishing giant that was gobbled up by the cocky dot-com.

"Psychologically it's a big positive; there was a lot of bad feeling associated with the merger," said Jessica Reif Cohen, a media analyst at Merrill Lynch & Co. in New York. Removing the AOL name, she said, sends the message that the "inmates are no longer running the asylum."

The merger that created AOL Time Warner was supposed to reinvent the media world by meshing prized entertainment assets with the Internet's ability to deliver. At the time, it was hailed as nothing less than a model of the New Economy.

But the "synergies" that were supposed to usher in this new era never materialized. As the online unit's struggle dragged down the entire company and its once-golden stock price, AOL Time Warner quickly became synonymous with failed corporate ambitions.

Analysts warned that the media giant still faced significant challenges that a new corporate logo wouldn't solve.

"They may be hoping that by dropping the name they can forget the merger ever happened," said Denise Garcia, an analyst at GartnerG2, a technology research firm, in New York. "But they're still going to have to figure out how to integrate and become a digital media company."

Over the next four years, analysts fear, AOL could lose more than 10 million of its 26 million dial-up subscribers, as many seek out faster and more powerful broadband services.

To counter this trend, AOL unveiled a variety of services this year, including exclusive access to Time Warner's publishing and film properties, tougher anti-spam controls, animated buddy icons and the ability to transfer files and photos via instant messaging.

Many have applauded these measures, introduced by America Online Chief Executive Jonathan Miller, who was brought in about a year ago to help turn the unit around. But some say the clock is ticking on his grace period, and analysts and investors soon will be demanding results.

Also looming on the horizon: The Securities and Exchange Commission and the Justice Department are investigating allegations that AOL improperly inflated its advertising revenue.

The Time Warner side of the company is doing well overall but faces its own challenges. The music division is struggling with sluggish sales, and its dim outlook has been driving talks of a merger of that unit with another record label. Music, like the film and cable television divisions, faces a threat from digital piracy.

Such problems were unforeseen when the $106.2-billion merger between the world's largest Internet service provider and the world's largest entertainment company was conceived at the peak of the tech boom.

The name change was initiated by Miller. He told employees in an e-mail Thursday that it ultimately would bolster the AOL brand, which he said had been diluted over the last two years by its association with the larger parent company and various sister businesses.

"There undoubtedly will be one more round of stories written about this step as a comedown for AOL," Miller said. "Yet I want to encourage you to look at it instead as part of our comeback." The company expects to complete the name change by next month, replacing signs outside the New York headquarters and changing its stock ticker symbol back to TWX.

Company officials would not discuss how individual board members voted on the change, and the directors were not available for comment, a spokeswoman said.

In many quarters, the vote was seen as a rebuke, one aimed in particular at former AOL Time Warner Chairman Steve Case, a chief architect of the merger who still serves on the company's board.

"It's clearly a slap in the face for Steve Case," said Ken Marlin, managing partner of investment bank Marlin & Associates in New York.

In Dulles, Va., home of the America Online unit, employees greeted the name change with quiet resignation. Workers in Dulles long ago gave up aspirations for corporate dominance and have refocused their attention on core Internet products.

"It's another sign that the merger, as it was originally structured, has been reversed," one employee said, noting that it was America Online that originally bought Time Warner.

Said another AOL unit employee: "Personally, I think it's great. If anything, it will take pressure off."

Wall Street largely shrugged off the news. Shares in the company rose 14 cents Thursday to close at $16.45 on the New York Stock Exchange.

The name change renewed speculation that AOL Time Warner might eventually sell the America Online unit, though Parsons has said repeatedly that he saw future value in the unit and had no plans to sell it.

"But I think senior management at AOL Time Warner has put the division on a pretty short leash," said Mark May, analyst at Kaufman Bros. in New York. "They have until mid-2004 to show signs of improvement and to stem the losses of subscribers."

Times staff writer Joseph Menn contributed to this report.