Yet another shadow was cast over investors last week as the share price of AOL Time Warner tumbled in the wake of news that the company’s accounting practices were being investigated by the US financial watchdog, the Securities and Exchange Commission (SEC).
The news broke at the same time as the world’s largest media company published second-quarter results showing an 11 per cent drop in advertising revenue for its Internet arm AOL, as against a two per cent rise in advertising and commerce revenues for the company as a whole excluding AOL.
Industry experts were left thinking that the merger of AOL and Time Warner may turn out to be one of the worst corporate couplings in history. Speculation is mounting that the world’s largest media group will be broken up, putting into play the future of UK magazine publisher IPC Media, which was bought by AOL Time Warner for &£1.15bn a year ago. At the time, there was much talk of extending IPC’s magazines into masthead programmes, using its content online, and cross-promoting subscriptions to AOL Europe.
The SEC investigation was triggered by a report in an American newspaper suggesting that AOL may have inflated its revenues in 2000 to take into account $140m (&£89.7m) in ad sales from online auction company, eBay.
The discrepancy came to light days after the resignation of AOL Time Warner chief operating officer Bob Pittman, who was president and chief operating officer at AOL before the merger with Time Warner. His departure has paved the way for management, which has its roots in old media and Time Warner, to come to the fore. Recent events could force them to look closely at a possible demerger of AOL and Time Warner.
How this will affect IPC remains unclear, but speculation is rife that the UK publishing operation might be sold off, allowing the holding company to focus on the US business.
One rival says IPC could be forced to sell off some of IPC’s divisions to raise cash quickly, such as Ignite!, which publishes titles including Loaded and NME.
However, a City analyst adds: “The fact that the merger worked out to be a terrible deal for Time Warner has been known for a while, as the combined company’s stock has fallen more than 70 per cent since the merger. That is not to say the time is right for any sort of demerger.”
He adds: “Full details of the investigation have yet to be revealed, but it does not appear that it will have a major impact on IPC, which is a relatively small business for AOL Time Warner. The company has bigger problems to solve, such as maintaining shareholder confidence. Time Inc remains the gold standard in magazines and IPC seems to be one of the jewels in its crown.”
A spokeswoman for IPC Media says the company is “squeaky clean” and could not have anything to do with the accounting investigation as the period in question occurred before the publisher was bought by AOL Time Warner.
Industry experts suggest the events of last week will not help IPC, which they say has so far failed to show any advantage in being part of AOL Time Warner. Instead IPC has axed six titles and closed its events and exhibitions division IPC Live! with the loss of 115 jobs (MW November 15, 2001). Woman’s Journal, one of IPC’s longest running titles, and Your Life are among the titles to go.
One industry insider asks: “What happened to all that talk about AOL Time Warner wanting to use IPC as a route to the UK market for its US titles such as People?”
A publishing rival says: “IPC Media once used to sing its chief executive Sly Bailey’s tune – ‘brand centric and media neutral’. But that is no longer the case and the company has gone back to its roots of being a publishing house.”
The industry does not anticipate many more closures at IPC. The head of press at MediaCom, IPC’s media agency, Steve Goodman says: “IPC is still as good a company as it ever was and I do not see the problems in the US affecting the UK business. The magazines are doing great business and the company’s advertising revenue is growing.”
Figures from the Audit Bureau of Circulations (ABC) for the period June to December 2001 for IPC show an overall circulation increase of 0.5 per cent year on year and 9.1 per cent period on period.
Another press buyer adds that the company threw out its dead wood in November last year when it closed the six titles. “Closures might happen across the entire magazine sector, and that could mean IPC titles as well. The question however remains whether being part of a media owner such as AOL Time Warner has benefited IPC. In the current climate, the answer is no.”
Earlier this month, AOL Time Warner set up an ad council in an attempt to push cross-media campaigns across its brands in the UK. The company recently joined forces with Unilever in a three-year multi-million dollar global partnership, designed to produce initiatives for Unilever brands across its online, broadcasting and publishing ventures, including IPC’s titles.
But a rival publisher questions the future of AOL Time Warner’s ad council in the UK, and says that in the US the company’s plans for cross-media deals have already failed because of disputes within divisions and a complex bureaucratic structure.
There may be no immediate ramifications for IPC arising out of the SEC investigation into AOL, but the future of the UK publisher will be far from clear should AOL Time Warner be broken up.