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Time Warner (TWX)
Google Exec Now a CEO Under Time Warner
Google (GOOG: Charts, News, Offers) Senior Vice President, Tim Armstrong, will be taking over the reins at AOL. He will be replacing Randy Falco, the ex-Chairman and ex-CEO of that division. Currently, analysts are viewing this move favorably because Mr. Armstrong is credited with taking Google's advertising revenues to where they are today. He was also with the search giant through its good and bad times, almost since the beginning. Furthermore, he has solid experience in the industry and a solid reputation on Madison Avenue. At one point in time, analysts even believed he would become the CEO of Yahoo (YHOO: Charts, News, Offers). However, now that he is a part of Time Warner as the head of AOL, what kinds of hurdles will he have to tackle?
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For one, the division has been seeing continued declines in revenue. In 2008, its total revenue fell 20 percent to $4.2 billion. This is nothing new, what with the fact that they have been experiencing lower revenues for a few years now. With Mr. Armstrong at the helm however, there is renewed hope that he can raise cash inflows despite the economic recession. Though no specific strategy has been mention as to how he plans to achieve growth and change, there is reason to believe he will try to modify AOL's corporate culture to spur innovation. The current environment is one where innovative ideas are few. Perhaps this is due to Time Warner's business as a media conglomerate. In that industry, the type of innovation which would benefit AOL the most is different from what would benefit the company as a whole.
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For this reason, there is speculation that Mr. Armstrong will sell bits and pieces of AOL, if not spin off the entire unit from Time Warner. Would this seem like a logical move? Definitely. Time Warner once posted the biggest corporate loss in US history when their investment in AOL created problems and power struggles. That loss was $98.7 billion for year-ended 2002; AIG (AIG: Charts, News, Offers), however, surpassed this figure for year-ended 2008 when they posted more than $100 billion in losses. Another reason why a spinoff would make sense is that Mr. Armstrong's changes will be under the watchful eye of Time Warner's CEO, Jeff Bewkes. Mr. Bewkes may not be open to changes that Mr. Armstrong proposes because it may trickle into the other divisions at the company, which may not be the right for the company. Therefore, it would be easier to be separated and to act independently to restore AOL. It might even be easier if Microsoft (MSFT: Charts, News, Offers) or Yahoo came back to the bargaining table and took the struggling business off of Time Warner's hands.
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If Mr. Armstrong really wants to change things though, he may need new people working for him. This may be difficult to do, considering one memo Mr. Falco distributed in January before he left. In it, employees were told there would be 700 jobs lost. There are two perspectives on this, one good, one bad. The good part is with the recession, Mr. Armstrong will be able to find and select the high-caliber candidates he needs to turn things around. However, the bad part is the fact that when a company lays people off, it is usually not looking or not able to hire new employees. We will see just how this is handled, and if handled well, could be positive for both employees and shareholders alike.
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One thing for now is certain: change is going to occur one way or another. Those involved with the company should brace for better times just as much as bad times ahead. History may have a way of repeating itself, but looking ahead, this might be the time when positive changes can finally stay.
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