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New economy marriage gone bad

AOL likely to be dropped from name of corporation

Three years into an epochal "new economy" marriage that has proven to be a $100 billion debacle, directors of AOL Time Warner Inc. are expected today to formally scrub "AOL" from the media conglomerate's corporate moniker.

The New York company's likely return to calling itself Time Warner Inc. -- and the resumption of the famed TWX stock ticker symbol instead of AOL -- could be the ultimate symbol of the collapse of the dot-com bubble, a brief era when fast-growing Internet pioneer America Online Inc. grew rich and powerful enough to take over a venerable publishing and entertainment giant.

The change is also an indication of how the allure of the Internet has faded as information technology has become an everyday, integral part of most mainstream companies.

Company officials had no public comment about the agenda for today's regularly scheduled bimonthly board meeting, but a person close to the company confirmed that "a change in name of the company" is expected to be considered, as reported yesterday by The Washington Post.

When it was announced in January 2000, the takeover of Time Warner by AOL was pitched by the then-chief executives of both companies, Stephen M. Case and Gerald M. Levin, as likely to lead to pioneering ways of delivering Time Warner information and entertainment to AOL Internet customers, producing billions of dollars in new profits and gaining Time Warner the strong Net presence it struggled for years to achieve.

But since the company reported a US record $98.9 billion net loss last year -- and became mired in multiple federal investigations of aggressive AOL accounting for advertising deals -- the AOL name has come to be seen as a millstone dragging down what remain generally strong and growing Time Warner movie, magazine, music, news, and cable television operations. The company's stock has fallen 66 percent since the merger closed in January 2001. Their reputations battered, Case and Levin have stepped down.

The AOL Net access service, which has lost more than 1 million US subscribers in the last year, now represents barely 20 percent of the company's revenues and 17 percent of its net income. Few "synergies" expected from delivering Time Warner content over AOL "pipes" have emerged. Nor has AOL been able to develop any major new service for Time Warner Cable high-speed modem subscribers to fend off its own losses of dial-up Net customers. Some investors and industry analysts have even proposed the company undo the merger and spin off AOL as a stand-alone company.

"It's so interesting how far we have come in three years," said Bruce Leichtman, a principal analyst with Leichtman Research Group in Durham, N.H., who follows the cable and entertainment industries. "It looked like the torch was being passed by Time Warner to a new generation of enterainment companies, but I think basically, the torch burned them."

Patti Reali, a media analyst with Gartner Dataquest, said, "It shows you what incredible salesmen the AOL people were" to get Time Warner to agree to sell the company for Internet bubble-inflated AOL stock.

Time Warner would be the latest of a handful of big US corporations that tried out new identities, only to go back to older, stronger brands. United Airlines parent UAL Corp., for example, renamed itself Allegis Corp. for 13 months in 1987 and 1988 before reverting to the UAL name after it sold off car-rental and hotel operations. Consolidated Foods Corp. in 1985 adopted the name of its best known subsidiary's product, Sara Lee pastries, for a homier identity.

And WorldCom Inc., the telecommunications giant tarred by an $11 billion accounting scandal and bankruptcy filing, is renaming itself MCI, the long-distance carrier and best-known brand among the more than 60 predecessor companies rolled up in WorldCom.

Paul A. Argenti, a professor of management and corporate communications at Dartmouth College's Tuck School of Business, who prepared a lengthy case study of the AOL Time Warner merger last year, said talk of dumping the AOL name shows how "the company didn't do the hard work of trying to think about what it was after the merger. It's just not a good move. It's like almost admitting failure, as far as I'm concerned, and saying, `We don't know what to do with the Internet side of the business.'

"I can't imagine that there are going to be a lot of people that will say this is good strategic thinking by [CEO] Dick Parsons and his leadership team," Argenti added.

But Marta Wohrle, a media analyst with Mercer Management Consulting in New York, said, "Ultimately, I think both sides win" if the name changes. "AOL is a consumer brand that has been complicated by the fact that it's now part of a corporate brand that means many different things," Wohrle said, adding that going back to Time Warner sends a message to Wall Street and shareholders that "they're not going to be hampered" by AOL's accounting headaches and subscriber losses.

Wohrle said she scoffs at predictions Time Warner will spin off the AOL unit, which has about 25 million subscribers in the United States and more than 6 million in Europe, noting that despite its big losses to broadband Net services, AOL remains a strong generator of cash flow.

While many Time Warner executives have been agitating to dump the AOL name, company executives have said the suggestion came from America Online unit chief executive Jonathan Miller. This summer, according to several news reports, Miller went to Parsons asking for the change -- although many skeptics consider that account face-saving "spin" for AOL executives who know Parsons has a strong interest in separating AOL from the parent media company's identity.

"Since the merger in early 2001, the three letters AOL have ceased to stand for the Internet and the promise it entails," Miller wrote to America Online employees this summer. "Instead [they] have become the shorthand for the world's largest media company. As AOL Time Warner became known as, for all intents and purposes, `AOL,' any controversy or criticism involving the corporate entity has actually hit our consumer brand."

"I believe it's time for us to get our brand back," Miller wrote.

Wall Street appeared to welcome the news. AOL Time Warner shares closed up 26 cents, or 1.6 percent, at $16.31 yesterday.

Peter J. Howe can be reached at howe@globe.com.

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