All Things Digital

How much is AOL really worth?

Well, its own owner, Time Warner, has been trying to put a big, shiny $10 billion price tag on the much- beleaguered online unit for months now, as it dribbles out tiny leaks about hot-and-cold- running acquisition talks with both Yahoo (YHOO) and Microsoft (MSFT).

But after yesterday’s less-than-impressive results for AOL, which dragged down the crowing Time Warner CEO Jeff Bewkes could deservedly do over his company’s “The Dark Knight” and “Sex and the City” film successes, can it even hope to get that much?

Of course, $10 billion is about half as much as AOL was valued in late 2005, when Google (GOOG) forked over $1 billion for five percent of the unit.

At the time, no one actually believed the $20 billion was a real figure, but that it was due more to Google’s incentive to overpay in order to clinch a renewal of its search deal with AOL and ward off Microsoft’s aggressive efforts to steal that business away.

But AOL’s weakening performance in a tough economy makes figuring out a sale of AOL to Yahoo–its most sensible partner–more difficult than ever.

Let’s do the math, shall we?

(This analysis was suggested to me by someone familiar with both companies and makes a lot of sense.)

Let’s begin by assuming that Time Warner (TWX) would want to trade AOL for a stake in a merged newco entity, and by using the $10 billion value the media giant seeks.

This, by the way, does not include the profitable Internet access business, which Time Warner officially announced yesterday it would cleave from the AOL ad and content business and sell separately for $2 to $3 billion.

Next calculation: At $20 a share, Yahoo is worth $27.6 billion at yesterday’s close.

So with a new valuation of $37.6 billion ($27.6 billion plus $10 billion), Time Warner would then own 26.5 percent of the company, which is jokingly dubbed Yahol.

Maybe it is just me, but I can’t see Yahoo agreeing to this. Or its big and mighty disgruntled investors, such as Capital Research Global Investors’ Gordon Crawford, either.

To appease him and other shareholders, Yahoo might first, say, sell off those much-touted Asian assets and deliver a wad of cash to shareholders.

This move would yield about $8 billion, leaving a $19.6 billion market cap for Yahoo. In a combo in that scenario, Time Warner would then own 33.7 percent of the remaining company.

And while Time Warner could throw in some other assets to add value, like video rights or content from its other properties, it’s still a leap to imagine Yahoo would trade away that much of itself for a merger that has a 50-50 chance of succeeding.

That’s because both Yahoo and AOL have been feeling the pain of the downturn in the ad market and are each particularly vulnerable.

Yahoo’s second-quarter earnings, announced a few weeks ago, were weak, which management blamed on the economy.

And yesterday, Time Warner did the same, noting the ad business at AOL had stalled.

Revenue fell 16 percent in the second quarter to $1.06 billion, largely due to a massive fall-off in its subscription business, resulting in a 36-percent drop in net income.

But online advertising revenue grew only two percent, which is–let’s just say it–depressing, largely because of a 14-percent decline in the more lucrative display business, versus its healthier but lower-margin third-party ad business.

In addition, AOL still has to figure out how to properly monetize its newly acquired Bebo unit, which it woefully overpaid for, in an even more difficult environment for social networks.

And while turning to Microsoft for a better deal might seem a good idea, the software giant is also unlikely to want to overpay in this market.

Nonetheless, Time Warner must sell AOL, which was abundantly clear yesterday, as it does not fit in with the rest of its businesses and its weakness is dragging down the stock.

Unfortunately, it could turn out to be a fire sale. Using the old AOL catchphrase, to describe the odds of getting a huge pile of dough for AOL: You’ve Got Fail.

We’re posting all the interviews from the sixth D: All Things Digital conference that took place in late May.

But–as many readers have requested–they will all be available in their entirety in this column.

Here’s Part 3 of 3 of an interview I did with Thomson Reuters CEO Tom Glocer.

(I posted one video part of the discussion with Glocer every day this week starting Monday and concluding today.)

Thomson Reuters was created by a merger in April that created one of the world’s biggest information companies, mostly aimed at businesses and professionals.

In this video, Glocer talks about how to avoid the fate of the music industry, the troubled economy, his favorite gadgets, new ways to deliver information on a variety of devices, and also takes questions from the audience about machine-trading and possible new acquisitions.

Earlier today, BoomTown broke the stunning-for-blogs news that ContentNext, owner of the popular online digital media news site paidContent, was being bought by the Guardian Media Group for about $30 million in an earn-out acquisition.

I have posted below a video interview with ContentNext’s founder Rafat Ali, who spoke about the deal. I caught up with him in his New York hotel this morning (by coincidence I flew into New York today on a redeye).

But the deal–which comes after the mid-May sale of Ars Technica to Condé Nast for a reported $25 million–begs the question of which tech blog might be next to be acquired.

And, after much noisy poking around today, BoomTown is giving the nod to one of the sector’s larger and splashier sites: TechCrunch.

Several sources told me TechCrunch has been in off-and-on talks recently with Time Warner’s AOL (TWX), which wants to pay from $20 and $30 million for the site.

I could not find out what price TechCrunch thinks is fair, although one might assume it is higher than that.

TechCrunch CEO Heather Harde told me via email that she had no comment. “My policy is not to comment on rumors of our business,” she wrote.

TechCrunch, which was founded in mid-2005 by Michael Arrington, is a group-edited blog that has grown large by focusing–”obsessively,” according to the site’s About page–on Web 2.0 start-ups, covering every jog and tittle of their life cycles.

Sources said the talks between TechCrunch and AOL have been ongoing for the past six to eight weeks, although the site has been in talks with several other large media companies interested in it in the past and these have not led to an acquisition.

AOL would probably be a good home for a site like TechCrunch, since it has a blog focus from its own Switched site and sites it bought, like Engadget.

AOL acquired that popular gadget site in 2005 in the $25 million acquisition of Weblogs, which was founded by entrepreneur Jason Calacanis.

Calacanis, by the way, runs an annual tech conference with TechCrunch, now called TechCrunch50.

Also, I have stayed in Calacanis’s house in the Brentwood (see post and video here), when I was interviewing a Disney exec onstage at a paidContent conference in Los Angeles recently.

Oh, yes, it’s a small tech blogging world after all.

But the money has suddenly become big for the sites involved in that universe too, although most still have relatively small businesses.

Nonetheless, tech bloggers have grown in number and influence, as sites–like this one–compete to break news and attract readers.

Such efforts take funding–despite the lower costs as compared with traditional media–and this probably means inevitable consolidation.

Before its acquisition by Guardian, for example, ContentNext had been raising several million dollars recently to fuel more expansion.

Other sites have also recently raised funds, such as GigaOm, Silicon Alley Insider and VentureBeat.

Most of them have also been talking about various roll-ups between and among one other. Sources told me that VentureBeat, for example, has spoken separately in the past to both paidContent and TechCrunch about joining forces.

VentureBeat’s Founder Matt Marshall would not comment on that, but did note that “size matters, so you have to do what you can to get the economics of scale.”

That includes adding on more sites and doing conferences, as VentureBeat has done (its new conference is called MobileBeat, for example, which will take place in Sunnyvale, Calif. on July 24.)

“Consolidation is what you are probably going to see,” predicted Marshall about the tech blogging arena.

Here’s ContentNext’s Ali talking about exactly that and more today:

Apparently, according to Yahoo, Microsoft is as clever and deceptive as the buff and gun-toting Angelina Jolie in the new film “Wanted.”

BoomTown will get to that later. But with Yahoo (YHOO) stock hovering close to $20 a share, Microsoft (MSFT) has certainly got to be thrilled that the sweetened search-ad deal it is currently preparing–including forking over about $10 billion for one-third of the company–is getting cheaper by the minute.

With Yahoo’s stock at a disturbing $20.96 right now–and headed lower, it seems–its market value is only $28.4 billion, a depressed number that has sent its investors into a tizzy.

As I wrote last week, it’s those investors who are pushing Yahoo’s board to consider accepting a new version of Microsoft’s search-ad proposal that it turned down in favor of one from Google (GOOG) recently.

Those same investors had urged Microsoft to make a sweeter offer, promising a more cooperative Yahoo, especially now that it faces an upcoming proxy fight with billionaire Carl Icahn at its Aug. 1 board meeting.

Microsoft has no interest in swallowing Yahoo whole–although the dropping price does make it kind of tasty.

But it has been working on a beefed-up search deal, with more revenue guarantees on search ads and a higher price for search assets it would buy outright.

The centerpiece of the offer, of course, would be a deal to buy about one-third of Yahoo from existing shareholders at a premium to where it is trading now.

In its previous search-ad offer, Microsoft had offered to buy 16% of Yahoo for $8 billion at $35 a share.

Many large investors, disillusioned with the leadership of CEO Jerry Yang, have warned him and the board that they will vote with Icahn unless Yahoo engages with Microsoft and fast.

If Yahoo does change its mind and strike a sweeping search-ad deal with Microsoft, though, it would have to pay Google a $250 million fee for killing the deal.

Still, Yahoo took the opportunity today to ding Microsoft once again about its botched takeover battle, in a regulatory filing related to the proxy fight.

In the document, it called the software giant “unresponsive and inconsistent,” and noted “the record casts doubt on whether Microsoft was ever committed to a whole company acquisition.”

(See Yahoo’s slide on the issue below–click to make it larger)

Ooooh, it almost sounds like Yahoo is saying Microsoft carefully planned this intricate scheme to get Yahoo into this prone and disastrous position.

It’s almost as complicated as the plot of the thriller “Wanted”–BoomTown recommendation: Two thumbs up!–in which an office drone played by James McAvoy is whipped into deadly-assassin shape by a leather-clad Angelina Jolie and also badly tricked by her.

Yahoo’s leadership only wishes they had Angelina to kick them around.

Unfortunately for shareholders everywhere, they seem to be doing a very good job of it all by themselves.

As an added plus, here’s the “Wanted” trailer:

The rumors have been a-flyin’ recently about the reported talks between LinkedIn and News Corp.

Billing itself as the “professional” social network, the serious cousin to the party-hearty twins of MySpace and Facebook, the LinkedIn service is squarely aimed at those with a task in mind from networking to recruiting to career advancement.

In many ways, it is trying to be a business classified service with online presence and connection elements woven in. LinkedIn execs, in fact, throw around the term, “productivity tool,” much in the same way Facebook likes to talk about the joys of “SuperPoking” (by the way, not so joyful to adults).

With 16 million users from all sorts of sectors and spread out globally, LinkedIn getting a look-see by News Corp. makes a lot of sense. It just bought Dow Jones (owner of this site) and its flagship business newspaper The Wall Street Journal, and owns many newspapers, all of which need an online answer to the diminishing print employment-classified business.

In any case, I talked to newly installed LinkedIn CEO Dan Nye recently (before the recent rumors) about the company:

(I still am having problems with the Brightcove player, so I uploaded the video to YouTube.)

Read more »

Another day, another scoop we try to serve up honestly on BoomTown!

Yesterday, we broke the first news of the acquisition of Zimbra by Yahoo, after we had the first scoop last week of Yahoo’s purchase of BuzzTracker.

Those Yahoo dealmakers are certainly busy these days and we will continue to watch them oh-so-carefully.

Until then, here’s more info on Zimbrafest:

First, the $350 million deal between Yahoo and the open-source email and calendaring provider has been a long time coming, much earlier than just the summer time frame Yahoo’s Brad Garlinghouse has said in a number of interviews I have read on the Web.

While the Yahoo senior vice president also has said he was blown away by the company when it first came onto the scene several years ago, according to sources close to the deal team at Yahoo, Zimbra has been in its sights since well before former CEO Terry Semel left the company. Apparently, Yahoo’s always careful (some say glacial) decision-making caused the slower pace.

Nonetheless, the high price (well above the valuation of Zimbra in its last round of funding) was certainly a bold move for Yahoo, especially coming after the $300 million deal to buy behavorial ad network BlueLithium earlier this month.

Both deals are signs that Yahoo understands it has to double down in areas it dominates clearly, like in display advertising and, of course, mail. Yahoo’s consumer mail product is a powerful one and its recent iteration has gotten a lot of kudos (like those from Walt Mossberg here).

The deal takes Yahoo’s offerings up a notch in the innovation arena, where Zimbra has been doing a lot of cool user interface and other stuff, such as its nifty “Zimlet” widgets.

In addition, it also drops Yahoo right into the commercial space, where Google has been plowing, given Zimbra’s own inroads in the university, business and ISP markets.

I am sure there will be a lot to complain about going forward (the will-Yahoo-ruin-the-sassy-little-Zimbra seems to be the refrain in some posts on the Web). But let’s just say for now that this hefty buy might make a nice fit at Yahoo.

To explain why, here’s a lovely video we shot of Garlinghouse talking about the deal, while in the atrium of San Francisco’s Palace Hotel at the TechCrunch40 conference. He discusses the deal, as well as what he thinks is over- and under-hyped.

And because we hate to see him grimace when we do, we did not mention his (in)famous “Peanut Butter Manifesto” in the video, even though we were totally thinking about it. (Sorry, Brad!):