Why Would John Malone Want AOL?

Last week the wires were virtually blazing with the news that Liberty Media chairman John Malone was open to swapping his $1.8 billion equity interest in Time Warner Inc. for the media giant’s AOL dial-up access business.

Here are a couple of reasons why Malone would or wouldn’t want the asset.

• AOL access is a cash cow. According to Time Warner’s second quarter earnings report, AOL generated about $491 million in subscription revenue in the period. In 2007, subscription revenue was $2.8 billion.

• AOL has 8.1 million subscribers. It used to have 35 million (in 2002). The access business has been in steady decline. And that $2.8 billion in 2007 subscription revenue? It’s a 52% decline from the $5.8 billion generated in 2006.
• It just doesn’t fit. Janco Partners media analyst April Horace said that even if Liberty were willing to accept the AOL access business in a swap (she thinks the speculation is “totally overblown”), it has little in common with Liberty’s other businesses. “AOL could be of interest, but from a strategic standpoint, there is no fit there,” she said.
• Greg Maffei doesn’t want it. At the Wachovia Nantucket Equity Conference in June, the Liberty CEO said that AOL “would not be a strategic business for us. It probably best combines with another guy, either NetZero or EarthLink.”