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Google's AOL stake walks the plank

A $726m loss? We'll take it

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Google recently stomached a $726m write-down thanks to its stake in the increasingly-irrelevant America Online. And now it looks like the search giant wants out of its AOL investment entirely.

Today, during his quarterly earnings call with reporters and analysts, Time Warner CEO John Martin said that Google recently asked if it could exercise the so-called "demand registration rights" for its 5 per cent stake in AOL.

In other words, Google has asked Time Warner to either buy back its three-year-old AOL stake or spin AOL off as a public company. "We are reviewing the request. But we have several options, including proceeding with the request, delaying a decision for some time or buying back Google’s stake at an appraised value, which would obviously be well below the original amount," Martin said, according to All Things Digital.

Considering the state of the economy - not to mention AOL's gradual descent into complete irrelevance - it's unlikely Time Warner would take the company public. We can only assume the media giant will buy back Google's share - if that's what Google wants. Google paid $1bn for the five per cent stake back in 2003, and now the market value is down to about $274m.

As others have speculated, Google's Time Warner request may be its way of encouraging Time Warner to extend its search deal with AOL. Google currently provides both paid and un-paid search results on AOL.

But voices are also wondering whether Google is angling to update the deal so it can continue serving AOL search results even if the company is sold to a third party. There's been some talk, you may have noticed, about Yahoo! nabbing AOL.

Google did not immediately respond to a request for comment.

During Google's latest earnings call, CEO Eric Schmidt said that the company's AOL deal and its investment in WiMAX struggler Clearwire "made sense to us then and make sense to us now and continue to be a strategic part of our overall business philosophy."

But Schmidt likes to spin. Google may be happy with the $274m its AOL stake would bring today. It'll bring even less tomorrow.

In Q4, Time Warner says, AOL revenues dipped to $968m, a 23 per cent fall from the year before. Ad revenue fell 18 per cent, and subscription revenue fell 27 per cent. ®

The smart choice: opportunity from uncertainty

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