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Will Time Warner scrap its digital media division?

The media giant's pending merger with America Online has quickly put its chief digital division on the spot.

Time Warner's pending merger with America Online has quickly put the media giant's chief digital division on the spot.

The official word is that Time Warner Digital Media is largely overseeing the transition with AOL, but sources within the company say the division's role has changed dramatically since it was first conceived last year. Now the future of the division, which once set out to revamp Time Warner's Internet efforts, is in question as executives from both companies begin putting together the pieces of the new company.

The changes underscore one of the many ripple effects of the AOL merger; the agreement appears to leave little room for a separate division to oversee Time Warner's Internet efforts once the deal closes. Recent changes in the division's role may signal the end of Time Warner's final attempt to salvage its Internet strategy after many false starts.

"Time Warner Digital Media is obviously under evaluation," said one source within Time Warner who requested anonymity.

The division was formed last year in an attempt to bring centralized focus to Time Warner's Internet plans, which have repeatedly come up short. The company's previous efforts with Pathfinder, Time Inc.'s beleaguered Web portal precursor, came to an end last year after a year of abysmal revenues, infighting among divisions, and executive departures.

Time Warner Digital Media's primary objective was to become an umbrella that would encompass the company's myriad Web sites, its Road Runner cable ISP service, and other digital media such as DVDs. The division also was responsible for guiding the creation of a series of Web content "hubs" that sewed together the company's properties under categories such as news, finance, entertainment, sports and lifestyle.

In June last year, Time Warner chief financial officer Richard Bressler was appointed to run the division. Many analysts and company observers viewed the move as an indication that Time Warner was getting serious about spinning off some of its Internet properties to the public market. This would have helped Time Warner create highly valued Internet currency that could be used to attract Web talent and to acquire other companies.

But now that Time Warner You've got Time Warneris on track to merge with AOL, growth of the division has frozen. In addition, the fate of Time Warner Digital Media as the centralized authority for Time Warner's Internet strategy is no longer in its hands.

"It's probably still needed as focal point within Time Warner," said David Simons, managing director of Digital Video Investments. "But clearly the role and relationship of what it does changes in light of AOL."

Perhaps the most telling indication of Time Warner Digital Media's reduced role is Entertaindom, the company's entertainment site. Once hyped by the division as the first of its Web hub initiatives, the original plans for the venture have taken a turn. As previously reported, management of the site has shifted back to Warner Bros., and the possibility of an IPO for the unit has all but faded.

Handing over control of Time Warner Digital Media's first Internet progeny is a clear sign of the changing tides, according to sources within Time Warner.

"The placement of Entertaindom from Time Warner Digital Media back to Warner Bros. is the result of the potential dissolution of Time Warner Digital Media," one source said.

But Time Warner maintains that the division is alive and well.

"(Time Warner Digital Media) is working with divisions within Time Warner to develop vertical areas of interest that will be valuable content for the AOL distribution network," said Ed Adler, a Time Warner spokesman.

Adler added that the division's role as Time Warner's voice of authority on the Internet "will be more decentralized going forward."

Nevertheless, Time Warner Digital Media still has its hands in numerous areas, according to Adler. It is primarily working on the company's integration with AOL. Bressler is serving on an integration committee with Time Warner president Richard Parsons, AOL president Bob Pittman and AOL co-chairman Ken Novack.

The division also is managing Time Warner to shutter Pathfindera fund that has invested in companies such as Internet directory provider LookSmart, comparison shopping site DealTime and teen site Bolt.com, among others. And it is working with other Time Warner companies such as CNN and Time Inc. to further develop their Web efforts.

Although the division's role seems solid now, its future after the merger is unresolved. According to Digital Video Investments' Simons, the division could serve as an important buffer zone between AOL's and Time Warner's Web efforts.

The media giant has in the past suffered from infighting among its properties, many of which have their own ideas about how best to capitalize on the Web. Keeping Time Warner Digital Media may help the company soften potential conflicts once AOL takes the helm.

"It's a thing with AOL directing the marketing of Time Warner content," Simons said. "But with AOL getting involved in content, that's where it's going to get sticky between AOL and the Time Warner factions."