Editorial: AOL snared by synergy issues

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The scrutiny of AOL Time Warner for its cross-divisional accounting transactions highlights this fact: The promise of "synergy" and "cross-selling" by giant media companies (and by agency holding companies) is still hobbled by internal issues. In a corporate world where pay, perks and advancement are linked to generating sales and profits for your unit, how is "shared" business to be shared? To those whose fate is built on sales results, the details are what matter-and the enthusiastic architects of cross-selling have to respond.

Consider AOL's 2001 deal with Oxygen Media, the subject of recent scrutiny in The Wall Street Journal. In a complicated package, one AOL Time Warner unit, Time Warner Cable, sacrificed millions in likely revenue by reportedly agreeing to carry the Oxygen cable TV network without charging the launch fees usually collected from new networks. In return, Oxygen reportedly agreed to buy $100 million of advertising from various units of AOL, but chiefly at online unit America Online.

Though good business for parent AOL, Time Warner Cable execs were no doubt left wondering how they would be made whole for playing corporate good citizen and foregoing millions of "their" revenue. As more marketers entertain various cross-services and cross-media deals, the need for simple and transparent solutions to this internal issue of sharing and reporting sales among divisions becomes more pressing. In today's accounting climate, the apparent AOL answer-to compensate its cable unit by an extra intra-company transaction under which America Online "purchased" millions of ads for itself on Time Warner Cable-seems neither simple nor transparent.

This "new era" of cross-selling will never run smoothly until the sellers invent a corporate architecture that makes these deals a win-win for the units involved-without resort to artifice or suspiciously complicated accounting.

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