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Newhouse, AOL call it quits

Think of it as an $8 billion divorce, but the couple is sharing custody of the kids, the dog and the summer house. That's the resolution of the split between publishing magnates the Newhouse family and AOL Time Warner after a seven-year cable-system partnership. Rather than sell out to AOL for cash or stock, Advance Newhouse will grab 2.1 million subscribers worth $8 billion and take over operation.

The systems include those in central Florida, including Orlando, which had been a showcase cluster. And they account for one-third of the subscribers in the partnership known as Time Warner Entertainment/ Advance Newhouse.

With its subscriber base falling from 12.8 million to 10.7 million, AOL drops from second- to the third-largest multichannel system operator, behind No. 2 DirecTV and No. 1 AT&T Broadband on BROADCASTING & CABLE's Top 25 System Operators list. (AT&T will get even bigger when it combines with Comcast.)

Time Warner Cable Chairman Glenn Britt and Advanced Newhouse CEO Robert Miron denied any tension in the partnership. "All the other businesses we're in, we're operators," said Miron. "We want to operate this one again."

As called for in their partnership agreement, AOL divided the systems into three groups and let the Newhouses choose which one they wanted. They picked a group anchored by the Florida properties, a group that also includes systems in California and a few other states. AOL keeps the North Carolina and Upstate New York clusters.

Advance Newhouse receives the economic benefits only from its pool of systems, but its partnership with AOL stays together technically. That means Advance Newhouse gets to buy programming and equipment at AOL's bulk discount rates.

Media analyst Tom Wolzien sees the breakup as a blow to AOL and its hopes of retailing a broadband version of America Online through other operators. "If they can't negotiate a way to hold this partnership together, what does it say about negotiating new ones with cable operators?"