"It is the glue that holds the company together," he said of the America Online service. "It was a critical component of cash flow growth, and it is the hub around which all the spokes interconnect."
Two pending deals have the potential to have a significant impact on the company's finances. First, it will probably be forced to buy Bertelsmann's stake in AOL Europe. Shortly after striking the deal to buy Time Warner, AOL worked out a deal to disentangle itself from its venture with Bertelsmann, a big rival. That deal envisioned several scenerios, but the most likely is that Bertelsmann will exercise an option to sell its stake to AOL in January next year.
Henry Blodget, the outgoing Internet analyst for Merrill Lynch, estimates that the US$6.75 billion set in the agreement AOL will pay is three times the market value of the unit today. Moreover, if AOL pays with a combination of stock and debt, as Blodget expects, the deal will reduce AOL's earnings per share by 4 to 6 percent next year.
Case shrugs off that analysis, pointing out that Bertelsmann, its 49.5 percent partner, paid all the costs of expanding AOL Europe, which now has 5 million subscribers.
"Five or 10 years from now, people will be talking about what a good deal we got," he said.
More complicated is the range of possibilities related to the restructuring of AT&T, which is currently evaluating several bids to buy some or all of its huge cable system.
AOL has proposed combining its cable company and AT&T's into a vast system owned by the two companies and run by AOL. Even if that does not happen, AOL would very much like to buy back AT&T's 25 percent ownership stake in Time Warner Entertainment, a holding company for some of its cable and movie studio assets. Analysts say that AOL may have to pay US$9 billion or US$10 billion to AT&T for this stake.
Such a deal might well add even more debt to AOL's balance sheet, particularly because the company would probably try to avoid selling stock to pay for the deal when the market is so weak.
Dixon said these deals will hardly push AOL's debt to levels that it will not be able to handle.
Still, even the future has been hard for AOL this year. Its book-publishing unit just closed a highly touted effort to create a new imprint devoted to electronic books, a product that so far interests futurists more than readers. And the company has found little demand for an array of gadgets designed to put its interactive content on television screens and kitchen countertops.
Its biggest bet on the future -- selling high-speed versions of its online services through cable systems -- is only now being offered on its own cable systems, and it has yet to gain distribution on any of its rivals' systems.
Paul Noglows, an analyst with JP Morgan Chase, argues that it is hardly a problem that AOL's investments are not paying off immediately, because -- as with much technology -- they will grow rapidly once the market develops.
"AOL was always slower than anyone hoped," he said. "They are laying the ground work for things that will become very important."
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