After years of playing the part of Wall Street wallflower, America Online suddenly has become the belle of the investors’ ball.

Just six months ago AOL was all but left for dead, dogged by an ongoing accounting and advertising scandal that has put the company under the scrutiny of the Securities and Exchange Commission and the Department of Justice. But in recent weeks four corporate powerhouses-Microsoft, Comcast, Google and Yahoo!-have expressed interest in acquiring an ownership stake in the Time Warner-owned Internet company, according to published reports.

Analysts attribute the sudden change of heart to AOL’s summertime makeover, which opened up much of AOL’s services and content that previously had been available only to AOL subscribers. The shifts transformed AOL from a sleepy also-ran into one of the most popular places to receive broadband content.

Time Warner Chairman Richard Parsons, who has long resisted calls by some investors to dump AOL, drove the moves. The executive has maintained Time Warner should hold onto AOL, in large part because the unit is a cash cow with a brand name that if positioned correctly could capture much of the advertising dollars being directed to the Web.

Executives at Microsoft and Google appear to be after the power of AOL’s popularity online. Comcast executives have an interest in AOL’s ability to help the cable company cope with the so-called “cable bypass” trend, in which some content providers, such as CBSNews.com, are bypassing cable operators entirely by delivering video content via Web sites.

The queue of AOL suitors began forming two weeks ago with speculation that Microsoft was looking to combine its online service, MSN, with AOL. Last week several press reports said that Time Warner was holding talks with cable titan Comcast and search-engine darling Google about a possible investment of up to $5 billion for as much as a 50 percent stake in AOL.

Getting into bed with AOL could provide these companies immediate access to tens of millions of people who visit AOL sites-and to advertising revenue that skyrocketed 45 percent in the second quarter. A combined AOL/Google would reach about 107 million unique users monthly, while AOL/MSN would reach about 118 million unique users, according to Nielsen//NetRatings data. Either combination would easily surpass Yahoo!, which as the largest Web site on the Internet attracts more than 99 million unique users per month.

A link-up between AOL and Yahoo! would create an online behemoth far larger than either of the other two potential combinations-something that could attract federal regulators’ attention on antitrust grounds.

For its part, Comcast, the nation’s largest high-speed data provider, would benefit from a pact with AOL by being able to marry its broad distribution with AOL’s content. More important, though, the cable giant would be able to address the issue of cable bypass. If Comcast owned a stake in AOL, Comcast wouldn’t necessarily lose the customers entirely when they access video content through AOL.

What’s more, an AOL stake could provide Comcast opportunities to direct AOL content to Comcast’s broadband customers, creating opportunities for advertising revenue through searches, streaming video and perhaps even customer acquisition as AOL users in Comcast markets sign up for Comcast services as they become aware of the two companies’ relationship.

“Cable bypass is the single biggest threat to Comcast right now,” said Will Richmond, president of Broadband Directions, a Newton, Mass.-based consultancy. “It undermines the traditional packager role that Comcast plays.”

Mr. Richmond added that matters could get even tougher for cable operators such as Comcast as young people continue to move away from television as a main source of entertainment and consumers become accustomed to receiving their content at a time and in a format to their liking, not a programmer’s.

Until this summer AOL’s bread-and-butter dial-up subscription service was dwindling as customers abandoned it in favor of broadband offerings from cable and telephone companies. Investors and Wall Street analysts at nearly every turn asked Time Warner executives when they would sell AOL and remove a cloud that has loomed for years over the media giant.

Representatives of AOL, Comcast, Google and Microsoft all declined to comment on speculation about the possible sale of a stake in AOL.



AOL’s Image Improves

Three main factors have contributed to AOL’s improved image in the marketplace, Mr. Richmond said.

“First, they changed its walled-garden strategy and moved a lot of content onto the public Web, and a lot of that content is very attractive,” he said. “Second, they have one of the largest, most-trafficked sites on the Web, with 90 million unique visitors per month. And the third thing is they have decided to focus on new content initiatives that harness the power of broadband connectivity.”

That third step has involved developing streaming video content, ranging from clips of popular television shows to live concerts to music videos.

All this has added up to the increased interest from investors who see the potential for AOL to complement their businesses.

“Google hasn’t had a lot of content available, but it’s strong on search,” said Brian Haven, a research analyst at Forrester Research in Cambridge, Mass. “AOL is stronger on content, and they have relationships with the users. Comcast has a distribution network. All are complementary to each other and a logical fit because each one possesses a different component of the pie, and [a deal between AOL, Google and Comcast] would put together a relatively healthy, holistic solution.”

Yet even as a post-makeover AOL begins to see suitors line up, the ISP continues to face challenges. In the second quarter, the most recent for which data are available, AOL had 20.8 million subscribers, down 2.6 million from a year earlier.

Plus, it’s unclear whether such a deal could ever be completed. Richard Doherty, research director at Envisioneering, a Seaford, N.Y., consulting firm, pointed out that linking Time Warner and Comcast through an AOL relationship might be viewed by some as a violation of the Federal Communications Commission’s prohibition of cable operators reaching more than 30 percent of cable households. (Comcast and Time Warner’s cable unit are in the process of completing their acquisition of Adelphia Communications.)