AOL A DRAG ON TIME/WARNER: The New York Daily News Online is reporting that AOL has been a significant drag on the performance of Time/Warner's stock price.

In one more stroke of bad news for the world's largest Internet and media empire, last week Lehman Bros. analyst Holly Becker shaved down her earnings estimates, hammering AOL Time Warner's already battered shares. The stock, which has underperformed peers like Viacom and Fox, closed Friday at $24.50, down 57% from its high of $56.60 last May.

Becker's concern is the same one that's plagued the media giant for months. Its AOL Internet division, once seen as the company's hot growth engine, just isn't generating high enough subscriber fees and ad dollars.

It's a stark turn of events for AOL Time Warner, which two years ago said it would lead the Internet revolution by combining the world's top online company with Time Warner's powerful old media assets, from magazine giant Time Inc., to cable TV titan CNN, to movie studio Warner Bros.

"There have been so many disappointments," said media investor Hal Vogel. "Their old media is underperforming and the new media is not moving ahead fast enough."

While in theory, (how does Matt Drudge type it out?) AOLTIMEWARNERTURNERBROADCASTINGCOMPUSERVE (and whatever else is in there) makes sense, when it was first announced, it sounded like one of those Beatrice-type companies that Michael Milken was so successful at busting up and getting more money for their original components than the combined enterprise was worth. Synergy doesn't always work, and it looks like this one is failing badly.

Now pundits are saying Time Warner shareholders would have been far better off if they hadn't agreed to sell to AOL. They're noting that, in hindsight, AOL chief Steve Case was the shrewdest guy at the podium back in January 2000 when he shook hands on the deal with Time Warner's Levin, just months before the Internet bust.

"Steve Case pulled off the ultimate in brinksmanship," said media investor Uri Landesman of Arlington Capital. "Where would AOL be trading now? It looks like he made a tremendous deal for AOL shareholders, and Levin made a poor deal for Time Warner."