Time Warner’s (NYSE: TWX) AOL may be finally realizing that dial-up internet doesn’t have the brightest future. The popular internet service provider announced today that it purchased social media site Bebo.com for $850 million in an effort to boost its content network. The deal comes after a broad attempt to transform itself from an internet service provider to an advertising-driven content network. So, will this acquisition end up paying off?

Bebo is a social network that caters to the younger demographic with a focus on entertainment - a combination particularly attractive to advertisers. It is also the third largest social networking site, behind MySpace and Facebook by a large margin. However, Bebo is one of the largest social networks in Britain and is ranked number one in Ireland and New Zealand. This international exposure could be just the edge needed to create value.

Social media acquisitions are hard to value for investors. News Corporation’s (NYSE: NWS) purchase of MySpace was a record at the time and ended up paying off- the $580 million purchase is now worth an estimated $15 billion. However, Microsoft Corporation’s (NDAQ: MSFT) $240 million 1.6% stake in Facebook is still seen as overpaying. It turns out the Bebo also shopped itself to other competitors like CBS Corporation (NYSE: CBS), but many thought it was too expensive.

The acquisition fits well into AOL’s new content provider business model. The company has already launched 17 international websites over the last year and has plans to expand to 30 countries by the end of 2008. Bebo is not only the third largest social network in the U.S., but also has international exposure that could synergize well with AOL’s other holdings. Meanwhile, a string of ad-sales companies should enable the company to drive advertising dollars.

In the end, this is good news for Time Warner’s AOL division. It is possible that the company overpaid slightly, but perhaps the international exposure and prominence of Bebo made it worth the price. Regardless, it definitely marks a continued move away from the internet service provider business and towards the much more profitable content provider side of things. Combined, these factors make TWX a stock worth watching!

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