Google wants Time Warner to spin off AOL into its own public company or buy back Google's 5% let's-keep-Microsoft-out stake in the joint at fair market value, a demand it's justified in making by the terms of their three-year-old arrangement.

Hard as it is to believe, when the deal was cut AOL represented 9% of Google revenues.

AOL's online ad sales are now dropping like a lead weight and Google recently wrote off its billion-dollar AOL investment by $726 million, contributing to its very first quarterly profit decline.

Time Warner says it's reviewing its options, which aren't many. It can take AOL public, buy back Google's position, or try to drag things out endlessly.

Google's buying 5% of AOL gave it a valuation of $20 billion; writing it off devaluated it to ~$5.5 billion.

Time Warner claims the demand doesn't impact the separate AOL-Google search deal. However, it's assumed there's an opening there somewhere for Microsoft and Yahoo.