We have a winner for Drama 2.0’s Understatement of the Year Award.

Having shelled out $850m (160x EBITDA) for a social network that did $20 million in revenues in 2007 knowing (ostensibly) that social networks were proving harder to monetize than hoped for and were facing uncertainty due to a struggling economy, Time Warner CEO Jeff Bewkes might aptly have been called insane or foolish (or both).

But he’s not. He now admits that AOL may have overpaid for Bebo.

At the D6 conference, he acknowledged that: “There’s some question of whether we paid too much for Bebo, and if it’s true, it’s not much to a company our size. I’m not real concerned about that.

At the Bernstein Strategic Decisions Conference, he also admitted that AOL “may have overpaid,” but as reported by PaidContent, defended the purchase:

“Bewkes… optimistically guessed that it would be easier for Bebo to monetize its traffic than it has been for other social nets, since much of the experience is based around rich media. Bewkes also reassured investors that Bebo would not be a standard deal for the company and that future acquisitions would be based on ‘quantitative returns’ as opposed to more strategic notions of gaining scale.”

In other words, Bewkes is quite wisely not even trying to come up with a sane justification for his $850m purchase and is hoping that shareholders give him a pass because he promises to make more sensible acquisitions in the future.

Of course, this is little consolation to shareholders who recently learned that Rupert Murdoch looked at the possibility of acquiring Bebo a year ago for a price around $100m – an amount significantly less than what AOL paid.

While it’s not clear if Murdoch was willing to pay $100m and Bebo wasn’t willing to sell or if Murdoch passed at $100m, it’s obvious that the man who purchased MySpace for $580m could have made a deal if he wanted to. Apparently he simply didn’t feel too compelled.

What’s done is done, however, and Time Warner and AOL will have to make the best of the Bebo acquisition.

Unfortunately, however, Bewkes’ optimism for Bebo in the hands of AOL looks increasingly unrealistic.

One of the biggest concerns is the very real risk of a management exodus.

Bebo’s founders, Michael and Xochi Birch, are already gone and Bebo’s Global VP of Music & Content, Angel Gambino, just resigned.

Despite the fact that music has always been a core focus of Bebo, Gambino indicated that music wasn’t as important to AOL:

“The priorities right now are integrating ICQ and AIM. They are focusing on communication tools and integrating them into the platform. Music is on the agenda but it’s not top on the agenda.”

In my opinion, this highlights just how poorly AOL often manages its acquisitions, choosing to focus on fulfilling its perceived needs by trying to fit acquisitions into them, instead of taking full advantage of the strengths of the assets it has acquired.

PaidContent points out another problem with the way AOL handles acquisitions:

“AOL has fallen into this habit of not locking any of the senior execs and founders of the companies it acquires. While there is some merit in making sure the execs don’t feel forced to worked at a place they may not end up liking, this hasn’t necessarily helped in retaining anyone. All of its acquisitions in the online ad space are prime examples of that talent bleed. Certainly the $850 million buy of Bebo should have prompted AOL lawyers to do some extra work.”

Clearly, it appears that the company’s costly acquisition habits are hard to kick.

But this is not simply about money. While $850m is a lot of money in absolute terms, AOL has it to lose.

What AOL can’t afford to lose is all confidence that it has what it takes to  compete in today’s market.

Already lamenting the fact that it never leveraged its position to dominate the social networking market and plagued by internal strife in its ever-important advertising business, AOL’s failure to turn its $850m acquisition of Bebo into a beacon of hope of its attempted turnaround could be a devastating blow to the notion that AOL can succeed once again.

As AOL’s acquisition signals its lack of confidence in the viability of large-scale organic growth, if Bebo and AOL don’t become more than the sum of their parts, one would have to question AOL’s capabilities and what its future entails.

From that perspective, the stakes for AOL are extremely high.

Unfortunately, I think Bebo was a risky bet and the incorrect bet.

Time will tell. For now, Jeff Bewkes can at least take solace in knowing that he’s already locked in Drama 2.0’s award for Understatement of the Year.

Best of all, it only cost him $850m. Talk about the bargain of the year.