AOL - TimeWarner

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Overview

The Merger of AOL and Time Warner gathered under

one roof, businesses in film, music, cable television

networks, Distributions, Publishing and The Internet.

How they got there..? However, tells 2 different stories

altogether.


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History of

AOL and Time Warner


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Was well known as Media Stalwart.

Warner Bros1923.

Main Business is film production

Followed by music production and cable television operator business

in the 60s

Time Inc.1922.

Main business is magazine publishing Followed by cable television in late 70s by acquiring American

televesion and communication company.

Time and Warner Merger1990

Subsidiaries like HBO, Cartoon Network Studios, DC Comics, CNN andmany more.


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SWOT Analysis of TW

Strengths Super hit in making Silent films e.g. casablanca in 1942.

Considerable dominance in media markets.

Weaknesses

Threats Old Competitors like Disney & Viacom growing rapidly

New competitors like Napsters were evolving.

Oppurtunities

Faster Growing Markets.


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Also known as Digital Age Darling.

Established as Quantum Computer Services Inc.1985.

Renamed it to American Online after Steve Case became the

CEO1991.

1993 - 2000 : Success

More than 29 million Subscribers.


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SWOT Analysis of AOL

Strengths Large no. of Subscribers. Most valuable business in world by Market Capitalization.

Simplified access to users.

Weaknesses Lack of infrastructure.

Opportunities Growing Internet Sector. Faster data transfer speeds.

Threats Growth of substitutes Rise of broadband


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AOL Time Warner

Announced on January 10, 2000.

Largest Deal in the History.

Worth $183 billion. The Merger aimed to

Create the worlds first fully integrated media and

communication company for the internet century in an all

stock combination valued at $350 Billion.


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Reasons for Merger

Each lacked assets crucial for competing in the internet age.

Complementary Strengths.

Increased competition for core business. Benefit from having access to the digital era


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Problems before the Merger

No Togetherness in TW when compared to AOL.

In TW, Employees concentrated on own Business Line

rather than the performance of the company as a whole. Generational Gap between AOL and TWs Employees.

Strained Relations between the Cos.

Organizational Differences.


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The Merger

Robert W. Pittman, co-Chief Operating Operator of AOL Time Warner.

Meetings held very often with all divisional chiefs.

Online Employee benefits Processing. Open Discussions.


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Success

AOL Magazines got 100,000 new subscribers a month.

Warner Bros. Super Hit The Perfect Storm got a

Promotional Boost on AOL. Moreover, For Selling Subscriptions AOL Software was

embedded in Warner Music CDs.


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Post Merger


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Success

Boost in revenue 12% to $40 billion and EBITDA Cash Flow 30%to $11 Billion.

AOL Magazines got 100,000 new subscribers a month.

Warner Bros. Super Hit The Perfect Storm got a PromotionalBoost on AOL.

Moreover, For Selling Subscriptions AOL Software was embeddedin Warner Music CDs.

Analysts said AOL TW are not immune but are in a better positionthan others.

Mermigas also said When you have the #1 position in so manydifferent areas, there are a lot more levers you can pull from arevenue perspective.


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SWOT Analysis

ofAOL TimeWarner


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SWOT Analysis

Strengths

AOL Brand Name Customer Base

TW media and entertainment experience

TW Cable Infrastructure

Weaknesses

Clash of Culture.

Management failed to execute its strategy

Lack of Motivation


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SWOT ANALYSIS

Opportunities Second phase of internet usage (rich media content, music

download, personalized portals, social media). Marketing TW content available to AOL premium customer.

Leveraging TW cable to provide broadband access to AOLcustomers.

Threats Local phone companies having first mover advantage in delivering

broadband.

Competition from amazon, eBay, Google and yahoo.


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Future Plans

Extension of networks beyond the Personal Computers.

Taking on the rival Viacom Inc.s MTV Franchise.


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The Divorce


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The Split

In 2000, AOL and Time Warnermerged under the name AOL

Time Warner. The merger was not fruitful and on May 28,

2009, Time Warner announced that it would spin offAOL into

a separate public company. The spinoff occurred on

December 9, 2009,ending the eight-year relationship betweenthe two companies.
http://en.wikipedia.org/wiki/Time_Warnerhttp://en.wikipedia.org/wiki/Corporate_spin-offhttp://en.wikipedia.org/wiki/Corporate_spin-offhttp://en.wikipedia.org/wiki/Time_Warner


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Stock Market Reaction

Both Shares Dropped After the Announcement:

Investors bad past experience. Valuation problem due to different nature of businesses

between two companies.

Changing the investor base due to different nature of

investor culture between two companies. Expectation of TimeWarner Advertisement revenue decline.

Internet bubble effect of AOL.


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Unrealistic Valuation

It was just because AOL is an Internet based company and

TimeWaener is an blue ship company

AOL, modest revenue of $5 billion, and relatively small

workforce of 15,000 employees. Valuated to be $175 billion due

to the tech Asset bubble

Time Warner, far more profitable upon $27 billion in revenue,

and had nearly 70,000 employees. Valuated to be only $90billion

Even before the ink from the merger could dry, complications

began to surface. AOL was accused (rightly) of manipulating its

accounting records to favorably distort its financial picture.


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Business Model

Customers unwilling to pay add-on subscription fee.

Protecting IP on the internet was an issue.

AOL can not benefit from Time Warner cabling infrastructure

due to high required investment required to enabling data

send/receive methods.


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Management Commitment

AOL hijacking the management due to its share % although it

is the small operation entity.

Leading to TWs management team non cooperativebehavior.

Complete integration of the companies and the ability of both

companies to leverage the others strengths, this never

materialized.


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The Agency Problem

The fact that Steve Case sold a major part of his

AOL stock soon after the merger was announced inJanuary 2000 (when the price of the stock was high)

and made an estimated profit of $160 million evoked

suspicion and anger among shareholders.


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Failure in Implementing Strategy

AOL and Time Warner failed to implement their visions and

communicate them

Marketing Time Warner content through all channelspossible.

AOL to benefit from TW cabelling infrastructure.

Customer Base, cross selling.

AOL and Time Warner were not able to encourage a climatewithin the companies to initiate the synergies that were

proposed.


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Failure to Recognize Trends and Manage

Change

Voice over IP (VoIP).

Combined Music Platform.

High Personalized Web Services.


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Conclusion

The AOL Time Warner Merger clearly had immense

implications for media and communication Co.'s.

The Merger certainly showed a beginning of a trend towardsconvergence between Online and Offline Companies.

While both companies had assets coveted by the other, the

decision to merge was, under all the circumstances, flawed,

and AOL and Time Warner should have never carried through

with their plans.


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Where Do you think AOL

Time Warner Stand As oftoday in 2013?


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Documents

AOL - TimeWarner