AOL/Time Warner Merger Analysis

8 November 2001

De La Cruz, Novacheck, Ponomarev, Wolfe

Agenda

Logic for the merger Challenges of the merger Merger: is it a success? Content vs. Distribution Takeaways

Logic for the merger

Economies of scope: convergence of media, entertainment, communications and Internet.

Vertical integration: advertising and content distribution.

Market Power: combining distribution and content

Challenges of the merger

Antitrust issues in US (FCC/FTC approval): Competitive ISPs Competitive Instant Messaging Interactive TV “triggers”

Antitrust issues in Europe: Music and technology monopoly

Merger: is it a success?

Yes:Platform for advertisers Internal advertising Customer synergies

No:Declining growth of revenuesUnrelated business: cannot cut costsOver-advertising

Content vs. Distribution

Distribution wins: Disney is at a disadvantage.Partnerships or acquisitions of distribution

channels.

Content vs. Distribution

Content wins: Focus on core competencyNo need to make expensive internet

acquisitions Disney is in a good position.

Needs to improve current contentNeeds to purchase new content

Takeaways

Short TermStrengthen contentEstablish partnerships with distribution

channels and complementors

Long TermExplore potential acquisitions of distribution

channels

Questions?