AOL - Time Warner A Closer Look at the Largest Media Merger in History.

Team Members Sakshi Kulkarni Suyash Kotian - 1287 Ankit Singh -

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.

Overview

History of AOL and Time Warner

Was well known as Media Stalwart. Warner Bros 1923. 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 Merger 1990 Subsidiaries like HBO, Cartoon Network Studios, DC Comics, CNN and many more.

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.

SWOT Analysis of TW

Also known as Digital Age Darling. Established as Quantum Computer Services Inc. 1985. Renamed it to American Online after Steve Case became the CEO 1991. 1993 - 2000 : Success More than 29 million Subscribers.

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

SWOT Analysis of AOL

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.

AOL Time Warner

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

Reasons for 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.

Problems before 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.

The Merger

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.

Success

Post Merger

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 Promotional Boost on AOL. Moreover, For Selling Subscriptions AOL Software was embedded in Warner Music CDs. Analysts said AOL TW are not immune but are in a better position than others. Mermigas also said When you have the #1 position in so many different areas, there are a lot more levers you can pull from a revenue perspective.

Success

SWOT Analysis of AOL TimeWarner

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

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 AOL customers.

Threats
Local phone companies having first mover advantage in delivering broadband. Competition from amazon, eBay, Google and yahoo.

SWOT ANALYSIS

Extension of networks beyond the Personal Computers. Taking on the rival Viacom Inc.s MTV Franchise.

Future Plans

The Divorce

In 2000, AOL and Time Warner merged under the name AOL Time Warner. The merger was not fruitful and on May 28, 2009, Time Warner announced that it would spin off AOL into a separate public company. The spinoff occurred on December 9, 2009, ending the eight-year relationship between the two companies.

The Split

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.

Stock Market Reaction

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 $90 billion 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.

Unrealistic Valuation

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.

Business Model

AOL hijacking the management due to its share % although it is the small operation entity. Leading to TWs management team non cooperative behavior. Complete integration of the companies and the ability of both companies to leverage the others strengths, this never materialized.

Management Commitment

The fact that Steve Case sold a major part of his AOL stock soon after the merger was announced in January 2000 (when the price of the stock was high) and made an estimated profit of $160 million evoked suspicion and anger among shareholders.

The Agency Problem

AOL and Time Warner failed to implement their visions and communicate them Marketing Time Warner content through all channels possible. AOL to benefit from TW cabelling infrastructure. Customer Base, cross selling. AOL and Time Warner were not able to encourage a climate within the companies to initiate the synergies that were proposed.

Failure in Implementing Strategy

Voice over IP (VoIP). Combined Music Platform. High Personalized Web Services.

Failure to Recognize Trends and Manage Change

The AOL Time Warner Merger clearly had immense implications for media and communication Co.'s. The Merger certainly showed a beginning of a trend towards convergence 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.

Conclusion

Where Do you think AOL Time Warner Stand As of today in 2013?