AOL – Tim? Warn?r M?rg?r
In th? r?c?nt past, th?r? has b??n a wav? of m?rg?r-mania, both in th? Unit?d Stat?s and in ?urop?. Th? m?rg?r of th? Mill?nnium is b?tw??n Am?rica on Lin? and Tim? Warn?r. Th? AOL Tim? Warn?r d?al r?pr?s?nts th? joining of th? Old M?dia with th? N?w M?dia. Not only is it a marriag? of diff?r?nt approach?s, th? two C?O’s ar? v?ry div?rs? individuals. Th? two compani?s ar? quit? diff?r?nt, in n?arly ?v?ry asp?ct. Som? of th? divisions of Tim? Warn?r hav? b??n around sinc? th? 1920’s, whil? th? youngst?r, AOL is a m?r? fift??n y?ars old. Th? quick pac?d, n?w up starting Int?rn?t compani?s n?v?r thought in a million y?ars th?y would ?v?r n??d th? old stand-by m?dia organizations. “Th? Int?rn?t will r?volutioniz? ?v?rything”, that is what th?ir b?li?fs w?r?. Th?y w?r? f?arl?ss and b?li?v?d th?ms?lv?s to b? invincibl?, but things hav? chang?d. Th? Int?rn?t has put th? world only a mous? click away and it has chang?d th? world. Th? fact of th? matt?r is th? world of th? Int?rn?t is ?xtr?m?ly comp?titiv? and in ord?r to surviv?, you must inv?st hug? sums into your mark?ting campaign, in som? cas?s up to s?v?nty p?rc?nt of a budg?t. Th? on? thing that you can always could on in this word is chang?, and th?r? ar? going to b? som? major chang?s in th? r?alm of th? high t?ch compani?s. Th? ‘t?chi?s’ ar? going to hav? to r?aliz? th?ir n??d for and hav? to l?arn how to form lasting r?lationships with th? ‘old stand bys’ in ord?r to k??p up with today’s world.
Tim? Warn?r is, for th? most part, a stabl? r?liabl? organization. Tim? Warn?r’s holdings includ? many magazin?s, Tim?, Sports Illustrat?d, Mon?y and Fortun? just to nam? a f?w. Tim? Warn?r also poss?ss?s Warn?r Broth?rs Studio, Warn?r Music (which r?c?ntly acquir?d ?MI Music), Turn?r Classic Movi?s and an array of t?l?vision stations. A partial list of th? broadcast n?tworks includ?s CNN, TNT and HBO. Tim? Warn?r is also th? s?cond larg?st cabl? t?l?vision provid?r in th? country. Th?y hav? also r?c?ntly inv?st?d hug? sums of mon?y into th?ir cabl? syst?m to pr?par? it for Roadrunn?r t?chnologi?s. Roadrunn?r is an alt?rnativ? to a standard Int?rn?t s?rvic? provid?r account (ISP). Roadrunn?r allows a us?r to s?nd and r?c?iv? as much information as th?y d?sir? and unpr?c?d?nt?d sp??ds. Tim? Warn?r has play?d around with th?ir own Int?rn?t company, Pathfind?r, with littl? succ?ss. Th? world of th? Int?rn?t is so cutting ?dg? that unl?ss a company pays v?ry clos? att?ntion to it, chanc?s for succ?ss ar? v?ry low. This fact brings th? importanc? of a joining with an organization such as AOL into th? light for Tim? Warn?r. Am?rica on Lin? r?aliz?s th? valu? of a company as ?stablish?d as Tim? Warn?r.
AOL is a N?w School organization. St?v? Cas? and Bob Pittman also had th? for?sight to s?? th? impact of a joining of th?ir company with Tim? Warn?r. Th?y could cr?at? th? larg?st, most pow?rful s?rvic? provid?r in history. Am?rica on Lin? com?s into th? d?al off?ring it’s cutting-?dg? t?chnologi?s and th? lov? of th? Am?rican p?opl?. AOL has continually updat?d its syst?m to mak? using th? Int?rn?t ?asy for anyon?. Th?y hav? r?mov?d th? phobias that many Am?ricans hav? ?xp?ri?nc?d. AOL has d?v?lop?d its v?ry own vast world wh?r? you can find n?arly anything you could possibly want to. AOL’s domain is p?rf?ctly saf? and so simpl? to navigat?. At pr?s?nt, AOL has ov?r 22 million subscrib?rs. Am?ricans lov? AOL and all th? f?atur?s it has to off?r. AOL has som?thing call?d Instant M?ss?ng?r, which allows you to communicat? instantan?ously via your comput?r with anyon?, anywh?r?. Th?y off?r multipl? ?-mail accounts with ?ach dial up account. What this m?ans is in a hous?hold, ?ach m?mb?r can hav? th?ir own ?-mail addr?ss at no additional charg?. AOL mak?s th? Int?rn?t so ?asy to navigat? and unlimit?d acc?ss is off?r?d for about $20.00 p?r month.
Prior to the merger talks, AOL’s online customer base had been growing rapidly, but revenue from subscriptions was partially offset by a decline in the average revenue per subscriber. AOL had been under pressure from free Internet service providers and lacked guaranteed access to broadband cable, satellite, or DSL phone lines.
Before the merger talks, Time Warner’s stock price was dropping, it was difficult to attract a new talent, and it was almost operating like a holding company. Time Warner was afraid to be bypassed by the Internet’s future media growth.
Therefore, Time Warner’s CEO Gerald Levin was interested to meet with Steve Case, CEO of AOL, to discuss the proposed merger, which would create a fully integrated, Internet-powered media and communication company. As of January 2000, the merger was valued at $180 billion, 70% premium over TW’s price. In addition, Levin was offered to be CEO of the combined AOL TW. The merger was offering AOL broadband Internet connectivity from cable and Internet lines. AOL would gain the competitive advantage by owning the second-largest cable system in US through Time Warner. With the merger, Time Warner would enter the Internet business. The combined company would control two important distribution channels: AOL online service and TW cable, which would make selling different services to the wide range of subscribers. Offering discounted subscriptions to TW magazine or TW sponsored concerts could increase the use of the AOL services… In addition, as a combined firm, AOL TW would be in better position to compete with Microsoft, which was entering many of AOL Time Warner’s key businesses.
On January 2001, the time when the transaction was closed, Internet stock prices, including AOL’s, had plunged and the acquisition value was estimated to be $97 billion. One of the initiatives after the merger was to create more integrated work force. After the merger, as a part of the restructuring plans, TWE recorded a restructuring liability of approximately $210 million during the first quarter of 2001. Out of the restructuring cost, $55 million related to work force reductions and represented employee termination benefits. But due to the economic downturn, the initiative was put on hold.
The great goal of synergy turned out to be a “myth.” As one analyst put it “synergies can’t be manufactured…and are more a myth than reality. To the extent they exist, it is serendipity. ” Partly because of the Internet meltdown, recession and slow recovery, by most analyst accounts the merger has not been successful thus far. Since the merger AOL’s advertising revenue has declined sharply, and the number of subscribers declined, for the first time, in the first Quarter of 2002. AOL was also under investigation from the SEC and DOJ for accounting irregularities . The most telling evidence of the failure is that AOL Time Warner has recently decided to drop the AOL from its name, so the company is now just “Time Warner”.
One thing that a company must consider when facing another in multi-market competition is how that competition is going to affect the intensity of the rivalry between the two companies. One theory suggests that because of “mutual forbearance” the intensity of the rivalry will subside . This seems to have occurred between TW and Microsoft. After a recent agreement to settle the Netscape lawsuit and cooperate on many other matters, the two companies have seemingly retreated to their core strategies: Microsoft in technology and AOL TW in content.
Of course they are still battling for control of Internet user’s online presence. Both are, as one analyst put it, “determined to be the trusted party that Internet users rely on to store all kinds of information – such as addresses, bookmarks, passwords, and credit card numbers. Who ever can control this has a huge advantage. ”
Another issues that a company must face when battling a single company is multi-markets is how to allocate resources . I would suggest the following: All of the battles between AOL TW and Microsoft can be traced down to the competition of winning the customers of Internet access. So the physical connections that join to the customers must be secured first and foremost. AOL TW has established technically mature networks for dial-up. As to broadband connections, such as cable, DSL and satellite, the bandwidth from Time Warner cable network is not sufficient. AOL TW therefore has to cooperate with a variety of data transmission companies, including phone companies, cable companies and satellite service providers. AOL does have somewhere around 650,000 broadband customers, but they represent just over two percent of the company’s total U.S. subscriber base, by far the lowest percentage in the industry . The best approach may be to forge alliances with cable/broadband companies. But this is not easy, because those companies may not like outsiders sharing a piece of their own pie. Moreover, Microsoft is backing those companies financially to play tough with AOL TW. AOL TW also seems to be pursuing acquisitions of various cable companies, which according to some analysts should receive serious consideration . AOL TW CEO Andrew Parsons views cable as “a prized industry that will soon be ‘hitting its sweet spot’” and “will eventually…dominate the distribution of nearly all digital media to homes. ” On this front AOL TW is also in competition with huge companies such as Comcast who is now “firmly atop the broadband and cable industries” and described by some as the “new AOL.”
For AOL TW, one alternative to get around the hurdles of acquisition is the “Bring Your Own Access” program. Customers who use other companies for data transmission can still subscribe to AOL for plenty of services. Yet the profit margin is much lower in this way. AOL TW should still try to directly reach out to as many customers as possible, especially in light of the recent ruling that cable companies must open up their lines to more ISP’s .
One major marketing problem that results from having customers switch from dial-up to broadband connections is the lack of motivation in terms of applications. To get competitive advantage over Microsoft in broadband, AOL TW must first triumph in broadband applications. Being a media company, AOL TW should take full advantage of its music and video business and enhance the services of online music and movie-on-demand. Furthermore, AOL TW can start joint ventures with other music and movie distributors to enrich the choices for the customers.
Another promising application for broadband is home entertainment. The combination of video games, web surfing and online games are attracting more and more people and taking higher and higher bandwidth. Unfortunately, AOL TW is way behind Microsoft in the capabilities of developing home entertainment applications. The alliance with Sony is the first step toward this direction, yet it is not enough. AOL TW must allocate more resource to make its on-line entertainment services really attractive, or even addictive. Merger may be a good option here. With so many smaller companies developing games, and the market values of technical companies quite depressed, AOL TW can easily purchase some good home entertainment development firms.
The content for the dial-up customers is also important. Since AOL TW has price disadvantage in all of the categories of dial-up services, superior content is the last defense against MSN.
Tim? Warn?r n??ds AOL to mov? forward in today’s world and AOL n??ds Tim? Warn?r’s vast custom?r bas? and div?rs? adv?rtising options. AOL can slic? th?ir adv?rtising budg?t consid?rably by utilizing all of Tim? Warn?r’s div?rs? outl?ts. Just imagin?, on ?v?ry n?twork, in ?v?ry magazin? and ?v?n at th? b?ginning of ?v?ry film produc?d within th? Tim? Warn?r family AOL is m?ntion?d. Th? ?xposur? would b? ph?nom?nal! If you ?xamin? th? oth?r sid?, on ?v?ry AOL w?b pag? th?r? is a m?ntion of a Tim? Warn?r m?dia division or a promo for a n?wly r?l?as?d Warn?r Broth?rs film, just imagin? th? numb?r of p?opl? who would b? ?xpos?d to it. Th? numb?rs ar? stagg?ring. AOL is also v?ry int?r?st?d in Tim? Warn?r’s cabl? company holdings. Th? quality of what you s?? on your comput?r is dictat?d by som?thing call?d bandwidth. A bandwidth is th? amount of information that can b? s?nt and r?c?iv?d by your comput?r. A larg? bandwidth would allow you to watch a t?l?vision show or a movi? on your comput?r. Most conn?ctions to th? Int?rn?t ar? ?stablish?d via a standard t?l?phon? lin?. This typ? of conn?ction do?s not provid? a larg? bandwidth. AOL has plans to d?v?lop AOL TV in th? futur? and in ord?r to mak? that vision a r?ality; th?y n??d to b? abl? to off?r a larg?r bandwidth to th?ir ?xisting custom?rs at a r?asonabl? pric?.
Th? m?rg?r with Tim? Warn?r is c?rtainly a st?p in th? right dir?ction to achi?ving this goal. At pr?s?nt, AOL’s ‘wall?d gard?n’ for all th?ir subscrib?rs is v?ry small bandwidth fri?ndly, but as th? company has always don? in th? past, it will continu? for bigg?r and b?tt?r for its custom?rs. St?v?n Cas? of AOL, th? boyish ?ntr?pr?n?ur has consist?ntly b?at?n th? odds with his ability for s??ing a world-alt?ring vision and not l?tting go until h? has mad? it happ?n. His forward thinking conc?rning th? m?rg?r with Tim? Warn?r has b??n compar?d to th? gutsy mov?s of Alfr?d Sloan at G?n?ral Motors back in th? 20’s. Sloan outdistanc?d hims?lf from th? comp?tition by constructing an automobil? “for ?v?ry purpos? and ?v?ry purs?.” H? l?ft th? comp?titors in th? dust by gaining control of mor? of th? automobil? mark?t than anyon? ?ls?. Cas? is a forward think?r and has th? driv? and ambition to mak? practically anything work if h? wants it bad ?nough, and h? wants th? m?rg?r with Tim? Warn?r to b? a succ?ss.
I b?li?v? that th? m?rg?rs and sup?r m?rg?rs ar? going to continu? in th? futur?. I also b?li?v? that th?s? transactions ar? going to b?com? n?c?ssary for busin?ss?s to r?main comp?titiv? and to not fall to th? waysid?. Th? joining of m?ga m?dia giants AOL and Tim? Warn?r is going to start a tr?nd and I b?li?v? w? will s?? many mor? combinations of similar compani?s in th? futur?. Compani?s will b? forc?d to play this m?rg?r gam? if th?y want to stay aliv? and r?main succ?ssful. This, I b?li?v?, is th? tr?nd for th? n?w mill?nnium and it is a tr?nd that will b?com? a n?w way of doing busin?ss.
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