aol - timewarner
TRANSCRIPT
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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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