AOL TIME WARNER, INC.

Asia

Ewa

Konrad

Michał

Presentation plan



The idea behind the merger



New Economy – America Online



Company history & Business model



Old Economy – Time Warner



Company history & Business model



The Merger



Antitrust concerns



Synergies & Possible benefits



Would the merger work?

Convergence of
the „old” & „new” economies?



10.01.2000 – merger announcement by America
Online (AOL) and Time Warner



11.01.2000 – merger completion



Stock price:



AOL: $73,75  $72,63



Time Warner: $64,75  $92



All-stock combination worth $350 billion



Strategic merger of equals to create the world’s
first fully integrated media and communications
company for the Internet Century

Promise of multiple synergies…
Would you believe it?



Creation of
unparalleled resources
of creative and
journalistic talent,
technology assets,
expertise and
management
experience



Management
differences



Culture clashes



AOL adding $110
billion in „old economy
assets, risking slower
growth

We’re kicking off the new Internet Century with
a unique company with unparalleled assets
and unprecedented ability to accelerate the
next Internet revolution.

– Steve Case, Chairman, AOL Time Warner

New Economy:
America Online, Inc.



1985 – Quantum Computer Services co-founded
by Steve Case



1989 – AOL rebranding



1996 – falling stock, low member retention rates

 Robert Pittman – the „white knight”



1999 – acquisition of 4 companies:



Netscape Communications Corporation (browser
software to replace Microsoft Internet Explorer)



MovieFone



2 Internet music companies (Spinner Networks &
Nullsoft)

Vision



Building a global medium as central to
people’s lives as the telephone or television
and even more valuable



Developing a mass market for interactive
services and content



Unique people & culture:



Fearless, always hungry, demanding the new



Intense work ethic, team effort, unification



Millionaires with modest salaries

Business Model



Flagship product – convenient and easy-to-use
package of online and interactive services



Doing the everyday things online instead of offline



More than 30 million users worldwide, daily volume of
194 million e-mails, 245 million stock quotes, 11 billion
Web URLs, 656 million instant messages



Accessible by high-speed or dial-up connections from
anywhere in the world



Various pricing plans

Hallmarks



Easy-to-use design



Intuitive navigation (keywords, Buddy List,

content organized in channels)



E-commerce: Partnerships with companies like

eBay („walled garden”, controlling customers),

Shopping Channel



Personalization (welcome screen with a personal

portfolio)



Interactive community (chat rooms, instant

messaging, bulletin boards, e-mail…)



AOL Anywhere (tv, telephone, wireless devices)

AOL in 2000



4 divisions:



Interactive Services Group



Interactive Properties Group



AOL International



Netscape Enterprise



$7.7 billion in consolidated revenues (that more than
doubled in two years)



More than 30 million subscribers worldwide



Main provider of Internet access in the United States



World’s leader in interactive services, Web brands,
Internet technologies and e-commerce services

Old Economy: Time Warner



Time Warner, Inc., founded as Time Inc. in
1922



Two mergers



1989 with Warner Communications



1996 with Turner Broadcasting Systems



World`s largest media and entertainment
company – grossed $27.3 billion in 1999

Company History



Merger with TBS added $17.5 billion in debt
to TW`s balance sheet



Goal of this merger: „(…)to create new
products for the digital age (…)”



Failed to produce envisioned synergies



TW – „series of sharp, thought, profit-
oriented companies”

Internet initiaitves



1994 – launch of Pathfinder website (free
email and search engine)



1997 – entertainment portal Go2 (never got
out of the planning stages)



1999 – second try – Entertaindom

Cable Networks



Included CNN, TBS, TNT, HBO, Cartoon
Network and 50% interest in Comedy Central



HBO – most successful premium television
network in US



2000 – 35.7 million subscribers of HBO

Cable Systems



Time Warner Cable – second largest cable
operator – 6.5 million subscribers



1999 – significant increases in advertising
revenue



Since 1990 upgrading cable systems – more
channels, HD TV, video on demand, high-
speed internet, cable telephony

Filmed Entertainment



Warner Bros. and New Line Cinema composed the
Filmed Entertainment Divison at Time Warner



Time Warner had approximately 20 % of US box
office market



Matrix earned $450 million



Planned joint ventures: Harry Potter
and The Lord of the Rings

Music



Warner Music Group – diversified, vertically
integrated music company



WMG operated in 68 countries



18% – WMG`s market share in US



Introduced distribution via internet

Publishing



Highest revenue of the 25 top media
companies



More than 60 magazines, 268 million readers



Produced most popular magazines – Time,
People, Sports Illustrated



2000 – Time Inc. acquired Times Mirror
Magazines publishing 26 magazines

The Merger



Shareholders structure

The Merger



New trend?



Antitrust concerns



United States



Excessive size



Complaints filed to FCC and FTC



Europe



Time Warner and EMI Group PLC merger

Synergies: The Possible Benefits

Level 1

• Revenue enhancement
• Cost savings

Level 2

• Cable, Publishing, Music, Film

Level 3

• Future possibilities

Level 1 – Tactical Synergies

Revenue enhancement synergies = $400 million

Cost savings synergies = $600 million

Total = $1 billion

on

Synergies: The Possible Benefits

Level 2 – Strategic Opportunities

Synergies: The Possible Benefits

Cable

Publishing

Music

Film

Level 3 – Transformational



Future benefits

Synergies: The Possible Benefits

Would the Merger Work ?

Would the Merger Work ?

How it really went ?



Short time for due diligence



Dotcom bubble -> AOL lower revenue from
advertising and commerce



Levin – Case conflict



Many expected synergies between AOL and
Time Warner never materialized



2003 – changed name back to Time Warner



2009 – AOL spin off from Time Warner

The end

Thank you for your attention

Asia
Ewa

Konrad

Michał