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The AOL-Time Warner Story – A Case of Need

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Introduction

The AOL-Time Warner Story - A Case of Need The AOL - Time Warner merger is the biggest to date and had worldwide implications. This paper will look at; the what, how and why behind the alliance, hereby referred to as a merger* even though it had the traits of a takeover. In the analysis we will be looking at the companies backgrounds thus understanding the need for the merger and the implications of such a large merger. Media companies distribute information content through its many 'channels' that are television and print. Occasionally new technology opens up new possibilities to distribute the information, the latest being the internet and before that cable. Time Warner (TW) took on a huge burden of debt during the 1990s upgrading it's cable networks, a smart move considering cable is perceived as the best way of piping broadband Internet services. The Internet competes with other media for people's attention; it is thus a threat and an opportunity that old media companies feel that they cannot ignore. Struggling to acquire customers, the Internet companies have discovered the importance of the real world. Promotion on a broadcast-television network can pull in new users, but it is pricey: establishing a new brand through television advertising costs �15m-30m in the first months. ...read more.

Middle

AOL is a portal but unlike Yahoo it operates on a subscriber basis and progressing this point further - it has 20 million of them. This goes some way at creating loyalty to the company. With TW, AOL will also have further advantage over the other portals quite simply because it will get noticed more. This is seen as so important that Internet companies' desperate need for promotion has been the basis of many old-and-new media alliances. Finally, the last point of 'video' TW has a substantial cable layout in the US. This is why AOL needed a large media company. The Economist also recognised another problem as being that of "economies of scale." Instead of the above two options AOL decided TW to be it's best suitor and as a result other big media companies must be concerned because there is only one AOL but there are many big media companies. Conclusion AOL and analysts began to recognise that it was a vulnerable enterprise. One that was dangerously dependent during the highly competitive time (that is now) when many other firms are offering free Internet access. This along with the AT&T threat of restricted cable access meant AOL needed to secure its future. ...read more.

Conclusion

AOL Properties Possibilities with Time Warner ISP AOL's online service, Netscape, Compuserve, MovieFone, Instant Messenger. Speedier Internet and interactive TV services using Time Warner's cable lines. Appendix item 1.1 Source: TIME magazine (Jan 2000) and The Economist (Feb 2000) Date Old Media Company New Media Company Details February 1999 USA Networks Lycos Merges with USA Networks subsidiary January 1999 News Corps Yahoo Cross-promotion January 1999 CBS AOL CBS to provide AOL news October 1998 Bertelsmann Barnesandnoble.com Bertelsmann buys 50% August 1998 USA Networks CitySearch Merges with USA Networks subsidiary June 1998 Walt Disney Infoseek Disney buys 43% of Infoseek June 1998 NBC Snap NBC buys 19% of Snap March 1997 CBS SportsLineUSA CBS buys 11% of SportsLine March1997 NBC Microsoft Joint Venture Appendix Item 1.2 Source: Various Company Reports/Economist -"Do they have anything in common?" - Feb 11th 1999 * "the term 'merger' is generally used to include both mutual agreements and acquisitions" - Economics Third Edition John Sloman - 8.2 Alternative Maximising Theories page 223. � The Economist - Do they have anything in common? - Feb 11th 1999 � "the voluntary union of two companies where they think they will do better by amalgamating." Economics 6th Edition David Begg - Industry policy and competition policy (pg305) � The Economist - "Do they have anything in common" - Feb 11th 1999 ?? ?? ?? ?? - 1 - ...read more.

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