Warner has a history of four brothers who produced their film, which in 1923, they were able to launch their series on cartoons. Through their ambitions, they were able to acquire many labels on records. Their merging with Time, which was a publishing house, produced what is now called Time Warner.
Time Warner got hold of turner distribution system in 1996, which made it a powerful network company. Its competitiveness is therefore shown to have grown through acquisition strategies. The company congregated both the old and new media channels.
The reason as to why Time Warner wanted to merge with AOL were to get an effective method of distributing its content online instead of getting involved in creating its own channels. This therefore meant merging with an already existing company since creation of an internet branch would be costly, and would take the company’s time.
The company predicted that there would be synergy due to the combination of the two companies where it would be able to use the AOL’s clients, internet, and the online band to boost its contents and become more productive.
There was also a possibility that the combination would bring about premeditated advantages. The company also felt that its growth potential would increase because it would make use of the unexploited subscriber base for AOL and the e-platform. This way, the company would get new services and opportunities for revenue as well as the opportunities in the cross-market obtained.
Through the combination, Time Warner felt that its scale and scope would be increased, and grow more internationally. The company therefore wanted to combine its media contents with the strong internet in AOL to acquire distribution possibilities.
This would result into benefiting the customers since they would be at a position to get the company’s contents in the internet any time thereby increasing the revenue of the company.
AOL competitive position before the merger
AOL was founded in 1985 when it offered its services and content to customers through dial-up modems. It was the first online service provider that used proprietary software to be more competitive since it resulted in graphical user interface.
Anyone unfamiliar with the computers would get their services unlike other competitor service providers. Through its simple spontaneous interface and its marketing aggressiveness, the company grew very rapidly.
The growth was also propelled by several attainments by the company and expansion geographically. Aggressively, the company expanded in its online presence, and provided its clients with content that was original and interactive.
Before merging, the company had about 27 million subscribers. The company had grown in only eight years. It grew from subscriptions, e-commerce deals and advertising. It made sure that its customers understood its business model. As a media giant, the company strategically moved into an investment community.
The company had reasons as to why it wanted to merge with Time Warner. It felt that alone it would not get a piece of the internet future. The company wanted technology, and felt that the future generation of internet usage needed to have access to broadband.
With access to the broadband, the access to the internet would be faster, and the users would do more tasks online. The company therefore needed to improve its services such that its clients were more comfortable through the broadband.
Merging was very important to AOL Company since it would make the company increase its revenues through subscription, e- commerce, advertising and its content. The merging would be beneficial since there would be synergies in marketing, cross promotion and in the new technologies. The combination would also reduce the cost for launching.
Many people who heard about the merging of AOL and Time Warner were in a lot of fear. Even the companies themselves were in fear. For AOL, it wanted to change the internet to be able to access broadband. On the other hand, Time Warner thought that its networks needed a facelift, and needed internet for it to achieve its goal.
The synergies the company hoped to get through merging
It was only the vision about the synergy the combination could achieve that led the two companies to merge. Before the two companies came together, they had a clear picture of their synergies. AOL predicted that the merger would improve its market penetration, and provide interactive media to its users.
Through merging the companies saw the world class media, entertainment and the broadband systems that belonged to Time Warner combine with AOL’s internet permit, infrastructure and technology. These also could combine with the consumer online brands the cyber space community and the capabilities of AOL in e commerce.
The combination of the two companies would bring unparalleled resources of expertise, technology assets, journalistic talents that are creative as well as an experience in management. Through these resources, it was predicted that the companies would give their consumers an improved access to high quality content and interactive services.
The two companies predicted that since they were strong, merger could have benefited them a lot. Interactive medium would be developed quickly, and the general business would grow rapidly.
The new company that would result after merging was thought to distribute the interactive services through broadband and increase the subscription of the subscribers via cross marketing using the pre-eminent bands Time Warner had.
Since AOL was thought to be more experienced, Time Warner was sure to change its divisions, and make them digital through it. On the other hand, AOL was expecting that Time Warner would help it build the broadband for the future generation.
The combination of the companies would generate new strong and unique brands that the customers would effectively use. Together they would build develop wireless devises, phones and TVs. Through the contents of Time Warner, AOL’s clients would use its contents anytime despite of the location.
AOL believed that the synergies of the merger would reduce costs and increase opportunities. It saw revenue opportunities in advertisement, and growth opportunities were expected to be in the cross promotion that could exists after the merger.
It saw growth resulting from marketing of Time warmers content through its channels. Marketing was predicted to be very effective through different platform and distribution systems. Cost would be reduced as a result of shared functions of business.
The combination of contents from the two companies was thought to be the greatest idea since it could boost the operations of the two companies in a way that was too beneficial compared to when each company acted individually.
This was seen as a strategic advantage, which emerged from different brands, variety of content, strong infrastructure and capabilities in strong distribution. This way, the company predicted that if there was the merger, there would be increase value for the two companies compared to individual efforts.
Time Warner was happy about distributing its brand and contents via the internet AOL would provide. AOL would also use time Warner’s broadband to distribute its interactive services. The e- commerce by AOL would help Time Warner promote its music labels. Subscriber growth would be increased by the brands in Time Warner and the interactive services by AOL.
The numbers presented by the case
The merger was not successful because both companies entered into it in fear. The companies were not able to meet the predicted $90 per share because they did not operate well after the merger. Between the two companies, there has never been the development of an effective management strategy to enable the company progress positively.
Since the managers were not fully supported by the divisions in the new company, AOL’s internet technologies were greatly affected. The merging of the Time Warner and AOL was the largest merger that involved two big companies ever seen.
It was even difficult to determine the extent of synergy and growth rate the merger would bring. The company was expected to grow by 25% with a 5% terminal growth rate. Since the two companies were doing so well in the market, the predicted growth rate could have been achieved if the new company worked hard to realize the vision set before the merger.
It was however questionable whether AOL would continue to grow subscriptions revenues from advertising. It was also not clear if there was any synergy or one of the companies was indeed saving the other. The growth that the companies assumed in 2000 did not actually occur. The growth was actually realistic if it could have been estimated to be between 5-7%.
The former management of the two companies had hoped for a very big difference in the way the merger could have worked for the companies. However the expectations were not met partly because AOL was not a counterpart equal to Time Warner.
There was a mistake in over valuing AOL stocks at the start of the merger just because there was an internet bubble because investors believed in its potential. This gave AOL the same voting power and rights as the Time Warner.
The investors in AOL were very mad when there was the sale of stock and accused case of his greed to make profit. They also accused him of knowing the fate of the merger. Today, AOL is viewed as of less worth than Time Warner, and that it was paid too much for its shares during the time of merger.
On the other hand, Time Warner is receiving too little than it paid. Due to these factors, the stock price of the new company fell from about $90 in 2001 to $13 as per now. This has led the new company to change its name to Time Warner from AOL Time Warner and retained several of the Time Warner directors to manage it replacing many of the AOL board members.
Additionally, the new company failed because of failure to implement the companies’ vision and communicate them to the members of the company. The company did not even recognize the new trends it got into in the digital industry. The new company did not recognise the broadband internet or the telephony through internet, and company failed to build a business model for the new trend.
They also lost because even if they had a combined music platform, they did not communicate their idea very well, and lost it all to Apple.
The new company did not also recognise hoe important the highly personalised web services were and sold Myspace.com to Rupert Murdoch’s News Corp. the web service by the name Snapfish was meant to allow the users to store pictures online to publicize them but the company failed to see its importance. The new company, AOL Time Warner concentrated more on delivering serious news compared to the personalized content.
Though AOL was the largest internet service provider, they were late in offering broadband access to the users, and were overtaken by the local companies that dealt with phones. This led AOL to lose its subscribers thereby failing to promote AOL Time Warner content through the broadband.
This also decreased the income from advertising. Until today, the CEO’s of the companies at the time of merger view themselves as failures at that time. Since it was case’s idea for the merger, he still blames himself for the idea.
The biggest assumption that was made to affect the numbers was the assumption about the merger. Merger was given much expectation than it should really have. Each of the company saw some benefits that they could reap from the other company, and thought that the merger could lead to the synergy of their services and profits.
In reality, Time Warner did not benefit the way it had expected from AOL. However, AOL used Time Warner’s broadband cable network to expand its business in broadband (Hoopes 837–865).
Work Cited
Hoopes, David. Strategic Management. Dominguez Hills, California State University, 1999.