Essay, Research Paper: AOL Time Warner


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January 10, 2000, one of the largest, most powerful mergers was announced to the
world. Media giant Time Warner will join forces with the Internet superstar,
America on Line. The $183 billion dollar deal is the biggest in history. In the
recent past, there has been a wave of merger-mania, both in the United States
and in Europe. The merger of the Millennium is between America on Line and Time
Warner. The AOL Time Warner deal represents the joining of the Old Media with
the New Media. Not only is it a marriage of different approaches, the two CEO's
are very diverse individuals. The two companies are quite different, in nearly
every aspect. Some of the divisions of Time Warner have been around since the
1920's, while the youngster, AOL is a mere fifteen years old. The quick paced,
new up starting Internet companies never thought in a million years they would
ever need the old stand-by media organizations. "The Internet will
revolutionize everything", that is what their beliefs were. They were
fearless and believed themselves to be invincible, but things have changed. The
Internet has put the world only a mouse click away and it has changed the world.
The fact of the matter is the world of the Internet is extremely competitive and
in order to survive, you must invest huge sums into your marketing campaign, in
some cases up to seventy percent of a budget. The one thing that you can always
could on in this word is change, and there are going to be some major changes in
the realm of the high tech companies. The 'techies' are going to have to realize
their need for and have to learn how to form lasting relationships with the 'old
stand bys' in order to keep up with today's world. Time Warner is, for the most
part, a stable reliable organization. Time Warner's holdings include many
magazines, Time, Sports Illustrated, Money and Fortune just to name a few. Time
Warner also possesses Warner Brothers Studio, Warner Music (which recently
acquired EMI Music), Turner Classic Movies and an array of television stations.
A partial list of the broadcast networks includes CNN, TNT and HBO. Time Warner
is also the second largest cable television provider in the country. They have
also recently invested huge sums of money into their cable system to prepare it
for Roadrunner technologies. Roadrunner is an alternative to a standard Internet
service provider account (ISP). Roadrunner allows a user to send and receive as
much information as they desire and unprecedented speeds. Time Warner has played
around with their own Internet company, Pathfinder, with little success. The
world of the Internet is so cutting edge that unless a company pays very close
attention to it, chances for success are very low. This fact brings the
importance of a joining with an organization such as AOL into the light for Time
Warner. America on Line realizes the value of a company as established as Time
Warner. AOL is a New School organization. Steve Case and Bob Pittman also had
the foresight to see the impact of a joining of their company with Time Warner.
They could create the largest, most powerful service provider in history.
America on Line comes into the deal offering it's cutting-edge technologies and
the love of the American people. AOL has continually updated its system to make
using the Internet easy for anyone. They have removed the phobias that many
Americans have experienced. AOL has developed its very own vast world where you
can find nearly anything you could possibly want to. AOL's domain is perfectly
safe and so simple to navigate. At present, AOL has over 22 million subscribers.
Americans love AOL and all the features it has to offer. AOL has something
called Instant Messenger, which allows you to communicate instantaneously via
your computer with anyone, anywhere. They offer multiple e-mail accounts with
each dial up account. What this means is in a household, each member can have
their own e-mail address at no additional charge. AOL makes the Internet so easy
to navigate and unlimited access is offered for about $20.00 per month. Time
Warner needs AOL to move forward in today's world and AOL needs Time Warner's
vast customer base and diverse advertising options. AOL can slice their
advertising budget considerably by utilizing all of Time Warner's diverse
outlets. Just imagine, on every network, in every magazine and even at the
beginning of every film produced within the Time Warner family AOL is mentioned.
The exposure would be phenomenal! If you examine the other side, on every AOL
web page there is a mention of a Time Warner media division or a promo for a
newly released Warner Brothers film, just imagine the number of people who would
be exposed to it. The numbers are staggering. AOL is also very interested in
Time Warner's cable company holdings. The quality of what you see on your
computer is dictated by something called bandwidth. A bandwidth is the amount of
information that can be sent and received by your computer. A large bandwidth
would allow you to watch a television show or a movie on your computer. Most
connections to the Internet are established via a standard telephone line. This
type of connection does not provide a large bandwidth. AOL has plans to develop
AOL TV in the future and in order to make that vision a reality; they need to be
able to offer a larger bandwidth to their existing customers at a reasonable
price. The merger with Time Warner is certainly a step in the right direction to
achieving this goal. At present, AOL's 'walled garden' for all their subscribers
is very small bandwidth friendly, but as the company has always done in the
past, it will continue for bigger and better for its customers. Steven Case of
AOL, the boyish entrepreneur has consistently beaten the odds with his ability
for seeing a world-altering vision and not letting go until he has made it
happen. His forward thinking concerning the merger with Time Warner has been
compared to the gutsy moves of Alfred Sloan at General Motors back in the 20's.
Sloan outdistanced himself from the competition by constructing an automobile
"for every purpose and every purse." He left the competitors in the
dust by gaining control of more of the automobile market than anyone else. Case
is a forward thinker and has the drive and ambition to make practically anything
work if he wants it bad enough, and he wants the merger with Time Warner to be a
success. A second merger that happened in the month of January was between
pharmaceutical giants Glaxo Wellcome and SmithKline. This merger has been in the
works for nearly two years and has finally become a reality. The joining of
these two companies will create the largest drug company in the world. The
conglomerate Glaxo Wellcome SmithKline will have the opportunity to discover
more new drugs than anyone else, having a research and development budget in
excess of four million dollars and a sales and marketing team of over forty
thousand to sell the drugs. The only other pharmaceutical company that can
compare in size to Glaxo Wellcome SmithKline is the giant Merck and Co, with
yearly sales around 20 billion. Merck and Co will see its patents on a few key
products expire in the next couple of years. Although CEO Gilmartin remains true
to his stance that Merck needs no one, he did add that the company may be forced
to "rethink its position." The pharmaceutical industry has been
consolidating for years and appears that this trend will continue. There has
also been a sizable increase of mergers in Europe. In the year 1999, the value
of European mergers soared to 1.5 trillion dollars. This figure is nearly double
the $988 billion dollars recorded in 1998. The emergence of a common currency,
the Euro, has made the mergers much easier and more appealing. Once the expected
mergers within a country's boundaries have been exhausted, companies feel
comfortable crossing the border to another country. Paul Gibbs, of J.P. Morgan
stated that 60% of the action in Europe last year crossed national borders.
Experts expect this trend to continue in Europe. One French banker made the bold
prediction that one third of the top forty blue chips in France will either
gobble up, or be gobbled up by another company in the coming year. I believe
that the mergers and super mergers are going to continue in the future. I also
believe that these transactions are going to become necessary for businesses to
remain competitive and to not fall to the wayside. The joining of mega media
giants AOL and Time Warner is going to start a trend and I believe we will see
many more combinations of similar companies in the future. Companies will be
forced to play this merger game if they want to stay alive and remain
successful. This, I believe, is the trend for the new millennium and it is a
trend that will become a new way of doing business.

Sources: Businessweek Jan 24, 2000: "Welcome to the 21st Century"
"The Big Grab" "The Great Irony of AOL Time Warner" Jan 31,
2000 "Burying the Hatchet Buys a Lot of Drug Research" The Economist
"The Record Industry Takes Fright" "The Net Gets Real" Time
"The Big Deal" Wall Street Journal Assorted articles

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