AOL Time Warner
On 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.
Bibliography
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