AOLTime Warner Merger Analysis

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AOL/Time Warner Merger Analysis

• 8 November 2001
• De La Cruz, Novacheck, Ponomarev, Wolfe

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Agenda

• Logic for the merger
• Challenges of the merger
• Merger is it a success?
• Content vs. Distribution
• Takeaways

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Logic for the merger

• Economies of scope convergence of media,
  entertainment, communications and Internet.
• Vertical integration advertising and content
  distribution.
• Market Power combining distribution and content

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Challenges of the merger

• Antitrust issues in US (FCC/FTC approval)
• Competitive ISPs
• Competitive Instant Messaging
• Interactive TV triggers
• Antitrust issues in Europe
• Music and technology monopoly

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Merger is it a success?

• Yes
• Platform for advertisers
• Internal advertising
• Customer synergies
• No
• Declining growth of revenues
• Unrelated business cannot cut costs
• Over-advertising

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Content vs. Distribution

• Distribution wins Disney is at a disadvantage.
• Partnerships or acquisitions of distribution
  channels.

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Content vs. Distribution

• Content wins
• Focus on core competency
• No need to make expensive internet acquisitions
• Disney is in a good position.
• Needs to improve current content
• Needs to purchase new content

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Takeaways

• Short Term
• Strengthen content
• Establish partnerships with distribution channels
  and complementors
• Long Term
• Explore potential acquisitions of distribution
  channels

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Questions?