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In early 2000, many saw a promise in the AOL and Time Warner merger. However, both companies appear to have made their decision to marry in haste for AOL that was supposed to take the combined entity to new heights, is pulling down Time Warner.
Time Warner's merger with AOL(American Online Limited) looked perfect"a smart combination" of copyrighted content and distribution muscle. AOL had online skills, massive market share, distribution and growth. Time Warner had content, assets and revenues. Together AOL and Time Warner had or presumed that they had the potential to cross-exploit and cross-promote their assets to create a media behemoth. Time Warner agreed to the merger with the expectation that AOL would take it to even greater heights. But the expectations have been belied. With revenues of $8.7 bn comprising just 23% of the group's total in 2001, AOL has turned out instead to be just another distribution channelhandy to have but not revolutionary in itself. At the time of merger, AOL, however, was not just an addition of a new-media distribution channel to a vast group of old-media assets, but held a potential to bring about a redefinition of media itself. AOL was supposed to inject new-media dynamism into what was seen as lackluster old businessTV shows or music.
But the AOL division of the merged company resembles a vastly oversized anchor, slowing down the rest of the ship. The company's stock price has been on a downhill since the merger. No other entertainment giantViacom, Disney or News Corp.has seen its stock price crumble the way AOL Time Warner's has thanks to AOL. The saving grace for AOL shareholders, however, is that they now own Time Warner and as a result, their shares today are probably worth more than they would have been otherwise. AOL Time Warner lowered its outlook for the year 2002 as prolonged advertising slump continued to hammer revenues at AOL even as its other businesses improved. Strength at its traditional media businesses including Time Warner Cable and television networks such as HBO have helped offset AOL's weakness. The Time Warner side of the companymovies, cable networks, music and publishing businesseswould have been better off today if they never had merged with AOL.
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