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Innovation at AOL-Time Warner

Managing Innovation at AOL-Time Warner

With the announcement of the $54 billion write off (called a "loss" in non-accounting circles) achieved by the "dream merger" of America Online (AOL), and Time-Warner, in the first quarter of 2002, the fifth quarter of operation, management is admitting what everyone else in the investment analysis industry had been saying for some time -- that AOL paid Time-Warner far more than what the company was worth on the day of the merger. One respected analyst for the Washington Post said:

Wall Street recognized instantly that the transaction was absurdly overpriced. But in retrospect nobody had a clue about what was wrong with merging AOL and Time Warner. AOL's stock price fell instantly because, analysts said, investors were worried about slow growth of the old-media family of Time Inc. and Warner Bros. Now it is AOL's stumbling growth that has investors worried. And the only "management wizardry" that has taken place is staying alive (Knight, 2002, 1)

It was to be a merger of amazing synergies. AOL was seen as a cash cow, a tremendous growth vehicle that had been growing 10 to 12 percent a year since its founder, Steve Case, had stopped peddling experimental pizzas and started selling online connections. He had turned AOL into a super ISP with some 35 million customers who paid monthly fees of about $20 to gain access to the Internet. And by 1999, when the merger talks began, his company was looking for media partners to help take his company to the second generation Internet. That would happen if he combined Time Warner's vast collection of movies, music and TV shows with AOL's Internet connections would, merger advocates promised, create synergies that would make the new company an unmatched marketing machine.

Again, quoting from Knight who is focusing on the potential obituary:

Today, as Advertising Age pointed out last week, AOL Time Warner's biggest advertiser is AOL Time ...

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Innovation at AOL-Time Warner. (1969, December 31). In LotsofEssays.com. Retrieved 05:55, March 29, 2024, from https://www.lotsofessays.com/viewpaper/1706307.html