AOL Time Warner: A Merger Gone Wrong
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ICMR HOME | Case Studies Collection
Case Details:
Case Code : BSTR047
Case Length : 19 Pages
Period : 2000 - 2003
Organization : AOL Time Warner
Pub Date : 2003
Teaching Note :Not Available
Countries : USA
Industry : Media, Internet and Entertainment
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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.
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EXCERPTS Contd...
A Few Strategic Blunders
A major setback to the success of the merger was the bursting of the Internet bubble, which was expected to rule the media and entertainment industry in the 21st century. When the Internet bubble burst, there was a steep decline in subscriber growth for AOL, which led to a steep decline in its advertising revenues.
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At the same time, demand grew substantially for broadband services and AOL lost its subscribers to broadband networks. This decline in the subscriber base had a major impact on AOL's profits. Analysts felt that AOL failed to tap the broadband option in time. However, AOL said that the declining stock value did not give it time and opportunity to develop the technology. The top executives of TW and AOL, who engineered the merger, realized that very few synergies existed between online media and traditional media companies. At the time of the merger, Case and Levin expected to increase advertising revenues by persuading advertisers to pay for package deals that included the media of both the companies...
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The Empire Starts Crumbling
Due to continuing decline in revenues and fall in share prices (which further declined after the September 11 (2001) attacks (on WTC), Levin announced that the company would not be able to meet its pre-estimated earnings.
Boardroom clashes were also reported in late 2001 between Case and Levin. In December 2001, in a shocking development, Levin announced that he was retiring from the company and nominated Richard Parsons as his successor. Industry observers did not buy the 'personal reasons' cited by Levin as the cause for his departure. And the nomination of Parsons as CEO, instead of Pittman, came as a major surprise to many in the media. Commenting on the rationale underlying Levin's nomination of Parsons, Jordan Rohan, Analyst, SoundView Technology Group, said "Clearly the opportunities before AOL are becoming trickier to navigate every day. Parsons is known as a resolver of disputes, he is known for having the ability to get parts of the organization to work together, and it looks like that is the skill that is needed right now..."
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Will Things Get All Right?
In August 2002, Jonathan Miller (Miller), former executive, USA Networks, was appointed as the CEO. Following this, the company undertook a reorganization of the AOL division. Stating the objectives of the restructuring, Miller said, "AOL must maintain its leadership position among dial-up subscribers, enhance our broadband business and reinvigorate our relationship with marketers." Miller said that he wanted to reduce the number of hierarchical levels in the AOL division to ensure control of the division. As part of the restructuring, new divisions were created to develop new products, brands and technologies...
Exhibits
Exhibit I: Major Events at AOL
Exhibit II: Chronology of Events of Time Warner Group
Exhibit III: Financial Statements of AOL Time Warner(Segment-Wise)
Exhibit IV: Time Warner Inc. - Financial Highlights
Exhibit V: AOL - Financial Highlights
Exhibit VI: Share Price Movements Before the Merger
Exhibit VII: Share Price Movements After the Merger
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