AOL/Time Warner

Merger Analysis

8 November 2001

De La Cruz, Novacheck, Ponomarev, Wolfe

Agenda
 Logic for the merger
 Challenges of the merger
 Merger: is it a success?
 Content vs. Distribution
 Takeaways
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
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
Merger: is it a success?
 Yes:
 Platform for advertisers
 Internal advertising
 Customer synergies
 No:
 Declininggrowth of revenues
 Unrelated business: cannot cut costs
 Over-advertising
Content vs. Distribution
 Distribution wins: Disney is at a
disadvantage.
 Partnerships or acquisitions of distribution
channels.
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
Takeaways
 Short Term
 Strengthen content
 Establish partnerships with distribution
channels and complementors

 Long Term
 Explorepotential acquisitions of distribution
channels
Questions?