AOL/Time Warner Merger Analysis

1. AOL/Time Warner Merger Analysis 8 November 2001 De La Cruz, Novacheck, Ponomarev, Wolfe

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

4. 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

5. 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

6. 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

7. Content vs. Distribution • Distribution wins: Disney is at a disadvantage. • Partnerships or acquisitions of distribution channels.

8. 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

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

11. Questions?