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:  Declining growth 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  Explore potential acquisitions of distribution channels

Questions?